The first quarter of 2012-13 is expected to reflect an overall slowdown in the economy, with companies' sales and profit growth continuing to be under pressure.
Almost 23 per cent of the 341 firms covered by 14 brokerages are likely to be in the red or post a decline of over 20 per cent each in net profits. The operating margins on sales remain under pressure (down 100 basis points) as oil & gas and oil marketing companies (OMCs) are expected to report poor results.
For these companies, it is expected, growth in sales will be around 15 per cent and operating profits a modest eight per cent; net profits could decline or remain flat.
OMCs are seen as the main culprits here, as their estimated net loss of Rs 12,412 crore could drag the profits of the sample. However, even after excluding these firms, the profit growth could only be a paltry three per cent. The Sensex-30 companies could see sales growth of 14.6 per cent, but their profits may grow at a somewhat healthy rate of eight per cent.
A large part of the earnings decline is being led by a handful of big companies. Apart from huge net losses for oil marketing companies, steel giant Tata Steel, oil & gas major Reliance Industries and metal companies like Sterlite Industries, Hindalco and JSW Steel are expected to pull down the net profit in the quarter. If these companies were to be excluded from the sample, the earnings growth for the companies covered would increase to over 10 per cent.
The slower bottomline growth is also likely to be on account of higher mark-to-market (MTM) losses due to a depreciation in the value of the rupee against the US dollar. The net profit growth continues to remain weak, with only a few sectors expected to post a significant 15-20 per cent-plus year-on-year growth.
The sectors where earnings growth is expected to be strong include banking and finance, FMCG, software services and pharma. Auto ancillaries, automobiles and cement sectors could contribute to the profit growth.
The rupee fell from 50.88 to 55.64 during the quarter and that is seen as a major factor affecting margins for raw material importers. It is also likely to impact companies with foreign currency loans, which are expected to book MTM losses.
Some of the companies that could post forex losses include Bharti Airtel, Tata Power, JSW Steel, SAIL, Sesa Goa, Sterlite, Tata Steel, Ranbaxy, Cadila Healthcare, Renuka Sugars and OMCs. On the operational front, the rupee depreciation is likely to impact tech sector, which had seen profits in the earlier quarters, positively.
An analysis of trends over the past five quarters indicates that among key non-commodity sectors, sales growth has slowed down significantly for capital goods and telecom. The capital goods sector's sales growth, which had been a healthy 20 per cent in 2010-11, is expected to drop sharply to 12 per cent in the first quarter of this financial year. This moderation indicates a slower pace of order intake, particularly within the power segment.
The revenue growth of telecom firms is expected to be 13 per cent. But the good news is that the sector is expected to arrest sharp deceleration in profit seen in earlier quarters.