What can you expect from sectors in June quarter earnings?

India Inc is expected to grow by 8% touching a two-year high in the first quarter of current fiscal (Q1FY16), says CRISIL report.

This growth is likely to be boosted by an upbeat in some sectors.

Majority of sectors are expected to record robust top-line growth.

Prasad Koparkar, Senior Director, CRISIL Research, “Urban domestic plays and some exportoriented sectors are expected to drive topline growth this time.

Now that, the companies will report their financial performance from July, here’s what you can expect from Indian sectors this quarter.

IT sector – Strong growth; but margin under pressure

Under IT sector, the large cap companies are expected to perform well in Q1FY16. However, the Brexit fear may roll down in the coming quarters.

Pankaj Kapoor and Abhishek Kumar of JM Financials on July 4, stated, that they expect a modest 2–4% organic USD revenue growth in 1QFY17 across the top-6 players (except a flat quarter for TECHM), helped by seasonal recovery in volume and a stable cross-currency.

Where revenue are expected to grow, the report claims margin to decline in QoQ (quarter-on-quarter) for most players impacted by seasonal factors (annual wage hike and/or visa costs), mild INR appreciation (c1% QoQ) and adjustments due to shift to IndAS(Indian accounting standard).

A steady 1QFY17 notwithstanding, an increased uncertainty on the medium-term growth outlook following ‘Brexit’ could weigh on sector valuations, in our view, added JM Financials

FMCG – Growth likely to be tepid

India's FMCG sector has been on a sluggish path for the few past quarters. Even as sales and operating profit grew, the sector faced a decline in its volume growth. 

Prasad Koparkar, Senior Director, CRISIL Research said, FMCGs, growth is likely to be unenthusiastic boosted by weak demand in the remote areas, from where half of the revenue comes.”

Varun Lohchab, Manish Poddar and Premal Kamdar of Religare Institutional Research, in a report dated July 4, said, “Our industry interactions suggest that rural demand is tepid and even in the event of a good monsoon season, growth would have a lagged impact, possibly reflecting only in FY18. As against street expectations, we do not build in any meaningful growth in volumes for FY17.”

Energy Sector – High gas consumption to boost

Given the visible improvement in volumes and margins, the energy sector growth is likely to rise in Q1FY17, according to Rohit Ahuja & Akshay Mane from Religare.

In May 2016, domestic gas consumption rose to 3.1mmscmd MoM (month-on-month)  to 137 mmscmd, driven by higher consumption from the fertilizer sector. LNG imports too continued to trend above 2mmtpa levels, as low LNG prices pushed up demand.

Religare report stated that an increase in LNG consumption is attached on availability of re-gas capacities. There are 15-20mmtpa re-gas capacities likely to be commissioned by FY18-FY19, which could offer (a) assured LNG supplies and (b) flexibility for many industrial users to import LNG from preferred suppliers.

Pharmaceuticals – Favorable US currency to support

The pharma sector is expected to see its sales and profit grow by 16% and 24% respectively, led by currency fluctuations, continuing business flow and strong product pipeline.

 According to Phillip Capitals, Pharma sector’s revenue is expected to grow by 16% led by strong US sales and recovery in ROW (rest of world) business.

Also EBITDA estimated to record 24% growth boosted by favourable currency moves and higher US sales, with margin expansions to be driven by exclusive product opportunities, says Phillip Capital.

With strong outlook of revenue and EBITDA, profit after tax (PAT) is expected to follow the sentiments, added reports.

Other Sectors:

 Ajay Srinivasan, Director, CRISIL Research says, “As for profitability, commercial vehicle and twowheeler makers, electricity generation companies and airlines are expected to do well on lower raw material costs.

Cement suppliers are likely to register 6-7% growth in volume, showcasing some benefits from pick up in government supported construction activity. As prices are down in most regions except in north and central India, could force revenue to be around just 1-2% in Q2FY17, as per CRISIL report.

However, Srinivasan sees EBITDA margin to grow by 70-80 bps points led by decline in power and fuel cost.

Sugar mills are also estimated to see their profits zoom after a 35-40% increase in domestic prices, adds Srinivasan.

For capital goods sector, lack of broad-based capex recovery continues to hurt leading to revenue’s to decline by 5%, says CRISIL report.

Interestingly, the capital goods industry is likely to see 150-200 bps improvement in margin due to increased localized sourcing and cost rationalization, says Srinivasan.

On the other hand, electricity generation companies, may see a moderate 6-8% growth with the commissioning of some new units and increase in plant load factor following a gradual pick-up in demand, as per CRISIL reports.

In regards to Tyre companies, CRISIL states that the industry may face ~250 bps margin deflation because realizations have slumped amid rising competition.