Results preview: Non-financial companies stare at tepid Q3 earnings

But Nifty50 firms' combined earnings expected to grow 10.5% YoY

Led by a sharp rise in the earnings of banks, the 50 companies comprising the Nifty are expected to report 10.5 per cent year-on-year (YoY) growth in their combined earnings during the October-December quarter (Q3FY23) as against just 1.7 per cent increase in the second quarter.

Brokerages, however, expect a tepid quarter for non-financial companies. The combined net profits of the index companies excluding banks, financial services, and insurance (BFSI) are expected to grow just 2 per cent Y-o-Y in Q3FY23, an improvement from the 12.7 per cent Y-o-Y decline in Q2FY23 but lower than the 27.6 per cent Y-o-Y growth in Q3FY22.

According to various brokerages, the Nifty companies are expected to report combined net profits of Rs 1.62 trillion in Q3FY23, up from the Rs 1.47 trillion in Q3FY22 and Rs 1.5 trillion in Q2FY23. In comparison, the 39 non-BFSI companies are expected to report combined net profits of Rs 1.11 trillion in Q3FY23, up from the Rs 1.09 trillion in Q3FY22 and Rs 95,000 crore in Q2FY23.

Brokerages, however, see a further slowdown in corporate revenue growth in the third quarter. The Nifty 50 companies’ combined net sales are expected to grow 15.9 per cent Y-o-Y to Rs 12.96 trillion in Q3FY23 from Rs 11.18 trillion a year ago. This will be the lowest top line growth rate for the index companies in the last two years. In comparison, the combined net sales of 30 non-BFSI companies in the index are expected to grow 15.6 per cent Y-o-Y, down sharply from the 30.3 per cent in Q2FY23 and 28 per cent in Q3FY22.

The non-BFSI companies’ top line growth in Q3FY23 is expected to be the lowest since the Q4FY21 quarter.

“Q3FY23 is expected to be a soft quarter (for Nifty companies) along with slight margin improvement. We will be watching for management commentary on India and global demand outlook. We are of the view that the financial sector will continue to perform while consumption space will remain under pressure,” write Anjali Verma and Ravi Kumar of PhillipCapital India Research Team in their earnings estimate for Q3FY23.

According to PhillipCapital, highest earnings growth (Y-o-Y) is estimated for banks, NBFCs, automobiles and capital goods firms, and buoyant growth is expected in FMCG, IT, and infrastructure. 

In comparison, the brokerage expects an earnings contraction in metals, cement, pharmaceuticals, logistics, and specialty chemicals.

Kotak Institutional Equity (KIE) expects banks and automobile makers to shine in Q3FY23 while mining and metals and oil and companies are expected to be laggards.

“We expect (the) net income of automobiles (margin expansion owing to low commodity prices) and banks (strong loan growth, stable NIMs and a steady decline in loan-loss provisions) to increase sharply on a Y-o-Y basis but (the) net income of downstream oil companies (continued auto fuel under-recovery) and metals & mining (lower commodity prices, weak realization) to decline sharply on a Y-o-Y basis. We expect single-digit Y-o-Y growth in net income for capital goods, consumer staples (modest volume growth) and IT services,” Sanjeev Prasad, Sunita Baldawa and Anindya Bhowmik of KIE in their earnings estimates for Q3FY23.

Analysts at KIE expect Q3FY23 net profits of the 30 Sensex companies to increase 9 per cent Y-o-Y and 6 per cent Q-o-Q and for the Nifty 50 companies to go up 11 per cent Y-o-Y and 9 per cent Q-o-Q.

Among index companies, Bharti Airtel is expected to top earnings growth in Q3FY23 with 174.2 per cent Y-o-Y increase in net profit on a low base, followed by Maruti Suzuki (net profit up 91 per cent Y-o-Y), Coal India (up 85.7 per cent), Eicher Motors (up 60 per cent) and IndusInd Bank (up 60 per cent).

At the other end of the spectrum, Tata Steel could be the biggest laggard (82 per cent Y-o-Y decline), followed by JSW Steel (down 74.6 per cent), Hindalco Industries (down 51.4 per cent Y-o-Y), Divi’s Labs (down 45.9 per cent) and Ultratech Cement (down 27.2 cent).