Earnings winter to persist in Q4

Brokerages expect a further slowdown in Indian firms’ revenue and earnings growth in Q4FY25, following low single-digit growth in the preceding three quarters, as factors like weak consumer demand and credit growth linger on.

Here’s a detailed earnings preview of the 50 biggest firms across key sectors

Automobiles

• Volume growth moderated across most segments barring tractors, which had the benefit of a lower base

• Revenue growth is expected to be in high single digits for the sector while margins may remain at year-ago levels

• Though there have been price hikes, the flattish profitability is on account of higher discounts/advertisement expenses and negative operating leverage, says Axis Securities

• Going ahead, consumption demand is expected to remain slow across segments, mainly for mass segments. While near-term demand trends are weaker, Nomura Research expects some recovery led by lower income tax as well as interest rates and potential cuts in fuel prices

• Among the companies covered, Tata Motors and Samvardhana Motherson will be the most impacted from US tariffs; Mahindra & Mahindra remains a top pick for brokerages

IT Software Services

• A sequential decline in revenues is expected from large IT companies, given muted demand, seasonal weakness, and lower billing days. Midcap IT majors are expected to outperform on the growth front

• Operating profit margins could increase year-on-year (Y-o-Y) for all companies though the extent will depend on timing of wage hikes, and the weakness in certain business segments

• Midcap IT majors could also outperform on strong margin performance, gaining from rupee depreciation and robust growth

• Key points to focus on, according to BOB Capital Markets, are the nature of demand (shift to cost takeout deals), health of the deal pipeline, decision-making speed, conversion from pipeline to orders and then to revenue, competitive intensity, and pricing pressure

• The only positive for investors are valuations, given that the Nifty IT index is down over 24 per cent calendar year-to-date (YTD) and most large IT players are trading at or lower than their five-year average valuation multiples

FMCG

• Demand remains weak, especially in urban markets, and consumers continue to down-trade, impacting overall revenues and volume growth. There is increased discounting, both in modern trade as well as e-commerce channels

• Rural demand, which contributes about one-third to FMCG sales, is stable and is likely to outperform urban demand for the fifth quarter in a row, points out Kotak Research

• Given the inflationary pressures that had existed in the commodity basket, sales growth is expected to be driven by a mix of volumes and pricing

• Weak demand may impact growth for a few quarters going ahead. However, easing of inflationary pressures in a few commodities as well as lower interest rates may help growth/margins to some extent

• In addition to demand, investors will look for commentary on competition as well as on inflation outlook

Pharma & Healthcare

• Led by domestic formulations and niche launches in the US market, Indian pharma sector is expected to post 10-11 per cent growth in the fourth quarter of 2024-25 (Q4FY25) over the year-ago period

• While domestic formulations space is expected to see double-digit growth, seasonality could dampen the performance of drug makers in the acute segment

• In the US, price erosion in the generic version of cancer medication Revlimid and broader base business could be offset by gains from key products and scale-up in specialty product portfolio, and rupee depreciation

• HDFC Securities expects gross margin expansion of 71 basis points (bps) Y-o-Y as marginal rise in input costs of key raw materials is offset by better business mix

• Occupancy in hospitals could remain weak due to festival season and lower international footfall

Consumer & Retail

• Results of retailers are expected to be mixed as discretionary consumption has been impacted, especially in the urban segment

• While segments such as apparel are not gaining traction, jewellery is expected to fare better in the quarter aided by robust wedding demand

• Within apparel, value fashion players continue to report robust growth driven by both same store sales and store additions, while mid-premium apparel segment is expected to struggle as demand remains impacted due to down-trading by customers, says JM Financial Research

• Fast moving electrical goods companies have faced weak consumer offtake and inflationary pressures

• Cable and wires companies (Polycab and Havells) benefited with average 8-10 per cent jump in realisations amid rising input prices while strong channel stocking led to robust volume growth in wires, says IIFL Research

Banks

• Banks are expected to lag behind in Q4FY25 after topping the earnings chart for nearly two years now

