Q3FY19 – A challenging period for profit earnings with single digit growth


Q3FY19 was a tough quarter. Nifty top-line grew by 23% on YoY basis while the bottom line grew by 5% only. The Key reason for impact on earnings were high raw material prices, INR depreciation, muted demand sentiments and tight liquidity.  Overall growth of 5% Y-o-Y was seen in Nifty earnings.


Within Nifty 50, the major driver of earnings growth was Financials led by Banks. However, NBFCs continued to see weakness in growth. Oil Marketing Companies (OMCs) were the main draggers of the headline profitability on the back of lower refining margins and inventory losses.




BFSI segment led profitability as private banks saw very strong growth while Public sector banks saw a decent recovery. However, NBFCs had a more muted quarter due to the tight liquidity situation. FMCG volumes saw decent growth while pharmaceutical companies saw stabilisation of US generics business.


What Worked?

Government spending is aiding top-line growth of industrial companies and also supporting lower-end consumption. INR depreciation helped improve growth of IT and Pharma companies.



What did not work?

Slowing global growth weighed on auto exports as well as metal companies growth. Tight domestic liquidity hurts profits of NBFC and leverage consumption such as auto.



Sector Key Development
Banking Banking industry NII saw an uptick in Q3 on the back of strong loan growth and margin expansion.
Credit cost have started coming down on the back of lower slippage and strong loan book growth.
OMCs Performance of Oil Marketing Companies (OMCs) continued to be impacted by lower Gross Refining margins as the industry GRM fell to USD 7.1/barrel from USD 7.7/barrel in Q2.
Subdued demand for petroleum products, which grew by just 1.8% Y-o-Y in Q3, was also a major headwind.
Cement Volume growth of the cement sector remained robust as sales volume grew by 8.4% Y-o-Y in Q3 on the back of continued demand amidst the pre-election period.
However, realisations continued to be flattish for the sector as lack of pricing power and intense competition plague the sector.
Automobile Sales growth hit cyclical lows for PVs and CVs whereas Two Wheelers sustained flattish momentum. Muted demand, volatile crude prices, liquidity crunch, slacking consumer sentiment have impacted demand for automobiles
Pharmaceutical Lower base and INR depreciation led to pharma companies posting stellar earnings
Information Technology Rising deals wins along demand commentaries continues for IT companies. However, margins are under pressure due to higher onshore delivery expenses



Overall, Q3FY19 was not so easy quarter as profit growth remained subdued. Government spending, INR depreciation and GST rate cuts were the key tailwinds that helped consumer, IT and pharma companies post strong double digit EBITDA growth. However, slowdown in global growth and tightening domestic liquidity were key headwinds for auto, NBFC and metals.


As we enter the next quarter, Street estimates are still optimistic with Q4FY19 EPS asking rate of 40% and FY20 EPS forecast of 26%.


Radhika Gupta CEO

Edelweiss AMC



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