What can we expect from Q1FY20 results?

The June quarter is expected to see pressure across passenger cars, LCVs and HCVs although the two wheelers may be less vulnerable.

Jul 09, 2019 02:07 IST India Infoline News Service

With the first quarter results just starting out, what should investors expect from this quarter? The Nifty and the Sensex are struggling to cross their psychological levels of 12,000 and 40,000 respectively and a lot would depend on the growth in top-line and bottom-line in the first quarter ended June 2019. The stakes are, therefore, high and here is what we broadly expect from the first quarter results.

Aviation – Will this be the surprise package?
With Jet Airways out of business since April 17, 2019, the other airlines have moved in quickly to take over the market share of 12-13% that Jet had. While the growth in market share will help these airlines to boost their top-line, there is good news on the profit front too. Crude oil prices have remained under check through the quarter at under $65/bbl on an average. More importantly, the supply constraints due to the failure of Jet Airways and the Boeing 737 Max issue have ensured that ticket prices have held firm during the quarter. Both the listed airlines are expected to report 25-30% growth in revenues. The profit growth could be much bigger but that is more due to the base effect.

Information Technology – Cost pressures are likely to show up
Most of the large IT companies are expected to show flat to marginal growth in revenues but the real problem could be in the profits. Apart from compression of operating profit margins, the larger IT companies are expected to witness fall in profits as there is an increasing dependence on on-shoring than on off-shoring due to the plethora of visa constraints posed by the Trump government. IT companies are increasingly recruiting local residents in other countries at a higher cost. The pricing is likely to remain under pressure due to weak IT spending so any top-line growth will only come from client additions.

Automobiles – Systemic pressure to continue
The June quarter is expected to see pressure across passenger cars, LCVs and HCVs although the two wheelers may be less vulnerable. But the weak rural demand due to delayed monsoons is expected to hit domestic market for two-wheelers too. We expect pressure on top-line and bottom-line with negative growth on both the fronts. The liquidity crisis has hit NBFCs quite deeply and till that is resolved it is unlikely that auto companies could see any worthwhile pick-up in sales. Also, auto companies have already issued warnings of weak sales off-take and the delayed monsoons have again put rural demand under question.

FMCG – A spate of warnings from consumer companies
Godrej Consumer Products and Marico literally set the cat among the pigeons when they wrote to the stock exchange (as part of their routine disclosure) that the business had been extremely tepid in the June quarter. The weak liquidity situation in the market, tepid rural demand, a delayed monsoon all have apparently contributed to weak performance. While growth is likely to be still positive, the top-line growth is expected to trend lower than the average of the last four quarters. Of course, FMCG companies would do better on the bottom-line performance due to lower crude prices, especially the paints companies.

PSU Banks – NPA cycle bottoming could give a boost
While private banks could be a mixed bag, the PSU banks could be the real positive surprise. While specific banks like PNB may still have account related issues, we do expect positive surprises from banks like SBI and BOB where the benefit of loan growth, better NIMs and NPA recovery should start kicking in.

The financials space is slightly hard to project but we could see big losses in the NBFC space, especially where companies are caught between the Scylla of toxic assets and the Charybdis of higher cost of funds. In a way, the June quarter is likely to set the pace for the full fiscal.

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