From automobile to FMCG sector: Earnings growth engine in slow lane

Corporate results in Q3FY25 showed continued sluggishness in revenue growth, while net profits saw relatively better performance, driven by lower input, employee, and interest costs. Five of the 10 largest revenue-generating sectors — oil & gas, mining & metals, FMCG, cement, and automobiles — witnessed year-on-year (Y-o-Y) declines in net profit, or saw no growth. The oil & gas sector reported flat revenues, and cement makers witnessed a Y-o-Y drop in net sales. Capital goods, construction & infrastructure companies stood out, posting double-digit growth in revenues and profits. Pharma and BFSI (banking, financial services, and insurance) sectors also showed positive results. IT services firms, while reporting modest single-digit revenue growth, saw improved margins. Here is the top 10 sectors’ earnings scorecard.

 

Automobiles 

 

>   Aided by festival demand and launches, the auto segment reported a low single-digit revenue growth. While rural outperformed urban, passenger vehicles fared better than other segments 

>  With no strong recovery in demand across segments and an uncertain export outlook, Motilal Oswal Research said majority of its coverage companies (14 of 25) saw earnings downgrades in Q3FY25

>  Brokerages expect growth to slow across segments going ahead with premium market faring better than entry level 

>  While margins were under stress due to unfavourable forex impact, higher discounts  with increased marketing expenses, it is expected to be stable in Q4FY25

>  Nomura Research prefers stocks with strong model cycle tailwinds driving market share gains like M&M

 

Capital goods, Infra & Power 

 

>  Capital goods firms like Bharat Heavy Electricals (Bhel), ABB and Suzlon Energy outperformed with strong double-digit growth in revenue and profit in Q3FY25

>  Construction and infrastructure developers provided a mixed picture with large players such as Larsen & Toubro (L&T), Kalpataru and KEC reporting single-digit growth in net sales and profit while smaller companies struggled with revenues and earnings contraction

> Analysts attributed it to sluggishness in new project awarding by large agencies such as NHAI leading to lower revenues for EPC companies

> Brokerages remain upbeat on capital goods & defence equipment makers such as Bhel, ABB, L&T and Hindustan Aeronautics. In contrast, they see muted growth for power utilities and pure-play EPC and construction firms

 

Fast-Moving Consumer Goods 

 

>   Revenue growth though subdued was largely in line in Q3. The muted growth was due to urban slowdown, weak festival demand and delayed winter 

>  Higher raw material prices especially of palm oil, tea, coffee, copra, edible oil were a drag on margins though some companies have hiked prices to protect margins 

>  Companies are hopeful of an improved outlook riding on a recovery of rural demand, expansion in distribution reach and pricing growth 

>  Delayed growth recovery, slowdown in urban de-mand, higher prices of a few commodities have pushed FMCG stocks down 10-35 per cent in the past six months, says Anand Rathi Research rRReseqarResearch.reported an expansion in gross profit margins 

>  Lower raw material prices have resulted in smaller players getting aggressive, and given the higher competitive pressures, advertising spending by consumer majors saw double-digit growth both year-on-year and sequentially, according to Nuvama Research data

 

IT services 

 

>  Tier-I majors reported revenue growth of 0.3 to 8 per cent on a sequential and constant currency basis, which was in line with Street estimates. Tier-II firms outperformed despite Q3 seasonality 

>   The deal momentum remained robust with continuing large deal wins led by TCS ($10.2 bn), LTIM ($1.7 bn), Wipro ($3.5 bn) and Coforge and Persistent above $500 million each securing plum contracts

> The operating profit margins for most Tier-I IT companies improved; Tier-II firms delivered mixed trends 

> The medium to long-term outlook for Indian IT companies, according to Mirae Asset Sharekhan Research, remains positive as enterprises are expected to gradually increase their discretionary spends and engage in a larger degree of transformational programmes to stay relevant

 

Oil & Gas 

 

>  Oil & Gas companies were among the biggest laggards in Q3 with flat revenues and double-digit decline in net profit

