As the fiscal fourth quarter earnings season approaches, Nuvama Institutional Equities has issued a cautionary outlook, predicting that earnings challenges seen in the first nine months of FY25 will likely extend into Q4FY25. The brokerage highlighted several key trends, noting that top-line growth for their coverage universe, excluding oil marketing companies (OMCs), is expected to remain muted at around 6% year-over-year (YoY), marking the eighth consecutive quarter of sluggish growth.

Earnings Predictions for Q4FY25

Nuvama’s analysis indicates that weak top-line performance is exerting pressure on profit margins, with overall profit growth projected to stagnate at just 1%, down from a healthier 6% in the same period last year. The challenges appear particularly pronounced in sectors like cement, fast-moving consumer goods (FMCG), energy, and automotive, while sectors such as metals, chemicals, pharmaceuticals, and telecommunications are anticipated to experience stronger growth.

Key Company Earnings Announcements

In the coming week, major players in the IT sector are set to announce their Q4 earnings, starting with Tata Consultancy Services (TCS) on April 10th. Following TCS, Wipro will present its results on April 16th, and Infosys will follow suit on April 17th. Additionally, banking giants ICICI Bank and HDFC Bank are scheduled to release their earnings on April 19th.

Lack of Profit Recovery

Nuvama expressed concern that a recovery in profits remains elusive, which is disappointing for market consensus. They predict a modest 2% increase in earnings per share (EPS) for the Nifty 50 index, down from the previously expected 6% growth for FY25. The firm emphasized that a weak exit from FY25, combined with escalating global uncertainties, could jeopardize the 13% growth expectation for FY26E Nifty EPS.

Top-Line Growth Trends

According to Nuvama’s projections, Q4 top-line growth is anticipated to stagnate at 6% YoY, a decline from 8% in Q3FY25. This will mark the eighth consecutive quarter with sub-10% growth. The brokerage noted a shift in underlying factors: while FY24 experienced a decline in exports and low-end consumption, FY25 is witnessing slowdowns in the banking, financial services, and discretionary spending sectors. Sectoral insights reveal:

• Strong Growth (>15% YoY): EMS, internet services, non-banking financial companies (NBFCs), quick-service restaurants (QSR), and consumer services.
• Moderate Growth (10-15% YoY): Consumer durables, FMCG, pharmaceuticals, retail, industrials, and non-lending financials.
• Weak Growth (<10% YoY): IT, banking, metals, energy, paints, and cement.

Profitability on the Decline

EBITDA margins for the sectors monitored (excluding commodities and BFSI) are expected to remain stable year-over-year. However, the analysis points to a weakening profit after tax (PAT) margin due to rising depreciation from previous capital expenditures and increasing credit costs. The PAT growth forecast stands at a modest 1%, significantly lower than the 4% growth recorded in Q3FY25, and a sharp decline from 20% in FY24.

Sector-Specific Insights

Cement Sector Outlook

Nuvama anticipates that cement demand will grow by around 10% YoY in Q4FY25, primarily driven by increased government spending, with Ambuja Cements expected to lead in volume growth. While realization rates are predicted to improve by 1.5-2% QoQ, they are still expected to decline YoY. The brokerage suggests that the industry’s focus on volume growth will positively impact pricing.

Consumer Staples Sector Projection

In the consumer staples arena, Nuvama forecasts revenue, EBITDA, and volume growth of 9%, 3%, and 4% YoY respectively for Q4FY25. Strong demand during the summer months is anticipated to boost sales in beverages, talcum powders, and ice creams. However, rising raw material costs are likely to put pressure on margins for soaps and snacks.

IT Sector Predictions

The IT sector is expected to face a mixed bag in Q4FY25, with larger firms likely reporting a quarter-over-quarter revenue decline, while mid-cap companies are projected to show stable organic growth. The brokerage firm notes that uncertainties surrounding tariffs will be reflected in company guidance, although they remain optimistic about select large-cap and mid-cap stocks.

In summary, as the earnings season unfolds, Nuvama’s insights suggest a cautious approach to investments, highlighting both challenges and opportunities across various sectors. For investors, staying informed about these trends will be crucial for navigating the market effectively.