A Bloomberg earnings upgrade or downgrade is the consensus estimate by equity analysts tracking the stock, indicating expectations of higher or lower profits, respectively.
To be sure, the December quarter earnings season has been better than expected for the aggregate universe of listed companies in India. Still, keenly-tracked sectors such as IT, lenders, chemicals, consumer goods, home improvement, infrastructure, cement, metals, oil and gas, and telecom, among others, have reported weak earnings.
Companies such as UPL, FSN E-Commerce, Adani Wilmar, BHEL, Vedanta, SAIL, Sharda Cropchem, Lux Industries, Glenmark Pharma, Tata Steel, Adani Enterprises, Navin Fluorine, and Deepak Fertilisers, among others, have seen EPS downgrades of 25% to 90% in the past three months.
The global economic slowdown, driven by persistently high interest rates and sticky inflation, threatens to moderate earnings growth while EBITDA margin expansion would slow amid demand deceleration, analysts said.
“The moderation in topline growth across the broader economy corresponds with the global economic slowdown attributed to elevated interest rates and inflation,” said Vinod Nair, head of research, Geojit Financial Services. “Expansion in EBITDA margins that Indian corporates were experiencing during 2022-23 has tapered in line with a slowdown in demand, destocking, and stabilisation of raw material prices.”During the December quarter, the IT services sector continued to experience weakness in significant verticals and regions, particularly in BFSI, consumer, and communications, where growth remained subdued.Consumer companies saw muted revenue growth due to intense local competition, delayed rural recovery, and ongoing price cuts, which continued to impact revenue performance negatively. The consumption trend and management’s outlook on rural recovery remained consistent during this period.
According to Varun Lohchab, head of research-institutional equities, HDFC Securities, the changes in earnings estimates were deeply concentrated, with 50% and 37% of the earnings upgrades led by the energy and auto sectors, respectively. Lenders, staples and discretionary were responsible for 14%, 8% and 9% of the cuts, respectively, for FY24.
Jubilant Foodworks, Voltas, Tech Mahindra, SRF, Patanjali Foods, Tata Communications, Coromandel International, Biocon, NALCO, Bandhan Bank, HDFC Bank and Ipca Laboratories, among others, have seen 10-20% EPS downgrades in the past three months.
With raw material and fuel costs easing, many analysts expect modest margin expansion in the next couple of quarters.
“Rural recovery remains stunted, and urban demand is tepid; however, we believe underlying demand is also showing a shift in wallet share as consumers spend on emerging necessities by use of new channels, a trend which will only accelerate as we march toward a $-5 trillion economy by 2028,” said Amnish Aggarwal, director – research, Prabhudas Lilladher.
“Auto, capital goods, pharma, and travel reported strong sales, EBITDA and PAT, while specialty chemicals and consumer durables reported lower EBITDA. FMCG, retail and QSR showed the impact of poor demand even as raw material prices provided some cushion to margins and profitability,” he added.
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