The June quarter earnings season is predicted to be underwhelming because many companies are anticipated to report a sequential decline in profits. The majority of industries, from automobiles and banks to metals and construction supplies, have been negatively impacted by either raging inflation or rising interest rates, the weakening rupee, or high commodity prices.
Although the demand was reasonably stable and the services sector did experience a significant uptick in June, production and margins were negatively impacted by supply-side constraints and high raw material costs. Naturally, the sales and profit numbers will look very good in comparison to the weak June 2021 quarter, when the second wave of Covid-19 severely hurt business. The results for the September quarter would reflect the advantages of declining commodity prices.
Net profits are anticipated to decrease by 16 percent sequentially for the entire universe of stocks tracked by KIE, by 10 percent for the BSE 30 companies, and by 11 percent sequentially for the Nifty50.
Revenues for auto companies are anticipated to slightly decline from one quarter to the next, primarily as a result of a chip shortage that reduced PV production volumes and a decline in commercial vehicle volumes because of the seasonality effect.
The volumes of two-wheelers should increase as average consumption expenditures rise and two-wheeler volumes recover.
The operating profits, which are anticipated to decline sequentially, would have been negatively impacted by high commodity prices.
Despite the high inflation, most companies are expected to report reasonably good volumes despite the highly disparate consumer goods pack. For the majority of firms, value growth would be robust and should be in the double digits, particularly year over year. Despite price increases, gross margins would be under pressure, which would have an adverse effect on the profitability of the majority of stable and discretionary businesses.
Due to the harsh summer, consumer durable demand was relatively high in April and May but slightly decreased in June. The premium segment was relatively less affected than the mass segments, an analyst noted. “The price hikes were minimal and limited to a few products.”
The increase in the price of fuel, including thermal coal and pet coke, as well as higher freight costs, would have been detrimental to the cement industry. Consequently, despite higher realisations, it is anticipated that Ebitda per tonne will have decreased by 10 to 12 percent quarter over quarter.
Software companies’ margins are predicted to have shrunk sequentially — by anywhere between 100 and 400 basis points — as a result of rising retention costs, which are fueled by rising attrition as well as higher travel costs. For instance, TCS’s Q1FY23 Ebit margin dropped 190 basis points sequentially to 23.1 percent, marking a multi-year low. The increase in pay alone had a 150 bps effect.
Although the increase in loan growth should have resulted in a good increase in net interest income, the sharp treasury losses would reduce banks’ profits. Falling loan loss provisions would help bottom lines. Since average Brent prices surpassed $110 per barrel, an increase of $9 per barrel from March’s end, upstream oil and gas companies will report strong profit growth. However, due to under-recoveries in auto fuel and LPG, OMCs will probably report subpar numbers and might even post losses.
