The upcoming earnings season is likely to see further deterioration in corporate profitability as weak revenue growth along with high interest rates would keep bottomlines depressed.
The upcoming earnings season is likely to see further deterioration in corporate profitability as weak revenue growth along with high interest rates would keep bottomlines depressed.
According to Crisil Research, India Inc’s revenue growth is likely to fall to near three-and-a-half-year lows in the January-March 2013 quarter due to waning demand growth.
Based on the analysis of the aggregate financial performance of 364 companies across 28 sectors (excludes banks and oil companies), the independent research firm says that revenue growth will decelerate to 6-7% during the quarter even as operating margins are likely to come in at around 18-19%.
Dhananjay Sinha, co-head of institutional research at Emkay Global Financial Services, believes the March quarter earnings may not be any different from third quarter earnings which were disappointing.
“Most of the leading indicators of economic growth do not suggest improvement in earnings with monthly sales figures for automobiles, cement and metal companies reflecting weak demand scenario. Further, banking sector data on credit-deposit growth and quality of assets, too, point to pain in the economy,” said Sinha.
Mukesh Agarwal, president at Crisil Research, said manufacturing and investment-linked sectors are likely to grow a tepid 4-5% in the fourth quarter due to domestic issues such as administrative delays, high cost of capital and persistent inflation. “Also consumption-led sectors are experiencing moderation in growth reflected in the slowdown in private final consumption expenditure rowth,” he said .
Sectors such as pharma, IT and FMCG are likely to report decent revenue growth of nearly 13-15%, but autos, capital goods and fertislisers are likely to report negative topline growth of nearly 10% each.
Experts said while operating margins are likely to remain stable on a sequential basis due to fall in key raw material prices, the bottom line may come weaker.
Higher interest costs as percentage of sales are likely to impact profitability, said Sinha. He expects downgrades to consensus earnings projections for fiscal 2014 that may bring down the earnings growth from 15% to around 11-12%.
@nitinpshri
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