Q3 Earnings Preview: Top line growth likely to remain subdued for seventh consecutive quarter

Kotak Institutional Equities expects Q3FY25 net profits for the BSE-30 index to increase by 7.2% YoY, and for the Nifty-50 Index to grow by 9% YoY and 2.2% QoQ.

Brokerages forecast continued slow growth for companies in the December quarter, with only a few sectors expected to report robust earnings. Brokerages predict that top-line growth for the listed firms will remain subdued for the seventh consecutive quarter. Further, year-on-year (YoY) margins are expected to face pressure, resulting in the third consecutive quarter of sub-10% profit growth.

Sectors such as automobiles, banks, construction materials, consumer staples, and oil are expected to report weak profits with single-digit growth, while capital goods, pharmaceuticals, real estate, and telecommunications are expected to see strong profit-after-tax (PAT) growth.

The earnings season kicks off with Tata Consultancy Services, a leading software services company, set to report its results today. Avenue Supermarts, the owner of D-Mart, will follow with its earnings announcement on January 11.

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According to brokerages, the automobile and components sector faces challenges due to margin compression from higher discounts and an unfavourable product mix. Banks are expected to be impacted by slower loan growth and rising loan-loss provisions, although State Bank of India (SBI) is anticipated to report strong YoY PAT growth due to higher provisions for wage settlements and prior-period adjustments.

The construction materials sector is likely to be under pressure due to weak realisations, while consumer staples will be affected by slowing urban demand. The metals, mining, oil, gas, and consumable fuels sectors are projected to report weak or single-digit net income growth.

On the other hand, sectors such as capital goods, diversified financials, pharmaceuticals, real estate, and telecommunications are expected to deliver strong YoY net income growth. Capital goods will benefit from healthy demand, pharmaceuticals from stable US generics pricing and growth in other markets, real estate from improved launch activity, and telecommunications from higher average revenue per user (ARPU).

Kotak Institutional Equities expects Q3FY25 net profits for the BSE-30 index to increase by 7.2% YoY, and for the Nifty-50 Index to grow by 9% YoY and 2.2% QoQ. Motilal Oswal Securities forecasts the MOFSL Universe and Nifty-50 earnings to grow by 6% YoY each in Q3. Brokerage firm Nuvama anticipates Q3FY25 top-line growth of 8% YoY for its coverage universe (excluding OMCs), a slight improvement from 6% growth in Q2FY25. This would mark the seventh consecutive quarter of sub-10% top-line growth.

Further, EBITDA margin growth for Nuvama’s coverage (excluding commodities and BFSI) is expected to be stable YoY (compared to a significant expansion in FY24), which is weighing on PAT growth. Nuvama estimates PAT growth of 9% (up from 6% in Q2FY25), a significant slowdown from the 20%-plus growth in FY24. On a YoY basis, profits are expected to be weak for commodities, cement, consumer goods, and pharmaceuticals, while industrials, banks, and chemicals are likely to experience acceleration.

Brokerages also expect EBITDA margins for listed firms to remain flat YoY at 17.1%, supported by healthcare and telecom, but weighed down by commodities and cement. Meanwhile, Nifty-50 EBITDA margin is expected to expand by 30 basis points, reaching 20.2%.

Motilal Oswal Securities expects modest earnings growth, primarily driven by the BFSI sector, with positive contributions from technology, capital goods, healthcare, and real estate. Earnings for PSU Banks, NBFC-Lending, and Private Banks are expected to grow by 13%, 8%, and 2% YoY, respectively. However, the 2% growth in private and 13% growth in PSU banks represents the lowest earnings growth in the last 13 and 10 quarters, respectively. Non-lending NBFCs (capital market players) are expected to see a 39% YoY earnings increase, driven primarily by exchanges and brokers, it added.

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