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India Inc’s Q2 earnings at a glance: The hits and misses
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7 min read | Updated on November 29, 2024, 19:18 IST
SUMMARY
Q2FY25 was not India’s Inc’s best showings. Most sectors have missed analyst expectations and FY25 earnings have seen an almost secular downgrade. Management commentary for the future has been one of cautious optimism. This trend has continued for a second quarter in a row, signalling a period of modest corporate profitability. Here's a breakdown of the factors contributing to this earnings trend alongside insights into sectoral performances.
Ex-financials, India Inc saw a 4% YoY decline EBITDA
India Inc. saw subdued Q2FY25 earnings, with several key financial metrics declining. Compared with analyst expectations for Q2FY25 as well earnings remained subdued. There were more misses on earnings estimates than beats.
Sectors such as Cement, Chemicals, Oil & Gas, and Power underperformed reflecting operational challenges or market headwinds. Sectors like Capital Goods, Media & Entertainment, and Metals & Mining stood out with notable beats compared to expectations.
Q2FY25: More misses on earning estimates than hits
| Sector | Revenue: Actual vs estimate | EBITDA: Actual vs estimate | EBITDA margin: Actual vs estimate | PAT: Actual vs estimate |
|---|---|---|---|---|
| Agro Chem & Fertilizers | Beat | Miss | Miss | Miss |
| Auto Ancillary | In-Line | Miss | Miss | Miss |
| Automobiles | In-Line | In-Line | In-Line | Miss |
| Banks PSU | NA | NA | NA | Beat |
| Banks Pvt | NA | NA | NA | In-Line |
| NBFC | NA | NA | NA | In-Line |
| Capital Goods | In-Line | Beat | Beat | Beat |
| Cement | In-Line | Miss | Miss | Miss |
| Chemicals | In-Line | Miss | Miss | Miss |
| Construction | In-Line | Beat | Beat | In-Line |
| Consumer Durables | Beat | Miss | Miss | Miss |
| FMCG | In-Line | In-Line | Miss | Miss |
| Healthcare | In-Line | In-Line | Beat | In-Line |
| Healthcare Services | In-Line | In-Line | In-Line | Miss |
| Home Improvement | Miss | Miss | Miss | Miss |
| Hotels Restaurants & Tourism | In-Line | In-Line | Miss | Miss |
| IT Services | In-Line | In-Line | In-Line | In-Line |
| Media & Entertainment | In-Line | Beat | Beat | Beat |
| Metals & Mining | In-Line | In-Line | In-Line | Beat |
| Oil & Gas | In-Line | Miss | Miss | Miss |
| Others | In-Line | In-Line | In-Line | In-Line |
| Power | Miss | Miss | Miss | Miss |
| Realty | In-Line | Miss | Miss | Miss |
| Retailing | In-Line | Miss | Miss | Miss |
| Telecommunication | In-Line | In-Line | In-Line | NA |
| Textiles Apparels & Accessories | In-Line | Miss | Miss | Miss |
| Transportation & Logistics | In-Line | Miss | Miss | Miss |
| NSE 500 | In-Line | Miss | Miss | In-Line |
Source: Bloomberg
Looking at the financial performance of consolidated Nifty 500 companies (ex financials), we see that sales increased by only 4% YoY, while EBITDA decreased by 4%. EBITDA Margins contracted by 135 basis points to 16.2%, starkly contrasting the expansion seen in the previous five quarters.
Margin contraction is mainly attributed to high inflation, with retail inflation reaching a 16-month high in October 2024 and wholesale inflation peaking at a 4-month high.
