Q2 profit growth may slow

India Inc, analysts expect topline to maintain growth rate.

India Inc and capital market analysts expect robust corporate performance in the quarter ending September 2005.

The consensus is that the average net profit growth may come down marginally to 20 per cent but that is still a decent growth considering the higher base of 25-30 per cent during the same quarter last year. The topline is expected to grow 17-20 per cent – the same in the corresponding quarter last year.

Leading analysts see sectors like engineering, infrastructure, metals and auto ancillary to post very good results, while oil refinery and marketing companies are expected to be the worst performers in the major sectors. Banking is likely to remain a mixed bag, while automobile companies may also show some deceleration.

Cholamandalam Mutual Fund Chief Investment Officer Tridib Pathak says, "Corporate growth rates are tapering off. Growth rates in Q2 will come down due to a higher base of 25-30 per cent growth last year. It may average around 20 per cent overall. That is still a good growth."

Prudential ICICI Mutual Fund Chief Investment Officer Nilesh Shah concurs with this view. He says, "The year-on-year growth may be higher, but quarter-on-quarter it will slip. Year-on-year it is expected to be around 20 per cent (on the Pru-ICICI MF universe of stocks)."

"Automobile components, FMCG (fast moving consumer goods), and technology companies are likely to post good results. Bank results will remain flat. But automobile companies may not post good results due to a slowdown in their sales after the petrol price hike," Shah adds.

Even an information technology industry insider concurs with his views. Amar Chintopanth, chief financial officer, 3i Infotech, says, "This quarter seems to be better than the previous quarter, and companies are expected to post an increase in net profits and revenues."

Samir Rachh, head research, Emkay Share and Stock Brokers, says, "The fall in growth is induced by the rising cost of raw materials. Excess capacity in some sectors is likely to affect their results. The worst hit will be the oil and gas sector stocks, like Indian Oil, Bharat Petroleum and Hindustan Petroleum, due to product prices falling short of their cost. Fertilisers is another sector where the prices of raw material went up substantially, but product prices failed to keep pace."

On sectors that will post good results, Rachh identifies cement, FMCG, engineering and capital goods. "Cement units did not have to effect the usual cuts in prices during the rainy season this year due to a comfortable offtake," he adds.

Rachh also says IT companies will do well as the rupee movement in this quarter has been less harsh than the last quarter. The textiles sector is expected to post good results due to export demands, while paper companies will do better due to the price rise in the recent months.

VVLN Sastry, country head, Firstcall India Equity Advisors, has a more optimistic view. He says, "The overall Q2 bottom line growth will be above 25 per cent." Sastry wants to bet on pharma companies, which he says, will rebound from the previous quarter lows, having absorbed VAT shocks. Agrees Pankaj Patel, chairman and managing director, Cadila Healthcare.

“Although there are ambiguities and concerns on the pricing policy and tax regime changes, I hope the industry will score better in this quarter, especially with the export markets being very supportive now," he says.

Sastry says only frontline IT stocks will see high growth rates, but midcaps may not match them. The auto ancillary sector will show a marginal to fair growth, but high growth may elude auto stocks, except some companies like Bajaj Auto, he adds.

The automobile sector picture is a bit hazy. An executive of Mahindra & Mahindra says, "Whatever the auto industry lost in the month of July, has been picked up in August. However, the industry will face stagnant sales from September 18 on account of Pitrupaksha, when many people avoid purchasing. Generally, the growth in the September-ended quarter will be on a par with the previous corresponding quarter growth."

For shipping companies, Q2 will not be as good as Q1. An executive of Shipping Corporation of India (SCI) says, "Q2 results will not be as good as Q1 due to a slump in freight. The freight of tankers, bulk carriers and container vessels slackened during Q2. This will certainly impact the Q2 results of the shipping industry," he said.

Hurricane Katrina and Rita have caused freight to go up but its impact will be felt only in Q3, predicts an analyst.

Sastry says engineering and infrastructure sectors will do well as is the case with steel and cement. Banks will show mixed results based on their NPA levels and covering treasury losses. The FMCG sector may stage a slight recovery, but it will be a far cry from what the market is expecting.

__________________________________________________
Do You Yahoo!?
Tired of spam? Yahoo! Mail has the best spam protection around
http://mail.yahoo.com