Earnings Tracker: 5 Nifty50 companies can post over 40% profit fall in Q3

The earnings season on Dalal Street is underway, and as many as five Nifty50 companies can post a sharp yearly drop of over 40% in profit in the December quarter, suggest brokerage analysis. The stocks are JSW Steel, Tata Steel, Hindalco, Grasim and Divi's Laboratories.

The majority of these companies belong to the metals pack which is expected to post a weak quarter. Surging inflation, tightening global liquidity, imposition of export duties, fears of recession and ongoing conflict between Russia and Ukraine had severely impacted the metals sector over the last two quarters, according to Motilal Oswal Financial Services (MOSL).

Overall, Nifty corporate earnings are expected to remain healthy at 14% in Q3 FY23, said the brokerage while excluding metals and oil & gas companies, they are forecasted to rise 25% year-on-year (YoY).

Take a look at earnings estimates:

Tata Steel
According to brokerage Kotak Institutional Equities (KIE), Tata Steel's reported profit after tax (PAT) may plunge by 89.4% YoY to Rs 1012.1 crore while its net sales could fall as much as 12.9% to Rs 52,966.2 crore. KIE estimates steel realization to decline by 11.9% YoY led by price cuts and contract resets during the quarter. It expects standalone volumes to increase by 9.8% YoY to 4.67 million tons on a low base.

Brokerages MOSL and ICICI Securities see a 56.1% and 96.5% YoY fall, respectively. Management guidance on Tata Steel Europe and NINL operations is to watch out for, said MOSL.

JSW Steel
For JSW Steel, ICICI Securities sees a 95.7% YoY decline in PAT to Rs 185.8 crore while revenue it said could rise by 5.4% to Rs 40,136 crore. "Expect standalone EBITDA to improve sequentially led by lower coking coal cost though iron ore cost remained broadly unchanged. BPSL's performance may remain subdued on higher cost and iron ore/rake availability constraints in Odisha. Overseas subsidiaries are unlikely to show improvement owing to higher cost and decline in realisation, particularly in the US," said the brokerage note.

Hindalco
As for Hindalco, most brokerages expect the profit decline to by 30-40%. MOSL pegs reported PAT for the company in Q3 at Rs 2,100 crore, down 31.4%. Meanwhile, KIE pegs the same at Rs 1961.9 crore (down 46.4%) and ICICI Securities at Rs 1,842.5 crore (down 49.9%).

"Novelis’ EBITDA/t is likely to be $400/t, the lower end of the guidance, owing to seasonally lower shipments and high energy cost. Primary AL cost may be lower QoQ, however, the decline in LME AL price would impinge EBITDA further. Copper EBITDA is expected to be slightly lower mainly due to lower by-product prices," said ICICI Direct in a note.

Grasim Industries
According to MOSL, Grasim's PAT could come in at Rs 290 crore, down 40.2% YoY while net sales could rise by 7.2% to Rs 6,200 crore. Similarly, KIE pegs the profit at Rs 316.3 crore, down 35.3% and sales at Rs 6,368.1, a growth of 10.1%.

"We expect revenue for the VSF/Chemical segment to grow 8%/6% on a 1% YoY (each) growth in volume and 7%/5% YoY growth in realization, respectively. In 2Q, the company had higher ‘other income’, backed by higher dividend income from UltraTech Cement," said MOSL.

Divi's Labs
As for pharma major Divi's Labs, both KIE and MOSL see over 40% fall in profit growth in Q3.

"We build in 22% YoY overall sales decline for Divi's in Q3 FY23. The primary reason for this decline is lower Molnupiravir sales. Compared to ~$130 million sales in Q3 FY22, we estimate just ~$10 million Molnupiravir sales by Divi's in the said quarter," said KIE. It sees December quarter sales at Rs 1,949.1 crore. Meanwhile, it pegs profit at Rs 537.3 crore, down 40.4%.

As for MOSL, it sees the profit falling by 40.2% YoY while it sees sales down by 24.1%.

Outlook on niche products under development in API/Custom synthesis/Nutraceuticals category will be key monitorables, MOSL said.

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