India Inc's Q2 profit growth to slip: Goldman Sachs

It’s that time of year: quarterly results season. Investors will be waiting anxiously to see how companies have performed in the quarter ending September. Most analysts expect corporate revenues and earnings growth to show further signs of slowing down, given the sluggish state of the economy.

In a recent research report, Goldman Sachs said it expected growth in revenues to decelerate to 19 percent in the September-ending quarter because of a slowdown in domestic demand, from 25 percent the previous quarter. Net profit is also expected to expand by just 9 percent from 11 percent a quarter ago. Of the 14 sectors in their coverage, nine are expected to witness a year-on-year contraction in margins, led by the technology and automobile sectors.

Here are their comments on some key sectors:

• Automobiles: The sector continues to face moderation in demand and increase in commodity prices, which will cause a 1 percent fall in net profit in the September-ending quarter compared from a year ago. However, from the previous quarter, net profit is expected to be stronger due to seasonal gains and grow by 24 percent due to a sharp 33 percent jump in sales.

• Consumer staples: Revenues for companies in this sector are expected to increase because of price hikes undertaken by companies. This, coupled with an increase in volumes, is expected to help offset increases in input costs, which are likely to have risen towards the end of the quarter due to a sharp depreciation in the rupee.

• IT services: The technology sector is forecast to post 6.5 percent growth in revenues for the September quarter from the previous quarter, primarily because of strong growth by the large companies. Also better than expected results by Accenture and its positive guidance for 2012 provide further support for optimism.

• Oil and Gas: Goldman Sachs expects RIL’s margins to remain under pressure because of lower margins in the petrochem business, which could be partly offset by higher refining margins. While a one-time adjustment for royalty on the Rajasthan block is expected to have a positive impact on ONGC, it will have a negative impact on Cairn India’s finances.

• Real estate: The report expects revenues to be driven by increased execution of projects by companies. The brokerage also expects some positive steps on reducing debt.

• Metals: Lower realisations and higher coking coal prices are expected to affect margins of steel companies sequentially (on a quarter-on-quarter basis), says Goldman Sachs. Profits of base metals companies will also be hurt due to lower product prices and cost pressures.