The initial March quarter results hint at a slowdown in corporate sector growth in the upcoming quarters. According to a report by Business Standard, the combined net sales of the 81 early bird companies in the Business Standard sample were up 15.1 percent year-on-year in Q4FY22, which was less than the 15.9 percent YoY jump reported in Q3FY22.
The slowdown could be much stronger for the domestic market-focused companies, including those in the banking, finance, and insurance (BFSI) space, noted the report.
"The combined net sales of 70 early bird companies, excluding IT services exporters, were up 11.5 percent YoY in Q4FY22, slower than the 12.6 percent YoY growth reported in the previous quarter and only marginally better than the 11.3 percent YoY growth in Q4FY21," it added.
The report further noted that with respect to earnings, companies across sectors continue to face margin pressure because of faster growth in operating expenses, such as salary & wages, and raw material and energy costs. The operating or Ebitda margin of 70 non-BFSI companies was down nearly 200 basis points on a YoY basis in Q4FY22, it stated.
Yet, these early birds managed to report 24.5 percent YoY growth in net profit in Q4FY22 because of savings on fixed costs, such as interest and depreciation; banks once again gained from a sharp decline in provisions for bad loans, noted BS.
There is, however, a sharp moderation in the overall profit growth, if ICICI Bank and HCL Technologies numbers are excluded from the sample. These two emerged as the top performers during the fourth quarter.
While ICICI Bank's net profit was up 59.4 percent YoY in the fourth quarter, HCL Tech reported a 224 percent YoY jump in its net profit.
Excluding these two, the combined net profit is up only 11.9 percent YoY in Q4FY22; growth in net profit (adjusted for exceptional gains & losses) at 10.9 percent is the lowest since June 2020 quarter, it said.
But analysts are cautious about reading too much in the early bird result, given the small sample size. One must note that these early-bird companies account for only 17 percent of the market capitalisation of all the BSE-listed companies. On the earnings side, these firms account for only 18 percent of all listed companies’ net profit and just 2.13 percent of their combined net sales.
Still, analysts point out that the fourth-quarter results of industry leaders such as TCS, Infosys, HDFC Bank, and Nestlé India, suggest a big downgrade in India Inc forward earnings for FY23 and FY24. “The Q4 earnings of key companies point to the growth and margin challenge that lies ahead of India Inc. Analysts have begun to scale down their earnings forecast for FY23 and I expect up to a 20 percent cut in Nifty50 companies’ earnings per share estimate for FY23,” Dhananjay Sinha, MD & chief strategist JM Institutional Equity told BS.
Before the start of the Q4FY22 earnings season, brokerages expected 25 percent YoY growth in Nifty50 companies’ earnings in FY23. Brokerages expect companies, such as ICICI Bank and HCL Tech, to outperform their peers based on their Q4FY22 results.