Q3FY15 - WHAT TO EXPECT?
Q3FY15 – WHAT TO EXPECT?
By Ruma Dubey
The earning season for Q3FY15 kicks in from tomorrow, inaugurated, as usual, by Infosys. And Indusind Bank continues to hold the record as the first bank to declare its quarterly results – it is scheduled to announce its numbers on 13th Jan.
Q2 numbers took everyone by surprise. While all were expecting very dismal numbers, the earnings actually came in not-too-bad. Call it scaled down expectations or whatever, but Q2 left a good taste in the mouth, more so probably because everyone was riding high on the Modi wave. But thankfully, expectations are scaled down for Q3, with muted expectations.
Crisil, which always puts out a report on the expected earnings, is not too optimistic about Q3FY15. It expects India Inc’s revenues to slip to a six-quarter low of 7% (YoY) and blames it all on weak performance of investment-linked sectors and weak global commodity prices. The weak Indian currency is also expected to impact toplines of export-oriented sectors. Crisil expects EBITDA margins to improve which is mainly thanks to lower input costs.
In terms of sector wise performance, capital goods is expected to continue to show stress as order inflows in Q3 were just a trickle; it is only towards end of December that we saw L&T reporting a new order, almost one every day. Textile, which is down in the dumps for so long now, will continue to remain so.
In terms of metals, steel is not expected to fare too well though aluminium might show a feisty bounce back. Construction is expected to show a pick-up and so will telecom, mainly on higher data usages. Pharma which has been on the uptick for some quarters now, will report a good performance. Crisil expects automobiles, cement, roads, and telecom to outperform, expecting automobile margins to rise by 70bps, led mainly by commercial vehicles and passenger cars. On the other hand, CLSA trimmed its two-wheeler industry growth forecast to 11% from 14% CAGR. Sectors which are expected to benefit from the crude oil price drop, mainly those who use crude by-products might wipe off the benefits of lower oil prices against inventory stocked at higher prices.
Paper companies are expected to continue to suffer and so will power and fertilizers. Coal, despite having the second largest reserves in the world, continues and will continue to suffer in Q3, given the erratic production and lower capacity utilizations.
Many expect IT companies to report bumper numbers because of appreciating dollar against the rupee but when there are cross currencies, the gain in more muted. The bigwigs have already prepared us for a subdued Q3, including TCS – we just have to see how much would be the impact. Once again, tomorrow, pay attention to the guidance.
Oil and gas companies could show a marginally better performance and so will aviation due to lower fuel prices with no reduction in passenger fares. Private sector banks are expected to do well while PSU banks will be a mixed bag. Cement does not look good now but it could see better growth from Q4 and prices, QoQ remain higher. So despite lower demand, we could see higher margins. Construction companies like JP Associates and NCC could continue to be impacted by higher interest burden.
Thus Q3 will be a mixed bag of sorts. But we should probably look ahead, beyond Q3 and expect things to only get better. The overall sentiments have improved and some reforms have got the go-ahead. RBI rate reduction might come in only after the Budget. Its best to hope that after Q3, we will see the green shoots we all so desperately want to see.