India Inc Q3 earnings: Gradual recovery likely

By ZRG | Last Updated: Jan 11, 2013, 13:25 PM IST

Rohit Joshi/Ajay Vaishnav/ZRG

Infosys results due on January 11 will officially set off the corporate India’s earnings season for the third quarter of this fiscal (Q3FY13). While Q2 was disappointing and expectations from the third quarter earnings are muted, experts believe that gradual recovery is on the cards.

Experts are unanimous that the worst is over for India Inc. The sentiment has found backing by Crisil Research which states, “Margins to remain steady despite muted growth”. Based on an analysis of the aggregate financial performance of 346 companies across 28 sectors (excludes banks and oil companies), the rating agency expects operating margins to improve by 10 to 30 basis points in the December (Q3) quarter.

The advantage with Q3 is that it coincides with festive season and imparts optimism a feel good approach to the market. Paras Bothra, vice-president, equity research, Ashika Stock Broking Ltd, is in sync with Crisil.

“Although earnings expectations are muted yet it would be slightly better than the previous quarter (Q2). Q3 incorporated festival season which brings a feel good factor to the quarter under review. Furthermore, sentiments have improved due to various reforms undertaken by the government,” Bothra stressed.

Sudip Bandyopadhyay, MD and CEO at Destimoney Securities, believes that sluggishness may not last beyond Q3. “There are not great expectations from the earnings season this time. It would be more or less like the second quarter (Q2). However, bottom has already formed with regard to corporate earnings.”

Endorsing Bandyopadhyay’s view, Ashish Maheshwari, Director, Globe Capital Markets Ltd, said, “Numbers would be on the same lines as in Q2. Overall, Sensex earning is expected to grow in the range of 10-12 percent on yearly basis. Although the broad sentiment has improved yet things have not really changed much at ground levels.”

Zee Research Group (ZRG) has profiled several sectors which are expected to post good results. The list includes sectors like FMCG, Pharma, and Aviation. FMCG companies’ revenues are expected to grow on the back of price hike. Similarly, Aviation companies are supposed to gain at the expense of the Kingfisher Airlines.

On the other hand, performance from sectors like Capital Goods and Cement is expected to remain muted. While Capital goods sector could continue to remain weighed down by high interest costs and execution slippages, Cement sector could post subdued results due to sequential decline in cement prices across India.

Commenting on the earnings outlook going forward, Bothra at Ashika stock broking, asserted, “It’s for sure that India Inc has seen the worst with regards to corporate earnings. We are in a recovery phase and with the possibility of a reduction in interest rates in 2013 the outlook seems bright. Profitability of companies related to Infrastructure, Realty sector is expected to improve with the rate cut. Moreover, cases of earnings downgrade to reduce from here on.”

Reiterating the view, AK Prabhakar, senior vice-president, equity research, Anand Rathi Financial Services, averred, “During the last quarter, key sectors which had attracted downgrades were PSU banks, Industrials, Telecom. We expect a halt in the downgrades with a reversal expected over the next 2-3 quarters.”

Similarly, Maheshwari at Globe Capital Markets, said, “Going forward earnings downgrade is expected to reduce. Lowering of interest rate in 2013, more reforms from the government side make the outlook positive for India Inc. Hence, sectors like Banking, Infrastructure, and Commodity would benefit.”