India Inc set to see best quarter in 2 years

Corporate India is likely to clock its strongest earnings growth in two years in the first quarter of the current financial year (April-June) aided by a low base and a recovery in operating profit margins.

While companies that form part of the benchmark sensex would report a 20per cent year-on-year (y-o-y) growth in profit after tax (PAT), the best showing in nine quarters, firms on the nifty index are likely to record a 14.9per cent increase for the period - the highest in seven quarters, estimates made by leading brokerages showed.

This is the first time businesses are showing some rebound from the very low growth rate witnessed over the last two years, market observers said. Incidentally, sensex PAT growth is projected to beat the long period average of 17per cent during the quarter.

"Earnings would be better than expected. There has been a lot of cost-cutting and rationalization and their effect would be more pronounced in this quarter," said Vikram Dhawan, director, Equentis Capital. The percentage of companies reporting PAT de-growth would also be the lowest in two years. The amount of companies showing PAT de-growth is likely to shrink to 33per cent from 44per cent in the preceding quarter. This could shrink to just 13per cent by the end of 2014-15, estimates showed.

The aggregate PAT of sensex companies would surge to around Rs 57,000 crore during the quarter. Nifty firms (excluding BPCL) are likely to report an aggregate PAT of around Rs 71,200 crore for the period, estimates made by Motilal Oswal Securities (MOSL) showed. Firms are likely to post revenue growth of 14per cent.

Companies on the nifty are estimated to post a 20.9per cent y-o-y increase in ebitda (earnings before interest, taxes, depreciation and amortization), the highest since the last quarter of 2010-11, according to estimates made by domestic brokerage firm Prabhudas Lilladher.

"Margins have bottomed out and are showing signs of recovery," analysts at MOSL said. "Moreover, interest costs are also at their peak, and would aid growth," they said. Though nearly two-thirds of sensex companies are likely to report double-digit y-o-y growth in profits, several firms including Tata Motors and Bharti Airtel would benefit from a low base. The growth in profits, however, is expected to be broad-based.

Companies with PAT growth of over 30per cent would contribute only 18per cent to aggregate PAT. This would be the lowest observed level in a decade. The contribution from such companies is, however, likely to touch 45per cent by the end of 2014-15.

Telecom, automobile firms and private sector banks would clock the highest growth in profits during the quarter. Real estate, capital goods, cement companies and public sector (PSU) banks would see a decline in earnings. While PSU banks are expected to show growth in the second quarter, the other sectors would start showing an increase in profits only from the third quarter.