> The sector’s combined net sales were up 0.6 per cent Y-o-Y and combined net profit was down 21.2 per cent Y-o-Y in Q3FY25, the fourth consecutive quarter of earnings contraction

>  Public sector oil majors such as Indian Oil, ONGC, Hindustan Petroleum and Oil India were the biggest laggards with Y-o-Y contraction in revenues and profits either due to lower product prices (under recoveries) or low refining and marketing margins

 > Gail (India), Indraprastha Gas and Mahanagar Gas performed relatively better with single-digit growth in net sales on Y-o-Y basis and sequential growth in net profit standalone basis

>  City-gas distribution firms reported seasonal weakness in the industrial and commercial segment volumes. Margins for Mahanagar Gas improved despite muted volume growth due to lower gas costs and improved realisations

 

Pharma & Healthcare 

 

>  The 10 per cent revenue growth for pharma firms in Q3 was led by the domestic formulation business, stability in the US business and rupee depreciation gains for exporters. The domestic chronic segment grew twice the rate of acute segment

>  Gross margins improved year-on-year (Y-o-Y) and was supported by the launch of niche products, low single-digit price erosion, a higher proportion of Indian business in the product mix, and stable raw material prices

> The domestic market felt the impact of weak monsoons, which affected acute therapy sales. The impact of price control on drugs was also evident

>  Sun Pharmaceutical Industries, a leader in the Indian market, admitted to price control diluting its performance

> Companies have been taking action to overcome regulatory woes with the US Food and Drug Administration; Cipla, for example, has taken a two-site strategy for its key respiratory assets

>  Sequentially, the profit margins improved off the back of strong US sales and reduced costs of raw materials and freight

 

Consumer & Retail 

 

 

>  Barring value fashion and jewellery in retail, most other segments delivered weak results in Q3 due to higher food inflation 

>  Most firms indicated that demand remained weak

>  Brokerages believe that the income tax cut in the Budget is a boost for discretionary consumption and could trigger a recovery in demand for companies

>  The near-term outlook, however, is expected to remain muted. While channel checks suggested record-high festive same-store sales growth, demand appears to have plateaued around these peak events. We do not foresee a significant improvement in Q4, according to Nuvama Research

 

Metals & Mining 

 

>  Mining & metal companies underperformed in Q3 with low single-digit growth in revenue and flat net profit

>  In Q3FY25, the sector’s combined net sales were up 4 per cent Y-o-Y, while the combined net profit inched-up by 0.1 per cent Y-o-Y

>  The industry’s Ebitda margin was up 20 basis points Y-o-Y to 18.6 per cent of net sales, the second best in the last 10 quarters thanks to gains from benign raw material and energy costs

>   Brokerages remain upbeat on metal companies’ earnings for FY26 on account of higher volume growth, but the sector saw a cut in its earnings for FY25

 

Banks 

 

>  Banks were among the best performers in Q3FY25 with double-digit growth in revenue (gross interest income) and net profit 

>  For listed banks, their combined gross interest income and net profit was up 11.2 per cent year-on-year (Y-o-Y) and 13 per cent Y-o-Y in Q3, which is nearly double the pace of growth reported by non-BFSI companies

>  Banks, however, are facing slowdown as rest of India Inc’s revenue and profit growth was the lowest in last 10 and 15 quarters

>  Brokerages remain bullish on banks thanks to lenders’ ability to grow their earnings unlike the rest of India Inc

 

Finance & Insurance 

 

>   The non-bank lenders underperformed their banking peers in Q3FY25 with relatively slower growth in gross interest income and net profit

>  Their combined gross interest income grew at the slowest pace in the last 10 quarters while their net interest income growth was the slowest in at least 17 quarters

>   Non-bank lenders’ gross interest income was up 9.3 per cent Y-o-Y while their combined net profit was down 2.4 per cent Y-o-Y in Q3FY25

> Insurance firms, however, out-performed in Q3 with double-digit growth in gross premium income and net profit, after a poor show in Q2FY25

>  Brokerages remain bearish on non-bank lenders due to rising delinquencies and slowdown in credit growth