Q2FY25 Earnings: A Mixed Bag for India Inc

The second quarter of FY25 (Q2FY25) presented a subdued earnings performance for India Inc., with key financial metrics showing weakness across sectors. Many companies underperformed analysts’ expectations, with more misses than beats, reflecting a challenging operating environment.

Sectoral Performance Highlights

• Underperformers: Cement, Chemicals, Oil & Gas, and Power sectors faced headwinds, experiencing operational challenges that hindered performance.
• Outperformers: Capital Goods, Media & Entertainment, and Metals & Mining bucked the trend, delivering results that exceeded expectations.
• Consolidated Metrics: An analysis of Nifty 500 companies (excluding financials) showed sales growth of just 4% year-on-year (YoY), while EBITDA contracted by 4%. Margins fell by 135 basis points to 16.2%, marking a reversal from the expansion seen over the previous five quarters.

Challenges Driving Subdued Earnings

1. Inflationary Pressures:
   • Retail inflation reached a 16-month high in October 2024.
   • Wholesale inflation also spiked to a four-month high, compressing corporate margins.
2. Sluggish Capital Expenditure:
   • Both private and government capital expenditures slowed significantly.
   • Central government capex in Q1 FY25 dropped sharply, averaging ~₹600 billion per month compared to ~₹928 billion in Q1 FY24.
3. Urban Economic Slowdown:
   • Rising inflation curtailed urban consumption demand, affecting earnings across consumer-facing sectors like FMCG and paints.

Sectoral Insights

While the broader market grappled with challenges, some sectors showed resilience:

• Strong Performers: Construction and infrastructure led with a 34.1% earnings growth, followed by sectors like pharmaceuticals, auto ancillaries, BFSI, and IT.
• Lagging Sectors: Oil & Gas, Automotive, Power, and FMCG reported YoY profit declines.
• Banks: The BFSI sector stood out, contributing significantly to sectoral earnings. Banks reported double-digit growth in gross interest income (13.1%) and net profit (19.9%) YoY, although at a slower pace than in previous quarters.

Green Shoots and Outlook

Despite the overall subdued performance, there are positive signals:

1. Revival in Government Spending:
   • Government capex rebounded in September 2024, supporting sectors reliant on infrastructure development.
2. Festive Demand:
   • Increased activity during the festive season in October 2024 boosted demand across multiple sectors.
3. Uptick in Manufacturing:
   • October 2024 witnessed a pickup in manufacturing activity, potentially indicating a recovery in industrial demand.

Conclusion

Q2FY25 earnings revealed sharp contrasts, with certain sectors accelerating while others faced stagnation. The NSE 500 index corrected by 8-10% from its all-time high, reflecting investor concerns over slower earnings growth and broader economic challenges.

Looking ahead, the sustainability of the green shoots, along with easing inflationary pressures, will be critical in determining the trajectory of India Inc.’s performance. Investors will need to monitor government spending, festive demand trends, and inflationary dynamics to navigate the evolving landscape.

Market this week

Source: BSE and NSE

• The Indian equity market declined a 0.5% in the week ending November 29, due to mixed global cues, expectations of political stability in Maharashtra, and easing geopolitical tensions that drove crude oil prices lower.
• Sectoral performance was led by the Nifty Media index (+5.5%), Nifty PSU Bank index (+4.7%), Nifty Oil & Gas index (+4%), and Nifty Energy index (+2.6%). However, Nifty Auto and Information Technology indices each declined by 0.5%.
• FIIs continued their selling spree, offloading equities worth Rs 5,026.77 crore during the week, while DIIs provided support by buying equities worth Rs 6,924.78 crore.
• For November 2024, FIIs sold equities worth Rs 45,974.12 crore, while DIIs bought equities totaling Rs 44,483.86 crore..

Weekly Leaderboard

Source: BSE

Stocks that made the news this week:

Easy Trip Planners surged nearly 14 percent in early trade on November 29, after the stock turned ex-bonus following the company’s decision to revise its record date for bonus shares to November 29. The shares were trading 12.7 percent higher at Rs 18.4 at 10 AM, despite a 54 percent year-to-date decline compared to the Nifty 50’s 11 percent gain. The company had approved a 1:1 bonus share issue on October 14, entitling investors to one additional share for every share held, a move aimed at enhancing liquidity and attracting short-term investor interest.

Adani Group companies, including Adani Green Energy, Adani Energy Solutions, and Adani Total Gas, jumped up to 23 percent in early trade on November 29 after their inclusion in the National Stock Exchange’s futures and options (F&O) segment. The inclusion, effective from the same day, follows NSE’s algorithm-based criteria that prioritize stocks with significant trading volumes and size. NSE MD and CEO Ashish Chauhan noted that this milestone reflects the growing liquidity and prominence of these stocks in the derivatives market.

Bharti Airtel rose nearly 6 percent on November 29, leading the Nifty 50 gainers, after ICICI Securities upgraded its rating to ‘Buy’ from ‘Add,’ citing strong fundamentals and assigning a target price of Rs 1,875. At 2 PM, the stock traded over 5 percent higher at Rs 1,645. With a year-to-date gain of 62 percent, Airtel has outperformed the Nifty 50’s 10 percent rise, achieving consistent monthly gains from March to September before a 6 percent drop in October. The stock has gained 2 percent so far in November.