India Inc to post double digit growth in profit in Q3

India Inc is likely to post 15-20 per cent growth in net profit in the third quarter, thanks to a low base year and a promising show from automobiles, capital goods, construction, metals, pharmaceuticals and sugar companies. The telecom sector, for the first time after several quarters of strong performance, is expected to show decline in net profit on the back of decline in revenue per phone. Refineries are also expected to post a decline in net profit on account of fall in gross refinery margins. However, oil marketing companies are expected to report losses due to lower refining margins and no contribution from oil bonds. The software companies are expected to show marginal growth in revenue and profit on the back of strong rupee, while fast moving consumer goods companies are expected to show double digit growth on demand and price hike. Q3 ESTIMATES Brokerage Q3 growth rate in % Sample Sales Net profit Citi 112.0 10.3 5.3 CLSA 78.0 15.2 8.0 Edelweiss Research 136.0 15.2 13.0 IDFC-SSKI 159.0 11.8 16.4 Kotak Securities NA 9.9 17.6 Morgan Stanley 102.0 11.0 13.0 Motilals Oswal 118.0 18.0 23.5 Prabhudas Lilladher 114.0 12.1 18.9 Religare 140.0 14.5 18.4 Average 296.0 13.8 17.0 Sales are expected to grow at an average of 14 per cent on the back of a strong show from automobiles, auto ancillaries, construction, capital goods, metals, refineries, metals and sugar. However, oil marketing companies, banks, cement and software companies are likely to post a single digit growth in sales. The third quarter operating margins are likely to improve over 250 basis points on better commodity prices, operating leverage and low base. Only real estate and telecom sectors are likely to see decline in margins on high base of realty firms and price war in case of telecom companies. Decline in real estate margins would be mostly due to the base effect, say analysts. The growth estimates for the second quarter are based on 295 companies previewed by equity analysts from Angel Broking, Citigroup, CLSA, Edelweiss Research, IDFC-SSKI, Morgan Stanley, Motilal Oswal Research, Prabhudas Lilladher and Religare. The sample size is big enough to show the trend in profits, as these companies account for 80 per cent of quarterly net profit of the corporate sector. The profit growth is expected to come from Bajaj Auto, Maruti Suzuki, Mahindra & Mahindra, Hindustan Zinc, Sterlite Industries, GAIL, Asian Paints, Aurobindo Pharma, Renuka Sugar and Lanco Infratech. These firms are expected to post net profit growth of over 100 per cent each. The companies expected to turn around in the third quarter are Ashok Leyland, Tata Motors, Bajaj Hindusthan and Ranbaxy Laboratories. The December quarter results are likely to mark a return to positive earnings growth in India, which will be here to stay for many years to come, indicates an analyst from Anand Rathi. During the quarter, select sectors, including auto, metals and refineries, are likely to report outsized growth while earnings decline will still be subdued in telecom and real estate. After four consecutive quarters of declining profits, a 20.8 per cent growth in profits is forecast for the Nifty companies. The energy sector would benefit from a ramp-up in D6 gas sales, start of oil sales from Rajasthan oilfields and higher net realisations from crude.