Nifty 50 cos likely to see 30% jump in Q2 net profit

Mumbai: India’s 50 large and frequently traded companies are likely to show double-digit year-on-year growth in net profit for the September 2020 quarter even though the revenue growth may turn out to be modest. The profit growth will be largely due to the focus of companies on margin management through cost optimisation and the low base a year ago due to losses by a few companies.According to the ET Intelligence Group’s estimates, aggregate net profit of the Nifty 50 companies is likely to grow by 30.4 per cent compared with a drop of 8.1 per cent in the year-ago quarter. Revenue is expected to grow by a modest 1.4 per cent.“There is clear sequential improvement in almost all sectors as the demand improved post the unlock measures,” said Gautam Duggad, research head, Motilal Oswal Financial Services.Deepak Jasani, research head, HDFC Securities, pointed out that some of the macro indicators including e-way registrations, power generation, coal production and despatches, rail freight and auto sales have been showing revival over the past couple of months. “However, if this improvement is only due to pent-up demand and/or ahead of festive season, then one has to be careful,” he added, citing that the Covid-19 pandemic is yet to come under control.On the profitability front, the sample’s operating margin may expand by 310 basis points to 21 per cent from the year ago following efforts of companies to curtail costs. “Sectors where we are forecasting margin expansion on a year-on-year basis are information technology (IT), healthcare, cement and metals,” said Duggad.Analysts expect a gradual recovery in the corporate performance from the September quarter aided by rural revival and government’s push to restart the economy after a nationwide lockdown in April and May to curb the spread of the pandemic. “The fact that rainfall for the South West monsoon in 2020 was above the long-term average and food stocks at the end of September were about 10 per cent higher year on year means the spending power in the December quarter could be higher and there need not be too much worry about inflation,” said Jasani.According to Duggad, the management commentary on the demand ahead of festive season will hold the key for further earnings upgrades. “We expect a consistent and gradual recovery in the underlying economy, demand and corporate earnings,” he said, adding that the timing and quantum of another economic stimulus will also determine the pace of economic recovery.Sector ExpectationsAutomobilesThe dual benefit of the pent-up demand and inventory filling ahead of the festive season is likely to support the earnings of auto companies in the September quarter after they posted record low profit in the previous quarter. The personal mobility segment which includes passenger cars and two-wheelers recorded first quarterly growth in six quarters.Banking and financeTepid loan growth amid higher deposit growth is likely to affect the net interest margins of lenders. While the extent of non-performing assets may be lower due to the moratorium, banks may resort to raise Covid provisioning.CementImprovement in construction activities kept cement prices at a slightly higher level in the September 2020 quarter year on year. Revenue of large companies such as UltraTech, ACC, Ambuja and Shree Cement is expected to fall by 4-16 per cent while net profit may drop by 5-10 per cent year on year.EnergyThe stable gross marketing margins and recovery in the retail fuel sales may bring stability in the profit.FMCGFMCG firms are expected to post improved sales on the back of firm rural demand. The volumes are likely to pick up due to price discounts and increased advertising and promotion..IT SERVICESIT companies are expected to report revival in the September quarter helped by sustained deal momentum, reducing supply-side constraints and rising demand for digital and remote working solutions.PharmaceuticalsPharma companies are expected to maintain the growth momentum with companies such as Cipla and Dr Reddy’s gaining from the sale of drugs meant for Covid treatment.

from Economic Times https://ift.tt/2I4fYsJ