Q3 earnings: India Inc headed for a forgettable quarter even on low base

Mumbai: The much-awaited corporate earnings recovery may continue to be elusive even in December quarter, as most analysts expect India Inc to post muted revenue growth on the back of tepid demand. That, in spite of Infosys’ impressive show in the season-opening earnings announcement.

Political disruptions due to the anti-CAA protests also hurt sales for a few companies. While corporate tax cuts, announced in September, would help prop up bottom lines for some companies, revenues will continue to tell a story of lackluster growth, analysts said.

“We forecast Q3FY20 to be another weak quarter on the demand front,” Edelweiss said in a January 7 note, adding that top line growth of its coverage universe is estimated to drop 1 per cent.

“Despite a low base, much improvement is unlikely. The moderation is likely to be broad-based, with almost all sectors facing a slowdown — be in domestic (auto, FMCG, industrials, etc.) or external (IT, auto). Banks are the only ones likely to post above 10% growth,” Edelweiss analysts added.

Others concurred with that view.

“Overall demand scenario remains muted, and various stimulus measures have failed to have any impact on demand so far. Q3 will also show the impact of CAA protests, which led to economic disruptions,” analysts at Prabhudas Lilladher (PL) said in a January 3 note.

“Tight liquidity, prolonged impact of demonetisation and GST remains a drag, although rising crop prices and good rabi sowing have revived hope of a rural demand revival towards the fag end of Q4 of FY20,” they said.

PL analysts raised concerns that the fiscal situation remains alarming with poor tax collections, and the brokerage said it would watch out for the Union Budget with a strong possibility of fiscal deficit moving beyond 4 per cent.

Motilal Oswal Financial Services (MOFSL) expects its coverage universe’s profit before tax (PBT) to grow 1 per cent and profit after tax (PAT) by 9 per cent on a year-on-year( YoY) basis in the third quarter of the financial year, led singularly by financials.

Auto is expected to rebound off a low base after six straight quarters of a profit decline, while consumer stocks will benefit from tax cuts and post a robust 17% profit growth, Motilal Oswal analysts said. Metals will be a big drag with 59 per cent/66 per cent PBT/PAT decline YoY, they added.

MOFSL universe’s revenue was likely to decline 3 per cent YoY (on the base of 21 per cent growth in 3QFY19) – the worst in 14 quarters and the second consecutive YoY decline, largely due to a correction in commodity prices, which is leading metals to post a YoY decline in top-line performance (-14 per cent) for the third consecutive quarter. Oil & gas is expected to post an 11 per cent YoY drop while the continued slowdown in automobiles is likely to cause revenues to slip 3 per cent YoY, marking the third consecutive quarter of a decline.

Analysts at Prabhudas Lilladher estimate some rebound in growth with sales expansion projected at 0.5 per cent (-3.5 per cent during 2Q) and PBT growth at 13 per cent (- 0.92 per cent during 2Q) driven by banks (excess provisions in base quarter), auto (low base), agri (benefits of monsoons) and cement (strong pricing).

Excluding BFSI (banking, financial services and insurance), sales and PBT are expected to grow only 0.1 per cent and 1.3 per cent, respectively.