• Kotak Institutional Equities expects a 13 per cent Y-o-Y decline in banks’ combined net profit in Q4FY25 due to compression in net interest margins (NIMs) on account of higher deposit rates

• Lending yields are also expected to see some downward pressure due to the cut in repo rates, thereby weighing on NIMs

• Motilal Oswal Securities expects banks’ net interest income to grow by 3.9 per cent Y-o-Y in Q4FY25, the slowest pace in at least 16 quarters

• Brokerages expect HDFC Bank and ICICI Bank to report faster revenue and profit growth compared to their peers

• India’s largest lender State Bank of India (SBI) is estimated to be the biggest laggard with nearly 20 per cent Y-o-Y decline in net profit in Q4FY25

Finance & Insurance

• Brokerages expect non-bank diversified lenders such as Bajaj Finance and Shriram Finance to report better numbers than banks, thanks to higher loan growth

• According to Kotak Institutional Equities, in Q4FY25, diversified financial companies’ net profit is expected to grow by 21 per cent Y-o-Y while their net interest income is likely to grow by 18 per cent Y-o-Y

• According to Yes Securities, growth will be led by housing finance and gold loan companies while microfinance and small finance banks would lag

• Among top non-bank lenders, both Bajaj Finance and Shriram Finance are likely to report strong double-digit growth in net profit as well as net interest income on Y-o-Y basis in Q4FY25

• Both life and general insurance companies are also likely to report weak numbers in Q4FY25 due to regulatory changes in the life insurance segment and slowdown in the motor insurance segment, respectively

Oil & Gas

• Despite higher revenues, oil & gas sector companies are expected to report a sharp Y-o-Y decline in net profit due to margin compression

• Upstream companies such as ONGC are likely to report a mixed show even after considering improved net crude realisation

• According to Yes Securities, ONGC’s oil production decreased by 4.1 per cent Y-o-Y while Oil India's output is expected to be flat

• Similarly, gross marketing margins for oil marketing companies such as Indian Oil, Bharat Petroleum and Hindustan Petroleum likely deteriorated on a sequential basis due to higher crude prices

• Gas utilities are likely to report inventory and trading gains, which should cushion the blow from a decline in LNG volumes on both Y-o-Y and quarter-on-quarter (Q-o-Q) basis and marginal rise in spot LNG prices

• Reliance Industries is expected to report weak numbers due to poor show by its oil-to-chemicals and E&P segments

Mining, Metals & Cement

• Metals and mining companies are likely to report strong earnings growth in Q4FY25, thanks to gains from higher prices of base metals

• Kotak Institutional Equities expects metal & mining companies’ combined net profit to grow by 50 per cent Y-o-Y in Q4FY25 on a low base while their combined net sales is expected to grow by 4 per cent Y-o-Y

• Among leading metal producers, Hindalco and JSW Steel are expected to top the earnings chart while Tata Steel is estimated to lag with slower growth in earnings

• Cement makers are likely to report the fourth consecutive quarter of sharp earnings decline driven by low pricing and a high base of margins in the year-ago period

• Motilal Oswal Securities expects companies in its cement universe to report a 14 per cent Y-o-Y decline in earnings in Q4FY25, even as their net sales are expected to rise by 6 per cent Y-o-Y

Power, Infra & Capital Goods

• Power utilities are expected to report muted earnings growth on weak generation and modest growth in power demand

• Motilal Oswal Securities expects power utilities in its coverage to report revenue and adjusted net profit growth of 6 per cent and 7 per cent Y-o-Y, respectively, in Q4FY25

• Infrastructure and construction companies are likely to see slowdown in Q4FY25 on continued delay in government payments and approvals

• Road sector-concentrated firms are expected to witness a sharper reduction in execution whereas diversified EPC (Engineering, Procurement, and Construction) firms such as L&T are likely to fare better

• According to Motilal Oswal Securities, the combined net profit of capital goods companies is expected to rise by 6 per cent Y-o-Y, the slowest pace in 12 quarters

• Defence and power transmission companies, however, are expected to grow faster while broad-based revival in order inflows was missing, especially from the central government as well as the private sector

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