Q4FY15 - NO EXPECTATIONS, NO DISAPPOINTMENT!
By Ruma Dubey
Its that time of the year – report card season, exams over. India Inc and the stock market is now bracing itself for the quiet storm which seems to be heading towards Dalal Street.
The storm is brewing due to low ‘pressure’ arising on account of Q4FY15 results, which is expected to be disappointing, to put it mildly. The clouds are dark and looming; we have no alternative but to go through this rain. And all this comes at a time when Moody’s decided to revise India’s rating outlook upwards from ‘stable’ to ‘positive’.
Q3 just about managed to scrape through but Q4 is widely estimated to be tough. Rating agency, Crisil, which always puts out its quarterly expectations, does not paint a good picture for Q4. In fact it has warned that India Inc could end Q4FY15 with the lowest revenue growth over the past seven quarters. It has blamed it all on poor rural demand which has become the power house, fueling India’s growth. But at the same time, it expects EBITDA margins to improve.
Sector specific, Crisil expects export-oriented and consumer driven sectors like IT, pharma, auto components to be reasonably well and expects a weak performance from steel, petrochemicals, cement, capital goods, fertilisers and rural consumption dependent sectors like tractors, two-wheelers and even FMCGs.
In terms our readings, metals are expected to see a lot of pain due to persistent low prices – iron ore prices at down at a 5-year low though zinc could turn out to a surprise. Coal could see lower realisaions though hopefully, from current fiscal, with limit on e-auction going off, Coal India could report much better Q1FY16 numbers.
Another widely watched sector will be IT. Right from Infosys to TCS and HCL and even Mindtree; all have muted down our expectations as they expect cross currency impact on margins. Yet, what could be interesting is the estimations for Q1 – rupee remains low and the storm in Euro persists. Also typically Q4, seasonally, is weak for IT companies given the lesser number of working days due to holidays. Thus in a way, its good that we are not expecting the sky and moon from this sector.
Oil and gas would be another significant sector. With crude prices falling, it would be interesting to see how the numbers pan out. Cairn India is expected to have a painful Q4 as it has already indicated the same. Especially good numbers are expected from Oil Marketing companies (OMCs) BPCL, HPCL and Indian Oil as they are virtually on zero under-recoveries. ONGC could also show an improved performance as its subsidy burden has come down. In the same vein, all crude and crude derivative dependent sectors – those using this as major raw material will show improved margins – paint companies and lubricant companies being the big gainers.
Auto sector is expected to show a strong performance, led by Maruti and TVS in two-wheelers. Ashok Leyland in commercial vehicles would be a company to watch out for. In the same vein, tyre companies might show better margins as rubber prices are near their 5-year low.
PSU banks will continue to remain a bone of contention though SBI might surprise all with much lower slippages and improvement in margins. Private sector banks will continue to remain strong and ICICI Bank is the one to keep a tab on.
FMCGs might show the pressure of lower rural demand though lower raw material prices could help cushion the fall to some extent. For this sector, it would be all about volumes as realisations remain low and there is little room to jack-up prices with demand going down.
Telecom companies could show much better margins and profit would be driven largely by data. The woes of the power sector will continue and capital goods sector too is expected to show pain – there is increase in orders but little improvement on implementation/ execution front. BHEL has already indicated the pain that it will face in Q4 – its flash results for FY15 showed a 62% drop in provisional net profit.
Well, 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….