Aggregate revenue and earnings growth for NSE 500 companies (ex financials)
| Growth YoY % | Growth YoY % | Growth QoQ % | Growth QoQ % | EBITDA | Margin Change | Margin Change | |
|---|---|---|---|---|---|---|---|
| Quarter | Revenue | EBITDA | Revenue | EBITDA | Margin (%) | Margin YoY | Margin QoQ |
| Sep-24 | 4 | -4 | -1 | -5 | 16.2 | -135 | -10 |
| Jun-24 | 6 | 2 | -3 | 0 | 16.8 | 120 | 8 |
| Mar-24 | 5 | 10 | 5 | 3 | 16.3 | 72 | -40 |
| Dec-23 | 3 | 22 | 3 | -2 | 16.7 | 256 | -81 |
| Sep-23 | 0 | 36 | 1 | 1 | 17.5 | 458 | -4 |
| Jun-23 | -1 | 19 | -4 | 8 | 17.6 | 296 | 197 |
| Mar-23 | 10 | 3 | 4 | 14 | 15.6 | -105 | 145 |
| Dec-22 | 18 | -3 | 0 | 9 | 14.1 | -309 | 120 |
Source: Bloomberg
Factors responsible for subdued earnings
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Subdued capital expenditure - Both private and central capex have been sluggish in recent times. For example, the central government's capex in Q1 FY25 saw a significant drop, with monthly capex averaging at ~₹600 billion versus ~₹928 billion in Q1FY24. Lower central capex leads to lower order inflow for key industries like infrastructure, and railways, among others.
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Margin contraction is mainly attributed to high inflation as highlighted above.
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The urban economy is facing a slowdown owing to rising inflation which has led to lower consumption demand impacting Q2FY25 earnings for companies across the consumption sector. Detailed insights on this have been highlighted in From fields to fortune.
Readers should note these are the broad factors responsible for subdued earnings while sectoral earnings have been separately analysed previously:
What lies ahead?
As earnings started slowing down, analysts have downgraded FY25 earnings estimates for all the sectors.
Change in FY25 earnings estimate post Q2 FY25 results
| Industry | Revenue estimate % | EBITDA estimate % | PAT estimate % |
|---|---|---|---|
| Agro Chem and Fertilizers | -1.2 | -1.4 | -6.6 |
| Auto Ancillary | -1.6 | -4.7 | -6.0 |
| Automobiles | -1.7 | -3.3 | -3.7 |
| Banks PSU | 0.0 | 0.5 | 2.2 |
| Banks Private | -1.4 | -1.3 | -2.0 |
| NBFC | -0.3 | -0.2 | -3.2 |
| Capital Goods | -1.1 | -2.0 | -0.9 |
| Cement | -2.3 | -10.8 | -18.4 |
| Chemicals | -1.6 | -4.6 | -5.4 |
| Construction | -0.6 | -1.9 | -3.4 |
| Consumer Durables | 3.0 | -3.4 | -2.6 |
| FMCG | -0.4 | -2.2 | -3.0 |
| Healthcare | -0.3 | 0.8 | 0.0 |
| Healthcare Services | -0.3 | 1.3 | -1.0 |
| Home Improvement | -3.0 | -8.0 | -9.0 |
| Hotels Restaurants and Tourism | 0.0 | -1.2 | -3.3 |
| IT Services | 0.2 | -0.9 | -0.9 |
| Media and Entertainment | -1.4 | -2.1 | -1.6 |
| Metals and Mining | -2.9 | -4.5 | -5.7 |
| Oil and Gas | -2.0 | -6.0 | -8.5 |
| Others | -0.1 | -2.2 | -2.4 |
| Power | -1.6 | -2.8 | -1.3 |
| Realty | -1.1 | -2.8 | -1.8 |
| Retailing | -0.5 | -3.8 | -7.0 |
| Telecommunication | -0.9 | -0.8 | -18.6 |
| Textile, Apparel and Accessories | -1.1 | -2.2 | -3.6 |
| Transportation and Logistics | -0.6 | -2.1 | -9.4 |
| NSE 500 | -1.3 | -2.5 | -3.5 |
| NSE 100 | -1.4 | -2.4 | -2.7 |
| NSE Midcap 150 | -1.1 | -2.1 | -5.0 |
| NSE Smallcap 250 | -0.5 | -3.5 | -7.8 |
Source: Bloomberg
Conclusion
Q2FY25 earnings have been subdued across the sectors and companies owing to monsoon, urban slowdown, high inflation, and lower government capex. The market has reacted to an earnings slowdown as the NSE 500 corrected by 8-10% from its all-time high.
That said, there have been some green shoots recently, as highlighted above. The sustainability of these along with a fall in inflation could be some key monitorables for investors to decipher the future trajectory of India Inc’s performance.
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