Q3: Revenue growth pace could be slower, margins under pressurehttps://indianexpress.com/article/business/economy/q3-revenue-growth-pace-could-be-slower-margins-under-pressure-5536739/

Q3: Revenue growth pace could be slower, margins under pressure

Aggregate sales will be propped up by better revenues of export-oriented businesses like IT and pharmaceuticals; the rupee weakened a little over 10 per cent y-o-y during the quarter.

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The base effect — Q3FY18 was a good quarter thanks to the demonetisation impact in Q3FY17 — will impact some sectors. However, with costs elevated and companies possessing little pricing power, margins are likely to be under pressure.

The October–December earnings season could turn out to be a forgettable one for India Inc. While revenues should grow in double digits, the pace could be substantially slower than seen in the last few quarters, coming in at around 12-13 per cent year-on-year. Aggregate sales will be propped up by better revenues of export-oriented businesses like IT and pharmaceuticals; the rupee weakened a little over 10 per cent y-o-y during the quarter.

The base effect — Q3FY18 was a good quarter thanks to the demonetisation impact in Q3FY17 — will impact some sectors. However, with costs elevated and companies possessing little pricing power, margins are likely to be under pressure. Kotak Institutional Equities (KIE) expects the net income for the universe of stocks that it tracks to remain flat in Q3FY19. The net income for the 50 companies in the Nifty-50 index is, however, tipped to fall 3 per cent y-o-y.

The profits of banks should see a rebound as should those of companies that make capital goods; both benefit from a base effect. However, the festive season — entirely in Q3 this time around — was one of the dullest in many years. Sales of automobiles in particular were very subdued following a rise in prices driven by changes in insurance norms and also higher interest rates on loans. The rise in revenues for auto firms is expected to be around 4-5 per cent y-o-y.

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Flat growth likely for consumer facing companies

Third quarter results of companies do not present a very optimistic picture if one were to look at their estimated net profits, according to analysts. While sectors like IT and airlines are expected to perform well, the overall net income for the 50 companies in the Nifty-50 index is, however, tipped to fall 3 per cent year-on-year. Stress in farm sector means consumer facing companies would be experiencing near flat growth in earnings and slowdown in sales momentum with as well.

Given the distress in the farm sector, it is possible consumer goods companies might see some slowdown in sales momentum; also, volumes of tractors sold in the December quarter was subdued.

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However, retailers are expected to have done fairly well during the festive season and airlines too should have benefitted from better seat occupancies since travel is typically high at this time of the year.

One sector which is expected to continue to report modest numbers is telecom, where both Bharti Airtel and Vodafone-Idea continue to suffer from Reliance Jio’s competitive tariffs.

Prices of some commodities remained elevated during the October-December period so companies in sectors such as petrochemicals and steel should have earned better realisations. Volumes for cement and steel companies would have been driven up by demand from the government-sponsored infrastructure sectors. —FE