Following a weak show in the September quarter, the earnings of the Nifty 50 companies have been revised downwards by 7% over the past six months. This has lowered the estimated earnings growth for FY25 to just 5%, the weakest since FY20.
India Inc’s operating profits have grown at just 4% year-on-year (y-o-y) in Q2FY25, the slowest increase in at least four quarters.
The muted increase in Ebitda (earnings before interest, tax, depreciation and amortization) comes on the back of a rise in revenues of just 6% y-o-y. Operating profit margins for a sample of 2,626 companies (excluding banks, financials and oil marketing companies) contracted during Q2FY25 compared with an expansion in the previous three quarters.
“Our analysis of Q2FY25 results suggests a broad-based slowdown in the Indian economy. Companies have broadly disappointed versus modest expectations on net sales, Ebitda and net profits,” analysts at Kotak Institutional Equities (KIE) wrote.
The results confirm that the quarter witnessed weak consumption demand and only a very modest recovery in the demand for IT services. Strategists at Citigroup have downgraded from overweight to neutral on concerns about the weaker earnings momentum. Brokerage firm Jefferies has also downgraded earnings estimates for about half the companies under its coverage. For many businesses the modest rise in revenues failed to offset higher input costs — the raw materials-to-sales ratio increased by 22 bps y-o-y for the aggregate sample. While input costs hurt margins for some companies, others were required to make investments to counter the competition.
Asian Paint’s profits were impacted by expenses needed to retain market share in a weak demand environment.
In a muted demand environment, companies found it hard to grow their top lines. Lower short-term sales, weaker merchant tariffs and a downward tariff revision in the hydro business hurt JSW Energy.
Consolidated sales at Tata Steel have fallen by 3.2% y-o-y while at Dalmia Bharat they were down 2.1% y-o-y and at Tata Chemicals by 0.8% y-o-y. At JSW Steel, weak volumes impacted exports. Revenues at Eicher Motor increased by 4% y-o-y as the average selling price was lower because of a weaker model mix. Revenues at Ashok Leyland were down 9% y-o-y, thanks to a big dip in volumes. Again, Hindustan Unilever’s revenues grew by just 3% y-o-y while net sales at Dabur India were down 5% y-o-y.
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