Q2 Results Season: What To Expect From Index Stocks

Tata Consultancy Services Ltd. will announce its results for the second quarter of fiscal 2024 on Oct. 11, thus kicking off the Nifty 50 earnings season.

Here is how the Nifty 50 stocks are set to perform sector-wise, according to analysts:

Counterintuitive to the movement that the Nifty IT index experienced over the last three months, a "slowdown in project-based business is expected to hamper the overall IT industry growth, even though Q2 is traditionally a robust season for the sector,” said Motilal Oswal's Mukul Garg, in a research report.

The IT services industry remained weak in the quarter-ended Sept. 30, due to macroeconomic headwinds in global markets. And though large deals like the TCS-Nest U.K. pact and the HCL Technologies Ltd.-Verizon contract were signed in the September quarter, analysts do not expect them to show in the top-line in a significant manner as such deals will reflect over several years.

Bloomberg estimates TCS will post a net profit of Rs 60,353.15 crore alongside an EBIT of Rs 14,414.68 crore, while HCL Technologies and Infosys Ltd. are expected to report revenues of Rs 26,945.28 crore and Rs 17,190.70 crore, respectively.

Banks are expected to report earnings similar to Q1 FY24. Private banks, excluding HDFC Bank Ltd., are likely to observe sequential NII and PAT around the 1% to -4% mark, according to an ICICI Securities report by Jai Prakash Mundhra.

"While a large airline exposure is expected to be recognised as NPA in Q2 FY24, the impact is likely to be limited to only two or three non-SBI PSU banks," the report said.

Analysts expect gross NPA and net NPA ratios to improve on a sequential basis for almost all banks. Despite the Reserve Bank of India flagging concern on unsecured personal loans, slippages for the segment are not expected to rise much.

State Bank of India's sharpening focus on agricultural GNPAs is indicative of no material challenge in retail and corporate segment at present, said ICICI Securities.

That said, the country's largest lender is likely to post a net profit of Rs 5,792.64 crore on a standalone basis during the quarter under review, according to a survey of analysts' estimates done by Bloomberg.

HDFC Bank is expected to report a standalone net profit of Rs 14,110.53 crore, according to estimates.

The weak margin of oil marketing companies paired with flat city gas distribution is expected to result in declining sequential earnings for the industry.

Upstream companies like ONGC Ltd. and Oil India Ltd. are expected to "maintain production volumes and net crude realisation of about $75 per barrel post windfall tax", according to Prabhudas Lilladher's analyst Swarnendu Bhushan.

Analysts expect the sector's earnings to remain flat with muted volume. Reliance Industries Ltd.'s oil-to-chemicals segment is expected to report higher operating profit with higher refining margin.

Oil and Natural Gas Corp. is likely to post a net profit of Rs 9,928.20 crore and revenue of Rs 35,952.70 crore this time, according to a survey of analysts' estimates done by Bloomberg.

Bharat Petroleum Corp. Ltd. is expected to post a net profit of Rs 4,201.84 crore, while revenue can touch Rs 1.15 lakh crore, according to Bloomberg.

The automobile sector is expected to show strong year-on-year revenue and margin improvement, aided by tailwinds from realisation, operating leverage for few OEMs and favourable commodity prices, said Prabhudas Lilladher's analyst Himanshu Singh in a research report.

In Q2 FY24, the auto industry witnessed overall flat volume on the back of declining tractor sales and a late rise in two wheeler sales. Original equipment manufacturers have also built inventory in anticipation of growth and higher retail in the upcoming festive season.

Revenue of major automobile companies are expected to increase for the quarter under review, led by rise in sales of passenger and commercial vehicles, while Ebitda margin will likely improve on the back of operating leverage and lower commodity prices.

Tata Motors Ltd. is expected to post a gross revenue of Rs 1.08 lakh crore, according to Bloomberg estimates, while the company's Ebitda margin can go up to 12.70%.

Maruti Suzuki India Ltd. is also likely to post a revenue of Rs 36,822.58 crore, with Ebitda margin touching 11.10%.

Early commentaries from FMCG players such as Marico Ltd., Dabur Ltd. and Godrej Consumer Products Ltd. suggest that the overall demand environment remains stagnant with little signs of a gradual recovery. This paints the overall picture for the FMCG segment, which continues to be plagued by slow rural demand.

