September quarter results are drawing to a close with only a handful of companies left to reveal their report cards. The combined net profits of 42 Nifty50 companies, that have declared their results so far, went up by 19.2 per cent year-on-year and reached a record high of Rs 1.12 trillion in Q2FY22. In comparison, the combined net sales of these companies were up 26.5 per cent year-on-year while their combined operating profits were up 11.2 per cent. However, slow growth in operating profits compared to revenues indicates a decline in operating margins. And this has worried analysts. On his assessment of Q2 earnings, Joseph Thomas, Head of Research at Emkay Wealth Management Services, said:
Need to watch out if sales growth will accelerate further
As pointed out by Thomas, this earnings season was a hit on Ebitda margin which was likely because of India Inc’s inability to pass on increased input costs. Going-forward, experts expect margin contraction to continue over the next few quarters as commodity inflation results in wage inflation.
Wage inflation likely to have prolonged impact on corporate earnings
Labour shortage and increased capex may accelerate wage inflation
Pricing power of corporates will improve with economic recovery
Amit Gupta, who is fund manager-PMS at ICICI Securities, too, believes consumer-related companies will continue to face headwinds as commodity-related inflation will remain sticky in the near-future. He says:
Commodity-user companies will face challenge going-forward
Commodity prices may consolidate at higher levels
Companies need to focus on cost optimisation
That said, all is not that bad for India Inc. Despite margin hit, the Street has lauded companies that have managed to increase their market share. Gupta adds:
Asian Paints, Havells have posted market share gains despite margin hit
Market is eyeing formalisation of the economy
Against this backdrop, what is the earnings’ outlook for the second half of the current fiscal year? Thomas says:
H2FY22 earnings expectations remain robust and constructive
Capex is rising; banking sector is stabilising
B2B, B2C sectors are expected to do well
For Amit Gupta, value-linked sectors like banks and capital goods are likely to do well and he expects overall earnings to grow at a CAGR of 25 per cent till FY24. On Friday, companies like Burger King, Deepak Fertilisers, Grasim Industries, Hindalco Industries and ONGC will declare their September quarter results. That apart, investors will also track industrial production data for September and retail inflation data for October, due to be released later today. Moreover, shares of Fino Payments Bank will also debut on the bourses today. Globally, inflationary concerns, bond yield movement and oil price trajectory will guide the sentiment.
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