Earnings Forecast: Q4FY25 Faces Continued Challenges Amidst Economic Uncertainties

As we approach the final quarter of FY25, the financial outlook remains bleak, with persistent earnings challenges highlighted in a recent report by Nuvama Institutional Equities. The analysis suggests that revenue growth for key sectors, excluding Oil Marketing Companies (OMCs), is expected to remain stagnant at approximately 6% year-on-year. This marks the eighth consecutive quarter of underwhelming growth, raising concerns among investors.

Profit Growth Stagnates Across Key Sectors

The sluggish revenue growth is taking a toll on profit margins, resulting in a meager profit growth forecast of just 1%—a significant drop from the 6% growth observed in the first nine months of FY25. Sectors such as cement, FMCG, energy, and automotive are anticipated to struggle, while industries like metals, chemicals, pharmaceuticals, and telecommunications are likely to shine with robust growth.

Key Insights on Sector Performance:

• Cement, FMCG, Energy, Autos: Sluggish profit projections.
• Metals, Chemicals, Pharma, Telecom: Expected to show strong growth.

A challenging path to profit recovery is becoming increasingly evident, leading to a consensus that falls short of expectations. The Nifty 50 EPS is projected to rise by a mere 2% in Q4, which is lower than the 6% growth projected for FY25. This weak finish to FY25, coupled with escalating global uncertainties, casts doubt on the anticipated 13% growth in Nifty 50 EPS for FY26.

Sector Ratings: A Mixed Outlook

Nuvama maintains an ‘overweight’ rating on several sectors, including private banks, insurance, telecommunications, pharmaceuticals, consumer goods, cement, and chemicals. Conversely, it holds an ‘underweight’ rating on industrials, metals, IT, power, and public sector banks, indicating a cautious approach towards these areas.

Revenue Trends Across Sectors:

• Strong Growth (> 15% YoY): EMS, internet, NBFCs, QSR, and consumer services.
• Moderate Growth (10–15% YoY): Durables, FMCG, pharma, retail, industrials, and non-lending financials.
• Weak Growth (< 10% YoY): IT, banking, metals, energy, paints, and cement.

Margins Under Pressure

As reported, the expected EBITDA margins for the sectors monitored (excluding commodities and BFSI) are projected to stabilize year-over-year, contrasting sharply with the significant expansion seen in FY24. However, net profit margins are declining due to increased depreciation linked to past capital expenditures and rising credit costs. As a result, PAT growth is expected to stagnate at 1%, a stark decline from 4% year-over-year in Q3FY25 and 7% year-over-year in the first half of FY25. This marks a remarkable downturn from the over 20% growth recorded in FY24.

Conclusion

With the financial landscape looking increasingly uncertain, the upcoming Q4 earnings will be crucial for assessing the trajectory of various sectors. Investors should remain vigilant as they navigate through these economic challenges, keeping an eye on sector-specific performance and broader market trends.

For more insights on sector performance and investment strategies, explore our detailed analyses on market trends and sector forecasts.