Q4 Earnings: Expectations

India Inc. is set to kick off its March quarter earnings, with TCS commencing the ritual. In this article we will lay our expectations regarding the upcoming results season. In myopic terms, Corporate India is set to deliver spectacular results, with revenue jumping in the range of 20%-25%, and profits surging more than 30%. Low base effect will be the hero behind massive numbers, complimented by sharp demand revival, high government capex and significant cost reductions in the wake of pandemic.

EBITDA margin is also prognosticated to expand by c.100-500 bps, backed by sustained cost savings. Sector leaders and large players will lead the rally, which were far more resilient than mid corporates amongst the pandemic. Real estate and construction companies will post record numbers on the back of higher output prices and public expenditure. Auto and auto ancillary segment may also be a show stealer, owing to healthy wholesale volume and significant realisations, backed by implementation of BS VI norms. India witnessed stellar export volumes, which will result in growth of export oriented industries such as pharma, IT services, etc. However, all is not gold for India Inc., consumer discretionary segment can post muted results, due to heavy pandemic blow, which is yet to revive.

Let’s talk about Banking segment, which has now long been in the large rooms of Supreme Court and Indian Parliament. Banks may post high NPAs due to the latest apex court verdict to recognise long pending bad loans. Banks may also report reversal of interest income, which can hamper their overall net interest income. Nevertheless, recent economic turnaround may act as a cushion against bad loans, which has seen some recovery in the past few months. Overall, BFSI sector is forecasted to report good numbers, driven by handsome credit growth (thanks to rock bottom interest rates), stable net interest margin and seasonally strong fee income in the 4th quarter.

All said and done, Q4 numbers may be strong on an y-o-y basis, but sequential growth can be modest. It may not be flabbergasting to see some companies reporting headline growth of 100% this quarter. Nonetheless, they are incoherent. One should not focus on headline numbers for this quarter, rather the attention should be towards management commentary and outlook. Second Covid19 wave and regional lockdown, may put a short break on the steep economic recovery. Hence, earnings sustainability looks gloomy (at least for now).


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