Performance anxiety grips India Inc

In the present high inflation, high interest rate scenario, it is tough to expect companies across sectors to maintain their profitability.

In the present high inflation, high interest rate scenario, it is tough to expect companies across sectors to maintain their profitability. Stock broking houses second this sentiment. Barring some sectors, advance estimates of performance of companies in the first quarter April-June of FY09 by brokerages signal that it won8217;t be smooth-sailing for most companies. But certainly better than the ongoing second quarter July-September.

Motilal Oswal projects that the net profit of companies across industries will decline by around 2.7 per cent in the April-June quarter. Leading the pack will be the realty sector which will see their PAT decline by 8.2 per cent followed by the pharma industry whose net profit will dip 4.6 per cent in the said quarter. The two sectors that might show positive earnings in the quarter would be retail and FMCG, according to the broking house.

According to India Infoline, reported aggregate earnings are likely to rise by just 11 per cent year-on-year YoY, much lower than revenue growth of 25 per cent YoY. EBIDTA earnings before interest, depreciation and taxation margins for non-financials will likely decline by 130 bps YoY, owing to a sharp rise in operating costs, especially those on fuel and feedstocks. 8220;The deceleration in EBIDTA growth, compounded by higher interest and depreciation costs, and lower non-operating income, will likely further drive down profit-after-tax margins. The sectors that will likely report YoY decline in earnings are auto, cement, non-ferrous metals and utilities. Steel sector would be a major exception with earnings growth likely to accelerate to 58 per cent, helped mainly by the 20-25 per cent YoY rise in price realization.

However, IT firms are likely to weather the global slowdown storm due to the fall in the rupee value against the dollar. Infosys Tech, which will kick off the earnings season on Friday, will give a clear indication about the prospects for IT ahead.

Sharekhan expects profitability of banks to see a decline in the April-June quarter. The year-to-date credit growth till June 27, 2008 stood at 25.2 per cent, better than the 23.7 per cent growth in the comparable period last year. However, the growth is expected to moderate to around 20 per cent because of the monetary measures implemented by the RBO, says Sharekhan. The pressure on margin is likely to keep the top-line growth capped for public sector banks, while private players should report a healthy growth in their top lines. In the pharma sector, the broking house expects companies to report a 30.9 per cent increase in their revenues for Q1 of FY2009.

Religare8217;s advance estimates say that revenues of companies would be stable at 28.8 per cent year-on-year, but EBIDTA margin may shrink 160 bps as input costs move up. Higher interest cost and lower other income would subdue profit growth at 17.2 per cent. Religare8217;s outlook for auto and auto ancillaries for the July-September quarter is cautious. In the realty sector too, Religare advises investors to be cautious as liquidity crunch and rising costs coupled with inability to meet sales target by the industry will affect profitability.