Banks, Automobile cos to lead Q4 profit growth

MUMBAI: Banks and automobile companies are likely to lead profit growth in the fourth quarter of the just-concluded financial year 2010-11, while telecom and real estate firms may be the primary laggards, according to consensus estimates of eight brokerages.

Most brokerages predict double-digit growth in bottom line for large-cap companies on the benchmark share indices, the Sensex and Nifty, amid a continuing tug of war between healthy top line growth, on the back of strong aggregate demand in the broad economy, and rising input cost weighing on margin. Bombay Stock Exchange's 30 Sensex companies are likely to post a year-on-year net profit growth of 17-19%, four of the eight brokerages estimated, while a conservative forecast sees profit growth at 12.5%.

"In overall terms, corporates, excluding oil marketing companies, are likely to report an 18-19% growth this quarter," said Manish Sonthalia, senior vice-president, Motilal Oswal Securities.

The financial sector, particularly banks, is seen leading the growth curve this earnings season led by strong credit growth. However, margin pressure is likely to remain due to higher cost of fund and more money moving into term deposit due to the rise in interest rate that may negatively impact low-cost current account savings account (CASA) ratio. Banks are likely to post a 30-40% growth in net profit, led by State Bank of India , ICICI Bank , and HDFC Bank , Mr Sonthalia said.

Brokerages expect auto majors like Tata Motors , Bajaj Auto , and Mahindra & Mahindra to report impressive growth due to record vehicle sales. "Y-o-Y volumes growth was strong in the quarter across all auto companies, but their EBITDA margins will see a dip due to rising input costs," said CLSA in its earnings preview.

Telecom, real estate, and construction companies are likely to be among the laggards, the brokerages said. Telecom companies will be hit by continuing tariff war for the sixth quarter in a row, and also by interest outgo towards third-generation spectrum loans. Morgan Stanley estimates an average 40% fall in net profit of telecom companies in Jan-Mar.

Real estate companies are seen weighed down by rising commodity prices and hardening interest rates. "We expect infrastructure, construction, real estate, and power companies to post negative surprises this quarter," said Tejas Doshi, vice-president (research), Sushil Financial Services.

High oil prices and rising interest rates, with headline inflation above 8%, will remain key concerns for corporate earnings in FY 2011-12, said analysts. "Higher crude prices will impact profit margins of several companies for many quarters to come," said Ambareesh Baliga, chief operating officer, Way2Wealth Securities

Source: EconomicTimes