Q3 FY21 numbers of India Inc to be healthy; metal, cement, healthcare sectors may outshine others

The December quarter earnings season is here. IT heavyweight TCS will release its Q3 FY21 scorecard later today.

As the factors like COVID-19 vaccines and economic recovery have already been factored in the market, quarterly earnings, along with the global cues, are expected to dictate the mood of the market in weeks to come.

"We believe Q3 earnings and global cues would provide further direction to the markets. To start with, the Q3FY21 result of IT major TCS would be on participants’ radar," said Ajit Mishra, VP - Research, Religare Broking.

Analysts are brokerages expect December quarter numbers to be healthy.

"After the blockbuster Q2FY21 corporate earnings season, which was characterised by big beats and upgrades across our coverage universe, Q3FY21 earnings are likely to be healthy," said brokerage firm Motilal Oswal Financial Services.

Motilal Oswal pointed out that the drivers of earnings are also changing at the margin, with Q3FY21 earnings expected to be led by cyclical sectors like metals and cement, even as healthcare is expected to post another solid quarter.

"The festive season has aided the demand recovery, and with vaccination against COVID-19 set to begin in the next few weeks in India, we expect demand to sustain further," said the brokerage firm.

Motilal Oswal expects PBT/PAT to grow by 20 percent/17 percent year-on-year (YoY) in Q3FY21 for companies under its coverage.

Metals, cement, healthcare, consumer durables are expected to drive Q3FY21 earnings. Consumer, private banks, automobiles, and NBFCs are likely to post flattish earnings YoY. Capital goods, retail, and staffing

are expected to post a YoY profit decline, Motilal Oswal said.

As per the brokerage, sales for Nifty constituents are expected to decline by 2 percent YoY, while EBITDA/PBT/PAT should grow by 10 percent/9 percent/7 percent YoY.

"Excluding cement and metals, Nifty earnings are expected to be flattish YoY. Motilal Oswal's universe, excluding OMCs, is likely to see a 260bp YoY expansion in operating margin," said the brokerage firm.

The brokerage firm expects Nifty EPS to now grow by 11 percent in FY21 which is a solid performance given the unprecedented disruptions.

"In FY22, we expect BFSI, auto, IT, and Reliance Industries to lead the earnings recovery. We also introduce our FY23E Nifty EPS at Rs 830," said Motilal Oswal.

Kotak Institutional Equities (KIE) expects Q3FY21 net profits of KIE coverage universe to increase 47 percent YoY and 18 percent QoQ.

It expects a strong YoY increase in the net income of (1) automobiles (strong pent-up demand and higher profitability), (2) banks (low slippages due to the ongoing freeze on NPL recognition; large loss of YES Bank in the base quarter), (3) construction materials (decent demand offsetting marginal price correction), (4) metals & mining (sharp increase in realisations) and (5) pharmaceuticals (increase in US revenues along with decent domestic growth) sectors.

Kotak expects net profits of the BSE-30 index to increase 2 percent YoY and 12 percent QoQ and that of the Nifty50 index to increase 19 percent YoY and 19 percent QoQ.

"We estimate EPS of the BSE30 index at Rs 1,632 for FY21 and Rs 2,046 for FY22 and of the Nifty50 index at Rs 494 for FY21 and Rs 632 for FY22," Kotak Institutional Equities said.

Brokerage firm Antique Stock Broking has similar expectations from the Q3 earnings numbers.

"Recovery in earnings momentum is expected to gain traction in Q3 as economic activities have started to normalize. Excluding financials and sectors with volatile earnings and one-offs like commodities and telecom -Nifty50 revenue/EBITDA/PBT/PAT YoY growth is expected to be 9.8 percent/18 percent/14.5 percent/13.3 percent (on the free-float basis)," Antique said.

"Margin is expected to improve sharply from 18.2 percent to 19.5 percent mainly driven by metals and healthcare. Sectors which are expected to report sharp YoY earnings growth are metals, healthcare and cement, while earnings contraction is likely to be seen in NBFC and energy," Antique said.

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