Nifty 50 companies may log double-digit profit growth

Mumbai: The aggregate revenue and net profit of companies in the Nifty 50 are likely to have grown in double digits in the March quarter, albeit at lower profitability due to rising input costs, according to ETIG estimates. The growth will be led by sectors such as information technology (IT), banking and finance, and metals.

The sample's revenue is expected to grow 26.8% year-on-year - the fifth consecutive quarter of double-digit expansion. The topline had grown 14.8% in the year-ago quarter. Net profit is likely to grow 27.2% on top of a steep 169.8% jump in the previous year's March quarter when companies reported a stellar comeback amid the receding first wave of the pandemic.

Gautam Duggad, research head of institutional equities, Motilal Oswal Financial Services, expects earnings growth of 23% and 19% for the Nifty and the brokerage's coverage universe, respectively. "This will be led by banking and finance, oil and gas, metals, IT and utilities sectors while auto, cement, speciality chemicals, consumer and healthcare will drag the performance," he said

HDFC Securities research head Deepak Jasani said, "The overall performance will be disparate." Banks will report strong growth in net interest income, low provisioning and decent asset quality, while in the case of oil and gas sector, upstream companies will be benefitted by high realisations and oil marketing companies will show better refining margins and high inventory gains, he said. However, cost inflation and production issues will affect the performance of the auto, cement and FMCG sectors.

The aggregate operating margin of the Nifty 50 companies may shrink by over 100 basis points year-on-year to 20.3% in the March quarter amid higher raw material costs. "Construction materials, IT, auto, metals, and chemicals sectors could witness a fall in margins while capital goods, power, retail and telecom could report better margins," said Jasani.

Analysts expect performance to improve in the current fiscal year amid economic and geopolitical challenges. Duggad expects 19% Nifty earnings growth for FY23.

According to Jasani, high commodity and fuel costs will keep haunting consumers in the first half of FY23. "Wherever companies have pricing power, they may be able to pass on higher costs," he said, adding that sectors including IT, capital goods, defence equipment and telecom have scope for growth over FY23 while metals and commodity stocks may do well in the near term.

Automobiles
The volumes of passenger vehicles and CVs were better compared with two-wheelers during the quarter. Therefore, the earnings performance of the sector will show a wide divergence. Surging commodity prices may continue to dent operating margin, which on aggregate basis may decline by over 100 basis points year-on-year.

Banking
Expect strong, double-digit, year-on-year growth in the net profit of top banks given the recovery in credit offtake. The higher yields on government bonds may affect non-interest income during the quarter.

Capital Goods
Project execution is expected to improve sequentially but margins may remain under pressure due to higher commodity prices. The street will be closely watching whether L&T will be able to deliver on its guidance of stable margins. L&T's revenue growth is expected to be 9-13%, while operating profit may rise 15-20% in the March quarter.

Cement
All-India average cement prices rose 5.6% year-on-year to ₹369 per 50 kg bag in the March quarter. However, costlier raw material may limit the benefit of higher cement prices. Large companies are expected to report 9-12% revenue growth for the quarter while net profit may fall 1-15% due to higher input costs.

FMCG
FMCG firms will bear the marginal impact of Omicron on consumption and a significant impact of raw material inflation on profitability. Companies have responded with price increases, lower advertising spends and cost controls to protect margins.

IT
Topline momentum is likely to continue with an expected sequential growth of 1-4% in dollar-denominated revenue of top-tier IT companies. Margins may come under pressure given higher labour costs. Infosys and HCL Tech may guide for a double-digit topline growth in FY23.

Metals and mining
The fourth quarter will be a bumper one for non-ferrous companies such as Hindalco, Vedanta, Hindustan Zinc due to firm prices. Though ferrous companies will report higher volumes, profitability may suffer due to higher coking coal costs.

Pharmaceuticals
Pharma companies are likely to post a modest performance in the March quarter. Input cost escalation along with price erosion in the US may impact profitability. India and emerging markets may offer some relief. Management commentary on the impact of the Russia-Ukraine conflict and effects of the Chinese lockdown on the supplies of ingredients will be key factors to watch for.

Oil and Gas
High inventory gains due to a sharp rise in crude oil prices compared with the closing price level at the end of the December quarter is likely to offset losses from selling retail fuel. Superior crude realisation is expected to benefit the earnings of oil producers, including ONGC and Oil India.

Telecom
The sequential revenue growth of Reliance Jio, Bharti Airtel, and Vodafone Idea is expected at 6-10%, backed by 8-12% increase in average revenue per user (ARPU). Given the higher proportion of users on long-term recharge plans, Jio is likely to benefit less from tariff increases by telecom operators in the previous quarter.