The coronavirus lockdown is expected to burn a large hole in corporate earnings during the January-March 2020 period (Q4FY20), despite it being effective only during the last few days of the quarter.
Top brokerages expect a 19 per cent year-on-year (YoY) fall in the combined net profit of India’s top 50 listed companies, while their combined net revenue may decline by 5.2 per cent in the fourth quarter. This will be the worst show by the index companies in at least 13 quarters.
Based on these estimates, corporate revenues will decline for a third consecutive quarter in March on a YoY basis — one of the worst shows by these companies in many years.
The index companies are likely to report a combined net profit of Rs 81,300 crore during the March 2020 quarter, as against around Rs 1 trillion during the March 2019 quarter and Rs 1.1 trillion during the December 2019 quarter. The combined net sales (net interest income in the case of lenders) are likely to decline to Rs 9.5 trillion during Q4FY20 from Rs 10 trillion a year ago and Rs 10.1 trillion during Q3FY20.
The analysis is based on the January-March 2020 earnings estimates and historical finances of the index companies, excluding Bajaj Finserv, by equity brokerages including Nomura, Kotak Institutional Equities, HDFC Securities, Emkay Global, Dolat Securities, Reliance Securities, Spark, Phillip Capital, and Sharekhan.
“We expect net profits for the Kotak Institutional Equity (KIE) coverage universe to decline 14 per cent YoY (down 36 per cent YoY excluding banks/finance) in Q4FY20 as economic activity weakened sharply in March 2020 on account of the Covid-19 outbreak,” write KIE analysts in their earnings estimate for the fourth quarter.
The brokerages expect a high double-digit decline in net income for several sectors including automobiles, construction materials, metals and mining, and oil, gas and consumable fuels for various reasons such as reduced volumes, lower realisations or inventory losses. In comparison banks (lower provisions due to high provision coverage ratio and higher treasury income) and pharmaceuticals (led by domestic formulations) could report healthy earnings growth.
The earnings decline in Q4FY20 will translate into a 5 per cent decline in the index earnings on a trailing 12-month basis. In comparison, the Nifty 50 companies’ underlying earnings per share on a trailing 12-month basis was down 12 per cent during the 2008 Lehman crisis over a six-month period.
Five index companies are expected to make losses — Tata Motors, Indian Oil, Tata Steel, Bharat Petroleum Corporation and Bharti Airtel. In comparison, three index companies had reported losses in the third quarter (of FY20) and just one index company — Bharti Airtel — was in the red during the fourth quarter of FY19.
As expected oil and gas companies, metal producers, and automakers are expected to report the biggest decline in revenue and profit, while corporate banks, pharmaceutical, cement, and fast-moving consumer goods companies are expected to report strong growth in revenues and earnings during the quarter.
State Bank of India is likely to report its biggest positive swing in earnings with nearly 7x jump in its net profit to nearly Rs 6,500 crore in Q4FY20, followed by ICICI Bank with a 271 per cent YoY jump. UPL, Dr Reddy’s, and Sun Pharma are also expected to report healthy profit growth.
The revenue growth chart is, however, expected to be dominated by IndusInd Bank with 32.5 per cent top line growth, followed by Bajaj Finance (32 per cent), NTPC (22 per cent), and UPL (20 per cent).