GST casts shadow on earnings in June quarter

Analysts at ratings agency pointed out revenue growth would be limited for consumption-driven sectors such as automobiles, airlines, FMCG and retail, though there could be some improvement after consecutive quarters of tepid growth post-demonetisation.

By: ENS Economic Bureau | Mumbai | Updated: July 10, 2017 1:14 am
GST, GST june, GST june earning, fmcg, goods and services tax, GST rollout, demonetisation, indian express, business news, economy The telecom sector is expected to fare poorly with revenues falling by about 10-15 per cent owing to the tariff war following the entry of Reliance Jio.

The June quarter earnings season is unlikely to be exciting, with earnings for several companies hurt ahead of the roll-out of the goods and services tax (GST) on July 1. In particular, key sectors such as FMCG, automobiles and pharmaceuticals were adversely impacted, especially in June, as they de-stocked and offloaded inventory at discounts. “We expect the net income of the BSE-30 Index to be flat year-on-year,” analysts at Kotak Institutional Equites wrote. If that isn’t bad enough, they expect the net income for their universe of stocks to fall eight per cent year-on-year.

Analysts at ratings agency pointed out revenue growth would be limited for consumption-driven sectors such as automobiles, airlines, FMCG and retail, though there could be some improvement after consecutive quarters of tepid growth post-demonetisation. “Panic among sellers and distributors due to the GST rollout from Q2FY18 is expected to limit revenue growth,” they noted. Analysts at Edelweiss forecast very slow revenue and profit increases for consumer goods, at just around 2-2.2 per cent y-o-y.

The telecom sector is expected to fare poorly with revenues falling by about 10-15 per cent owing to the tariff war following the entry of Reliance Jio. “The lower tariffs offered by Reliance Jio have driven the incumbents to come out with offers to retain customers with high data usage and this will put more pressure on data tariffs and realisations,” analysts opined.

The quarter has been a somewhat subdued one for metals producers too with prices coming down in June. “All the players are expected to see a moderation in Ebitda, both sequentially and year-on-year. Demand continues to remain lacklustre for non-alloys with a growth of 3-5.5 per cent in April-May,” analysts at I-Sec wrote.

Downstream energy companies are not expected to do too well since refining margins could be lower. Moreover, they could suffer adventitious losses due to the recent correction in crude oil prices.

While private sector banks could report fairly good numbers, loan growth for the banking sector is expected to be muted. However, with deposit costs remaining low, or even falling, margins should be stable. Credit costs could remain high, analysts believe.

With close to 500 companies reporting losses, the highest number in at least five quarters, the March quarter earnings season was a big disappointment. Save for a clutch of metals producers, which swung from loss to profit, most companies struggled to grow their top lines in a weak economy.

In an environment in which raw material prices rose, albeit moderately, cash flows were crimped. For a sample of 1,893 companies (excluding banks, financials, OMCs, metal producers and Reliance Industries), net profits fell nearly 15 per cent y-o-y in the three months to March with revenues rising at sub-5 per cent y-o-y.

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  1. P
    Parth Garg
    Jul 10, 2017 at 2:27 pm
    GST is a historic tax reform measure. The Lombargini is cheaper while clean packed food grains are costly.
    Reply
    1. A
      Arhaj
      Jul 10, 2017 at 9:49 am
      After getting two big blow demonitization nd GST, now it's ppl's time to ready for a biggest blow to the govt.
      Reply
      1. D
        Darpan
        Jul 10, 2017 at 6:04 pm
        Forget it. People are more concerned about Muslims taking over India than they are about their own finances or jobs. Everybody is caught in the Maya jaal of Political doublespeak. All the gains of the pas 70 years is going to be thrown away in these five years.
        Reply
      2. R
        rick patel
        Jul 10, 2017 at 3:19 am
        Until such time politicians are corrupt and people are communal nothing good will happen to India s economy..mentality needs to be changed to achieve success..first thing throw all your hatred in the bin and see the success coming to you..be happy and see people loving you.
        Reply