India’s corporate sector is likely to report a slowdown in revenue growth and earnings for the July-September 2023 period (Q2FY24), according to earnings estimates by brokerages, after the country’s top listed companies posted higher than expected profits for the first quarter.
The combined net profit of Nifty50 companies, based on brokerage estimates, is expected to have grown by 19.6 per cent year-on-year (Y-o-Y) to Rs 1.75 trillion in Q2FY24 — a sharp deceleration from 37.6 per cent Y-o-Y growth in the combined earnings of index companies in the April-June 2023 period.
According to estimates, the combined earnings in the second quarter would be down 8.8 per cent on a quarter-on-quarter (Q-o-Q) basis and the lowest in the past three quarters.
Similarly, according to brokerages, these companies could have witnessed a further slowdown in their revenue growth in Q2.
The combined net sales (net interest income in the case of banking & non-banking lenders) of the Nifty50 companies are expected to have increased by 5.2 per cent Y-o-Y in Q2, slower than 7.8 per cent Y-o-Y growth in Q1FY24 and also the lowest in the past 11 quarters.
“We predict Nifty companies’ earnings are likely to grow 21 per cent Y-o-Y in Q2FY24.
"Ex-oil marketing companies (OMCs), Nifty earnings are likely to increase 15 per cent Y-o-Y for the quarter.
"Overall earnings growth is projected to be driven once again by domestic cyclicals, such as banking & finance (BFSI), automotive and oil & gas companies,” wrote analysts at Motilal Oswal Financial Services.
The estimated Y-o-Y growth corporate earnings in Q2FY24 appears to be overstated by brokerages because HDFC Bank’s numbers for Q1FY23 did not include the financials of the erstwhile Housing Development Finance Corporation (HDFC) that merged with the bank in July this year.
HDFC was part of the Nifty50 index before its amalgamation.
Q2FY24 would be the first quarter for which HDFC Bank reported financials would include HDFC’s numbers.
Business Standard’s analysis includes the standalone finances of HDFC for the past quarters when it was a separately listed company.
Adjusting for HDFC’s standalone numbers for Q1FY23, Y-o-Y growth in HDFC Bank net profit could be flat in Q2 versus 38 per cent YoY growth estimated by brokerages.
“We expect Q2FY24 net profit of the Nifty-50 index (companies) to increase 23 per cent Y-o-Y and remain flat on a Q-o-Q basis.
"Other than OMCs, we expect a Y-o-Y increase in the net income of automobile, banking, capital goods, commodity chemicals, construction material, and metals & mining sectors,” wrote analysts at Kotak Institutional Equities in their earnings report for Q2FY24.
Public-sector OMC (oil-marketing company) Bharat Petroleum Corporation (BPCL) is expected to be the single-biggest contributor, accounting for nearly 22 per cent of Y-o-Y growth in earnings in Q2FY24.
Brokerages expect BPCL to report a net profit of Rs 5,987 crore in Q2 of 2023-24 against a net loss of Rs 316 crore in the year-ago period.
It is likely to be followed by Tata Motors, which is expected to swing to a net profit of Rs 4,114 crore in Q2FY24 from a net loss of Rs 1,018 crore a year ago.
The automaker is expected to account for 18 per cent of incremental growth in index earnings for the second quarter.
Reliance Industries is predicted to be the third-biggest contributor and report 33.1 per cent Y-o-Y growth in its net profit, accounting for 15.8 per cent of incremental growth in index companies’ combined earnings in the second quarter.
Excluding these three, the combined net profit of index companies is estimated to have grown by 9.5 per cent Y-o-Y in Q2FY24.
On the other hand, ONGC, Coal India, Tata Steel, and UPL could be the biggest laggards and report a Y-o-Y decline in their earnings.
On the revenue side, automakers -- such as Tata Motors, Maruti Suzuki and Mahindra & Mahindra -- are expected to shine with high double-digit Y-o-Y growth in net sales.
In contrast, UPL, Hindalco, and ONGC are expected to be the biggest laggards with a Y-o-Y contraction in net sales in Q2FY24.
