Q4FY14 - A MIXED BAG OF SWEETS, NAMKEENS AND KARELAS!
By Ruma Dubey
While the nation awaits the Election results, India Inc is getting ready to usher in Q4FY14 results. And unlike the Lok Sabha elections, expectations for India Inc Q4 numbers are pretty muted.
This time around, surprisingly, it is not Infosys but CMC which will bring in the numbers on 14th though small cap companies like Chemfab Alkalis and Goa Carbon, as usual, take the lead, being always amongst the first. Actually GM Breweries was the first to have declared its Q4 numbers. Infosys will remain the first large cap company to declare its numbers on 15th while IndusInd Bank will also follow the tradition of being the first bank to present its earnings.
So what does one expect this time around? Not much as like the rest of the country, India Inc is also waiting for the new Govt to come into place and hopefully, propel the economy and companies. Thus what we will now see is the residue of all the inaction; ditto for Q1 and it is only after Q2 that we will could see any benefit of the new Govt, hopefully, tackling the economy on a war footing.
IT sector this time around, is expected to remain moderate if not muted due to the stronger rupee. Both TCS as well as Infosys have already given a weak Q4 estimate. On the other hand, HCL Tech, Wipro and Mahindra Tech are expected to report much better earnings. Keep an eye on forecast put out by Infosys, which is expected to remain conservative, projecting revenue growth of around 6-8%. Usually, for the sector, Q2 and Q3 are the best as maximum IT spend decision companies happen then. Also watch out for forex losses which some IT companies could report due to the stronger rupee.
Capital goods sector, like IT, two bellwether companies of the sector have already indicated a weak quarter. Last week, L&T announced that it is likely to write off Rs.1.7 lakh crore order book by around 10% due to lack of approvals, aggressive bidding, frozen project execution by its customers, mainly in the roads, minerals and metals sectors. Some Rs.9000 crore worth of business in the construction sector is expected to be written off. And this week, BHEL announced its flash results wherein its provisional net profit for FY14 was at Rs.3228 crore, down 51%, impacted by lower revenue, down 19.5% at Rs.40,336 crore. Its provisional order inflow is also expected to be lower, down 11.5% (YoY) at Rs.28,007 crore. Thus when two of the biggest in the sector are expecting a muted Q4, the others too would surely feel the brunt.
Rating agency, CRISIL has put out its report on expected Q4 earnings and it painted a mixed bag. It expects revenue growth for India Inc (excluding financial services and oil companies) to come in at a subdued 7-9% (YoY) for Q4. It expects export-oriented sectors will continue to witness robust revenue growth, led by rupee depreciation, while in infrastructure- and investment-linked sectors, growth will be subdued owing to a weak investment climate. It expects growth momentum in consumption-linked sectors such as telecom, retail and media to sustain. It also estimates that IT, pharma, readymade garments, cotton yarn will do well while net profit margins are expected to be under pressure in Q4 FY14 for construction, real estate, metals and capital goods sectors.
The auto sector is having a bumpy ride and the monthly sales figure during the quarter have indicated that the scene is not all that picturesque. Yet, the sector is expected to show some strong revenue growth, especially Tata Motors, whose JLR sales could continue to lead. Maruti too is expected to show a steady performance.
Tyre companies are expected to do well as rubber prices during the quarter saw a sequential decline of 5% to Rs.149/kg in the domestic market. International prices fell further, down 10% (QoQ) due to China slowdown concerns and fear sparked by Thai Govt stating that it would be selling previous stockpiles. None of the domestic tyre makers, despite the fall in rubber prices, have reduced prices thus they might go on to post much better margins.
FMCG companies could see some disappointment due to rising raw material cost, erratic weather affecting crops and weak demand. Despite rising costs, companies have not hiked prices for fear of further weakening the demand. Tata Global could on the other hand have a better Q4 than Q3, given the lower tea prices and rising coffee prices. In fact coffee prices are at the highest in last one decade on reports that coffee growing regions in Brazil will get scanty rainfall after a dry patch in January – this could benefit Tata Coffee and consequently, Tata Global too.
Despite the market celebrating PSU bank stocks, the pain in terms of their earnings is not yet over. Growth is expected to remain subdued, marred by weak credit growth and rising NPA. The high interest rates are also not aiding the numbers. Advances are also expected to remain muted.
While the politicians are having a slugfest, media companies are laughing all the way to the bank. In a sense Q4 could be better than Q3 but Q1FY15 and Q2 would be bumper time given the kind of advertising political parties across the country are doing. HT Media, DB Corp, TV18, ENIL, Zee Entertainment, NDTV, Sun TV are stocks to watch for first half of Fy15.
Q4 might be the rock bottom of what has been a tumultuous fiscal. It is not yet a turnaround but earnings are surely on the rebound. But if monsoon plays hokey, inflation is expected to soar and demand to fall. Now that could be a precarious situation, which even a newly elected Govt cannot correct. Its too early to say that the worst is behind us….