India-Strategy : Q4FY25 Preview - Fading growth momentum by Elara Capital
In Q4FY25E, revenue growth in our coverage universe is likely to slow down to 3.5% YoY and earnings could see a decline YoY. Momentum for domestic cyclicals is set to stall as earnings decline for autos and banks YoY. On the other hand, commodities would have a mixed performance, with metals and cements likely to improve and oil & gas decline. We expect an earnings contraction YoY across all market caps.
Expect Earnings to decline YoY: Sales growth of our coverage universe is likely to slow to 3.5% YoY in Q4FY25E. While earnings growth is set to turn negative again after a positive Q3. Domestic cyclicals, such as autos and banks, may weigh on earnings growth of our coverage universe, ex of which growth is likely to decline by 1%. While domestic cyclicals would post a decline in earnings of 12%; ex-Tata Motors, the decline stands at 4%. Commodities-oriented sectors also would cause earnings to shrink albeit with limited impact.
Momentum fades for domestic cyclicals: Domestic cyclicals are likely to post an earnings decline, dragged by Tata Motors. Banks are likely to post mixed results with lower loan growth, NIM pressures and higher slippages in unsecured book & microfinance portfolios. The auto sector is likely to witness EBITDA margin contraction YoY, largely from lower operating leverage, increased competition in passenger vehicles (PV), and higher input costs. Demand trends in FMCG are set to remain muted with urban consumption continuing to be weak; rural demand could show some improvement on a low base.
Mixed performance across sectors: Steel companies are likely to post volume growth of 5-16% while domestic realization is set to show mixed trends. Despite muted realization, we expect an improvement in EBITDA/tonne, owing to lower iron ore and coking coal prices. Cement companies would show a sequential recovery, likely to be driven by buoyant volume led by seasonal demand and back-ended government spending, higher cement prices, and operating leverage benefits. Oil & gas companies are set to report a decline in EBITDA, driven by oil marketing companies (OMC) and city gas distribution (CGD) firms, partly offset by RIL and ONGC. For pharma, US generics are likely to have a stable and improved pricing environment for base products while domestic business growth is likely to remain elusive while growth of hospitals is set to remain robust.
Sharper decline in Small and midcaps: Within our coverage universe, large-cap firms are likely to show better resilience in terms of bottom-line performance. While we expect earnings contraction across them, large-cap earnings are set to decline by 4% YoY vs a sharper decline of 9% YoY and 8% YoY for mid-cap and small-cap firms, respectively. While auto and bank sectors are dragging the earnings in the Large cap and midcap space, energy sector is dragging it in small cap space.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
