Growth pangs, margin pressures expected in June quarter

Preview of results show slowing sales growth for most, as also less rise in net. 

Most sectors are expected to report slowing sales and a single-digit increase in net profit in the June quarter. 

The preview, based on the estimates of 478 companies by nine brokerage houses, indicates the pressure of input costs is likely to hit operating margins by more than 100 basis points (bps). 

The companies are likely to show a 26.7 per cent increase in net sales and a strong 25.8 per cent rise in net profit. Sectors that will drive profit growth include oil and gas, software services, capital goods, private sector banks, metals and fast moving consumer goods (FMCG). Cement, public sector banks, realty, telecom and mid-cap software companies are expected to show a decline in profit. 

However, the aggregate picture is skewed due to the presence of oil & gas and oil marketing companies (OMCs) in the sample. If one excludes the three OMCs, the net sales growth rate moves down to 22.8 per cent and the net profit growth rate falls sharply to 13.94 per cent. If one also removes the six oil and gas companies, the net sales growth rate falls to 19.1 and the net profit growth rate moves down to 6.8 per cent. 

Stocks in the S&P CNX Nifty (preview available for 49 companies) are likely to put up a poor show. Excluding the oil & gas companies, the net profit growth rate is expected to be a paltry 4.54 per cent. The net sales growth rate is expected to be 17.7 per cent and operating margins are likely to slip significantly by 180 bps. 

The profit growth rate of Nifty companies would go up to nine per cent, excluding State Bank of India (SBI). The net profit of 16 Nifty companies is expected to increase by a little over 20 per cent. Six could show a decline of over 20 per cent. 

Analysts expect SBI, which declared a 99 per cent drop in profit to Rs 20.3 crore in the January-March quarter, to continue its bad run. SBI’s profit is expected to decline 38 per cent in the first quarter. 

Small and mid-cap companies are expected to report a decline in net profit and sales growth. The latter is likely to fall to 16 per cent from a little over 20 per cent in the third and fourth quarters of 2010-11. The operating margins are expected fall 70 bps. Mid-cap companies had reported a single-digit increase in net profit in the first and second quarters, after which it had risen sharply to 14 per cent in the third and fourth quarters.