Q3 Earnings Momentum, Over 20 Companies Poised For Doubling Profits YoY; Rural India Contributes Nearly 35 To 38% FMCG Sales In The Country.

With the quarter ending in December witnessing a positive shift in macro factors within India, domestic-focused sectors are poised to lead the way in another strong Q3 earnings.

As per projections from Motilal Oswal Financial Services, a minimum of 23 companies are anticipated to witness a more than twofold increase in their year-on-year (YoY) profits, driven by robust revenue growth and enhanced profitability.

The sectors expected to dominate this earnings surge include automobile, auto ancillary, capital goods, electronic manufacturing, metals, and certain segments within the financial services sector.

Specifically within the Nifty 50 universe, Motilal Oswal predicts that automobile, BFSI, and oil marketing companies will contribute to an overall 10% YoY growth in profits for the reporting quarter.

Motilal Oswal’s estimates indicate that around 17 Nifty companies are likely to showcase a PAT (Profit After Tax) growth exceeding 30% YoY, while 10 companies may experience a decline in their bottom line.

Key contributors to the overall earnings within Nifty 50 are expected to be HDFC Bank, Tata Steel, Reliance Industries, ICICI Bank, and JSW Steel, while Wipro, SBI, Coal India, Tech Mahindra, and UPL are projected to witness a decline.

In the realm of automobiles, companies are poised for a substantial 35% YoY growth in earnings, attributed to robust volumes and margin expansion facilitated by cost efficiencies and operating leverage.

Notably, tyre manufacturers such as Balkrishna Industries, CEAT, and MRF could witness profits surging by 228-398% YoY.

Among automakers, Maruti Suzuki India is projected to report a 31% YoY growth in profit, supported by a 15% increase in sales and a 45% rise in operating profit, according to Motilal Oswal’s estimates.

In the auto ancillary sector, Samvardhana Motherson is expected to experience an 89% YoY increase in net profit, driven by a 25% growth in topline and a 46% growth in operating profit.

Capital Goods
The robust execution of projects and a substantial influx of orders are anticipated to drive the performance of capital goods and engineering companies.

Notably, within this sector, Hitachi Energy and KEC International are poised to experience a significant surge in profits. Estimates suggest that Hitachi Energy’s profits may witness an 895% YoY increase, while KEC International is expected to observe a substantial jump of 549%.

Sector leader Larsen & Toubro is projected to report a 41% growth in profits, propelled by a 16% increase in revenue and a 22% rise in EBITDA.

Electronic Manufacturing
Companies like Avalon Technologies, Cyient DLM, and Kaynes Technology, specializing in integrated engineering solutions for manufacturing, are expected to announce robust earnings for the December quarter.

Both Avalon Tech and Cyient DLM are forecasted to witness profits surging by more than 150% YoY in the previous quarter, driven by substantial growth in both topline and operating profits, as per Motilal Oswal’s analysis.

Metals
In the metal sector, Hindalco Industries is poised to witness a more than twofold increase in profits in the December quarter, primarily attributed to reduced cost pressures and improved realizations.

The operating profit of the aluminum major is expected to experience a notable 74% rise.

In the steel segment, JSW Steel is anticipated to report an impressive 329% growth in net profit, despite a subdued topline, owing to a sharp improvement in profitability.

FMCG Makers’ Outlook
Leading FMCG makers are anticipating low to mid-single-digit volume growth in the October-December quarter, with a sequential improvement in consumer demand.

While urban markets remain steady, consumer demand in rural markets lags, as reported by major FMCG firms such as Dabur, Marico, and Godrej Consumer Products in their quarterly updates.

Companies express optimism regarding a gradual uptick, observing early signs of consumption revival with improving volume trends.

Additionally, they expect gross margin expansion on a year-on-year basis, aided by moderating inflation in key input prices such as copra and edible oil. This is anticipated to allow FMCG makers to allocate more funds toward advertising and promotions.

Dabur India, in its quarterly updates, mentions that a substantial part of gross margin expansion will be directed towards enhancing advertising and promotion spending, resulting in an improvement in year-on-year operating profit.

Marico acknowledges challenges in the rural market in the December quarter but remains optimistic about consumption trends gradually improving in 2024, citing positive macroeconomic indicators, continued government spending, favorable consumer pricing, and other factors.

Marico also highlights constraints on liquidity and profitability in the general trade channel, while alternate channels continue to perform well.

Rural India
Rural India contributes approximately 35 to 38 percent of the total FMCG sales in the country.

The home-grown FMCG maker, possessing a portfolio that includes Dabur Chyawanprash, Dabur Honey, Dabur Pudin Hara, Dabur Amla, Real, and Vatika, notes that the growth in the December quarter is predominantly driven by large volumes, with pricing growth remaining subdued due to price increases in the base year.

The Food and Beverage (F&B) segment of the company is expected to witness high-single-digit growth, while the Home & Personal Care (HPC) segment is poised for record growth in the mid-single digit.
However, the healthcare business is anticipated to grow in the low to mid-single digits, owing to the delayed onset of the winter season.

Similarly, Godrej Consumer Products Ltd (GCPL) anticipates delivering “mid-single digit volume growth” on a consolidated basis in the December quarter.

Despite the operating environment in India remaining similar to Q2, GCPL’s organic business has achieved steady underlying volume growth in the mid-single digit.

In the international market, Indian FMCG companies also foresee mid-single-digit growth based on constant currency.

GCPL expects a “compelling performance” with close to double-digit volume growth and high-single-digit constant currency sales growth from its Indonesia business, which is its second-largest market after India.

While its business in GAUM (Godrej Africa, US, and Middle East) remained flat, the Latin America (LATAM) business has been significantly impacted.

Marico’s international business demonstrated mid-single-digit constant currency growth, and Dabur India foresees its international business registering double-digit growth in constant currency terms, driven by positive momentum in the MENA (Middle East and North Africa) region.

The Last Bit, In Q3 2024, the Indian market stands poised for a surge in earnings, with a spotlight on key sectors driving this momentum.

The anticipated doubling of profits among a substantial number of companies underscores the resilience and growth potential within the economy.

As giants like HDFC Bank, Tata Steel, Reliance Industries, ICICI Bank, and JSW Steel steer the Nifty 50 towards overall earnings growth, the contrasting fortunes of companies like Wipro, SBI, Coal India, Tech Mahindra, and UPL highlight the nuanced dynamics at play.

With a particularly robust outlook for the automobile sector, featuring impressive performances from Maruti Suzuki India, tyre makers like Balkrishna Industries, CEAT, and MRF, as well as notable auto ancillaries, the stage is set for a quarter marked by substantial earnings and strategic developments.