"While segmental revenue of beverages is likely to decline on account of a mild summer and delayed festive season, the home care category is expected to witness some positive momentum," according to a Nirmal Bang report by Krishnan Sambamoorthy.

Analysts expect to see significant year-on-year gross margin expansion for several companies in the quarter under review. However, rising advertising spends, low realisation growth against preceding quarters paired with minimal volume growth across the sector hint at a muted Ebitda margin growth on a year-on-year basis for most players.

Additionally, the prices of key commodities such as brent crude and Malaysian palm oil have seen a year-on-year correction in the last quarter, while prices of commodities like wheat and milk have seen a rise of 5% to 8% year-on-year. This is likely to even out any growth prospects for Ebitda margin of most FMCG majors, the Nirmal Bang report said.

Hindustan Unilever Ltd. is expected to post a revenue of Rs 15,554.73 crore, with net profit touching Rs 2,590.92 crore, according to a consensus of analysts gathered by Bloomberg.

ITC Ltd.'s revenue is estimated at Rs 17,190.70 crore, while its net profit can go up to Rs 5,085.20 crore, according to Bloomberg.

Metal companies are likely to report a healthy performance for the quarter under review, backed by lower raw material and energy prices, and continued strong demand despite the seasonally weak monsoon quarter.

For steel companies, sequential profitability is likely to improve as the impact of lower steel prices will be offset by the prices of coking coal, which have fallen by 30% in the past six months.

IDBI Capital, in a research report, said that "Indian HRC (hot-rolled coil) prices decreased by 2.5% sequentially to about Rs 56,377 per tonne, although by the end of the quarter it increased to Rs 58,900 per tonne".

Revenue of non-ferrous companies are expected to be impacted by weakness in the London Metal Exchange prices during the quarter. However, prior period inventory of thermal coal may benefit Hindalco Industries Ltd.

Hindalco Industries is expected to report a revenue of Rs 50,403.56 crore and a net profit of Rs 2,190.94 crore, according to estimates.

Though Tata Steel Ltd. struck a multi-billion dollar deal with the U.K. government for Port Talbot operations, the revenue will not reflect in the company's top-line for the quarter under review, where it is likely to report a revenue of Rs 56,660.20 crore and a net profit of Rs 910.26 crore.

The Nifty Pharma performed largely in line with the benchmark index in the quarter under review.

Likewise, healthcare stocks are expected to report a strong quarter with "Ebitda growth of 17% YoY aided by new launches like generics of Revlimid and Spiriva in U.S. market, and higher margins", according to a research report by Prabhudas Lilladher.

The rupee weakening against the U.S. dollar over the last quarter by 5.06% will also aid profitability. "Easing of cost pressures will aid year-on-year margins," the report said.

Sun Pharmaceutical Industries Ltd., which recently announced the sale of its life sciences unit for Rs 5,652 crore, is expected to post a revenue of Rs 12,132.52 crore, with a net profit of Rs 23,60.04 crore, according to Bloomberg estimates.

Dr. Reddy's Laboratories Ltd. will likely report a net revenue of Rs 6,847.07 crore and profit of Rs 12,54.24 crore.

The overall Ebitda margin of the consumer durables sector is expected to improve by approximately 340 basis points on a year-on-year basis as "paint companies look to post strong gross margin expansions following a meaningful drop in raw material prices", according to a Nirmal Bang report.

According to Bloomberg estimates, Asian Paints Ltd. is likely to report revenue of Rs 9,043.78 crore and a net profit of Rs 1,252.97 crore.

Construction companies are likely to report robust earnings backed by healthy order inflows and strong manufacturing bases.

The cement industry's Ebitda is expected to show strong year-on-year increase, supported by high volume and a reduction of power and fuel costs.

Average cement prices have marginally increased sequentially for Q2 FY24, and region-wise maximum hike is seen in west and central regions, according to IDBI Capital.

Larsen and Toubro Ltd. is expected to report a revenue of Rs 50,309.34 crore, and UltraTech Cement Ltd. might report a revenue of Rs 15,814.77 crore, according to Bloomberg estimates.

Bloomberg estimates for other Nifty 50 companies such as Adani Ports and Special Economic Zone Ltd., Power Grid Corp., NTPC Ltd., UPL Ltd. and Bharti Airtel Ltd. are also expected to be largely in line with their respective reported earnings.

(Note: All Bloomberg estimates are as of Oct. 10)