India Inc may report good numbers in Q3

India Inc may report good numbers in Q3

India Inc’s earnings for the December 2023 quarter are expected to show strong growth on the back of good numbers from auto manufacturers, banks, capital goods makers, cement producers and residential real estate developers. In aggregate, companies are likely to report a high single-digit increase in profits when seen year-on-year, though the rise may be somewhat modest sequentially.

Good results from oil marketing companies (OMCs) will boost aggregate profits thanks to the helpful base in Q3FY23 when these firms reported losses. However, IT services players are expected to turn in an ordinary performance.

The high off-take in the festive season demand is expected to have driven up revenues by 10-12% for most auto manufacturers especially since the product mix was richer. Volumes for both cars and two-wheelers were reasonably strong in the October-December period. Moreover, companies have been able to take price increases so the average selling price (ASP) is expected to have gone up by low-to-high single-digits.

With not too many big deal announcements, high furloughs and cutbacks by clients in discretionary spends, the IT pack is expected to report modest numbers. It’s possible some top tier firms could report a drop in revenues—both sequentially and annually. Top line growth for mid-tier firms would probably moderate. The operating margins will probably have been impacted by the furloughs as also wage hikes, though perhaps not significantly. Analysts believe that managements would have tightened their belts while utilisation levels too should have gone up.

Much like it has been for several quarters now, smaller loan loss provisions are expected to bump up profits for banks in the December 2023 quarter too. Despite this, the rise in operating profits might not be very exciting. With loans growing faster than deposits, net interest margins (NIMs) for banks could fall sequentially. Moreover, treasury profits would be limited in the quarter. The Street would watch for commentary on the trajectory of loan yields and deposit costs. Margins for shadow banks too are likely to have contracted during the quarter.

Cement prices are understood to have risen by about 3% sequentially in Q3FY24, as companies took price hikes. Moreover, volumes may also have grown by about4-6% for the bigger players. Also, costs for cement companies are likely to have moderated. As such, most companies should report better profitability, especially when seen from a year-on-year perspective.

One sector that should report good numbers is hospitality as average room rates are understood to have risen smartly both y-o-y and sequentially, and occupancies were high in the holiday season. Also, the demand for the many launches announced by the top-tier real estate developers has been good. As such the pre-sales numbers would be encouraging. Analysts would watch for management commentary on the momentum.