Indian corporate earnings to fall by 2 pc in Q3

Mumbai: Corporate earning in India is expected to decline slightly by two per cent in the third quarter of this financial year. The corporate earnings are expected to fall by two percentage points to 17.7 per cent due to increased interest costs and market-to-market losses in the third quarter, according to a recent analysis by Crisil Research.

Crisil expects corporate India to report a 200 basis points (bps) decline in earnings before interest, taxes, depreciation, and amortisation (Ebitda) margins in the December quarter. Companies with substantial debt on their balance sheets will be further hurt by rising interest costs and marked-to-market losses on foreign debt and derivatives due to the depreciation of the rupee. Net margins are, therefore, likely to decline even more sharply, said Crisil`s Head for Industry and Customised Research Prasad Koparkar.

Airline companies are expected to report robust volume growth, but their Ebitda margins will remain under pressure, as these companies will be unable to fully pass on the sharp rise in fuel costs, he said. For cement manufacturers and telcos, though volume growth would be muted, increased realizations will lend stability to profit margins. The rupee depreciation will not hurt all corporates, though.

Companies with substantial export earnings such as IT services companies, bulk drug exporters, pharma companies that focus on formulations exports, and oil exploration companies with low proportion of debt on their balance sheets, stand to gain from a weak rupee as their profitability will improve, the report said.