Hit by high borrowing and raw material costs, Indian companies are expected to show subdued profits in the October-December third quarter of 2011-12. Results kick off this week.
The only silver lining on this gloomy horizon appears to be sectors such as information technology, pharma and oil and gas, which are likely to benefit from the sinking rupee.
"IT companies will be largely helped by the sharp depreciation in rupee while cement and FMCG companies, which pass on increase in raw material cost to the customers, will report healthy growth in profit after tax (PAT)," said Pankaj Pandey, head- research, ICICI Direct. "But we expect capex-linked sectors like capital goods, infrastructure, and power to report subdued results because of high costs."
ICICI Direct expects EBITDA margins (Earnings Before Interest, Taxes, Depreciation and Amortisation, a key measure of a company's profitability) of most companies barring banks and financial institutions to be at 15.4% for the third quarter. This is a decline of 230 basis points year-on-year (YoY; 100 basis points = 1 percentage point).
On the PAT front, the firm is allowing for a 11.4% decline for the third quarter.
Slower loan growth and rise in bad loans are expected to hit banks and non-banking finance companies. Loan growth slowed down to 17.5% against an average 19.5% YoY growth in the same quarter last year after the Reserve Bank of India hiked interest rates several times by to dampen spending.
"We expect around 13% YoY growth in PAT for the sector," said Adarsh Parasrampuria, analyst, Prabhudas Lilladher.
IT companies are expected to report a strong 31.3% sales growth YoY, partly aided by the recent sharp depreciation of the rupee, according to an Angel Broking report. The top three players - Tata Consultancy Services, Infosys and Wipro - are expected to register a combined net profit growth of 21% year-on-year, despite the third quarter traditionally being the quietest period in the IT sector.
Margins in the auto industry remained under pressure due to discount offers to offload inventory, and higher operational costs.