Nifty cos' profit growth seen at slowest in 5 qtrs

The brokerage earnings estimate for the January-March 2024 quarter (Q4FY24) for Nifty 50 companies hints at a slowdown in corporate profit growth while revenue increase is likely to be in low single digits as in the previous two quarters.

According to various brokerage estimates, the companies’ combined net profits are expected to grow 3.1 per cent year-on-year (Y-o-Y) in Q4FY24, the slowest in the last five quarters.

For comparison, the index companies’ combined net profits were up 8.2 per cent Y-o-Y in Q3FY24 and 3.4 per cent Y-o-Y in Q4FY23.

The companies are expected to report combined net profits of Rs 1.87 trillion in Q4FY24, as against Rs 1.76 trillion in Q3FY24 and Rs 1.82 trillion in Q4FY23.

This will be the third time in the last five quarters that their combined quarterly net profits will cross Rs 1.8 trillion.

Similarly, the combined net sales of the companies (net interest income for banks and finance companies) are expected to grow 5.4 per cent Y-o-Y to Rs 14.31 trillion in Q4FY24 from Rs 13.59 trillion in Q4FY23.

However, their combined net sales are expected to be down 6.75 per cent from the Rs 15.35 trillion in Q3FY24.

With this, the index companies’ combined net sales are likely to grow in single digits for the fifth consecutive quarter in Q4FY24.

On the brighter side, however, brokerages expect an improvement in net sales growth on a sequential basis, thanks to a relatively fast top line growth by banks and oil and gas companies.

The combined sales of core manufacturing and services companies (Nifty 50 companies excluding banks, finance and insurance, and oil and gas companies) are, however, expected to grow 5.2 per cent Y-o-Y in Q4FY24, which is the slowest in the last 13 quarters.

In comparison, the combined net profits of the index companies excluding BFSI (banking, financial services, and insurance) and oil and gas are expected to grow 5.2 per cent Y-o-Y to 93,454 crore.

This will be an improvement from the 0.7 per cent Y-o-Y decline in the combined earnings of these firms in Q3.

The brokerages attribute the slowdown in earnings growth to gains from lower raw material prices coming to an end, and slowdown in revenue growth.

“Earnings growth momentum is slowing as revenue growth (moderates) and falling raw material benefit already (retained) in previous quarters.

"Equirus Universe will report 6 per cent and 4 per cent Y-o-Y growth in EBITDA (earnings before interest, tax, depreciation, and amortisation) and net profit driven by growth across sector in (the) domestic market whereas cyclical sectors remain weak,” wrote analysts at Equirius Research.

Analysts at Motilal Oswal Financial Services wrote: “We estimate Motilal Oswal universe and Nifty earnings to grow 6 per cent Y-o-Y each in (Q4FY24).

"Margin tailwinds are likely to narrow due to a high base.

"Earnings growth is expected to be weighed down by global cyclicals, such as oil & gas and mining and metals, which are anticipated to decline 6 per cent and 12 per cent Y-o-Y respectively.”

Analysts at Kotak Institutional Equity see faster earnings growth from automobiles, banks, and pharmaceutical companies.

“We expect the automobiles & components (higher volume, increase in average selling prices, richer product mix and RM tailwinds); banks (lower provisions), diversified financials (continued business momentum, strong collections); gas utilities (higher volumes, realization in case of GAIL); and pharmaceuticals (continued US strength and traction across most markets) sectors to report a Y-o-Y increase in the net income.”

The analysis is based on the quarterly finances of 48 Nifty 50 companies whose earnings estimates are available for Q4FY24.

The two index companies that are not part of the sample include Bajaj Finserv and Adani Enterprises.

The combined numbers for previous quarters include those of Housing Development Finance Corporation, which merged with HDFC Bank in July last year.