Q2 Earnings Preview: Insights from Motilal Oswal Financial Services
As the financial landscape evolves, the latest earnings previews for Q2 highlight significant trends shaping the market. Motilal Oswal Financial Services (MOSL) has provided a comprehensive analysis of the anticipated performance of various sectors, marking a notable recovery from previous challenges.
Recent Trends and Observations
Over the past two fiscal years, the MOFSL Universe has experienced a complex dynamic between revenue and earnings growth, heavily influenced by global macroeconomic conditions. The fiscal year 2023 (FY23) saw a pronounced margin squeeze, primarily due to spiraling commodity prices associated with the ongoing Russia-Ukraine conflict. Despite a commendable 24% year-on-year revenue increase, the resultant cost surge constrained earnings growth to only 11%.
In a promising development, FY24 appears to signal a reversal of this pattern. With commodity prices stabilizing, margins have rebounded substantially, leading to a remarkable 30% earnings growth, despite revenue growth decelerating to a modest 4%. Moving into FY25, MOSL forecasts that earnings will align more closely with revenue trends.
Expectations for FY25
For the upcoming financial year 2025 (FY25), MOSL anticipates a modest revenue increase of 7% across the MOFSL Universe. In terms of profitability, both EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and PAT (Profit After Tax) are expected to witness year-on-year growth of 8%. The Nifty 50 index is also projected to achieve 7% earnings growth, particularly noteworthy following a robust growth rate of 26% in FY24.
Earnings Tracker: Anticipated Challenges
While many companies are set to achieve moderate earnings growth in the September quarter, some key players in the Nifty50 index are projected to face substantial declines in net profits. MOSL has pinpointed three firms likely to experience a drop exceeding 25% in their net profitability.
Ultratech Cement’s Profits Expected to Decline
One notable forecast is for Ultratech Cement, where MOSL predicts a significant 27% year-on-year reduction in net profit, plummeting to ₹930 crore for Q2FY25, down from ₹1,280 crore in the same quarter last year. Additionally, net sales are expected to decrease by 2.4%, dropping to ₹15,630 crore from ₹16,000 crore year-over-year. The anticipated decline in EBITDA is projected at 29%, bringing it down to ₹2,170 crore. As a consequence, margins may fall from 17.2% to 13.9% in comparison to the previous year’s figures.
JSW Steel Faces a Sharp Decline
Similarly, JSW Steel’s prospects appear bleak, with predictions suggesting an astonishing 85% year-on-year net profit decline, forecasted to reach only ₹500 crore compared to ₹2,800 crore in the same quarter last year. MOSL also estimates a 7.1% year-on-year decrease in net sales, anticipated at ₹41,400 crore, down from ₹44,600 crore last year. The decline in margins is expected due to weaker average selling prices, which is critical to watch in the upcoming quarters.
BPCL’s Declining Earnings Amid Revenue Increase
In the oil and gas sector, Bharat Petroleum Corporation Limited (BPCL) is forecasted to experience a 45.3% drop in net profit, projected at ₹4,650 crore for Q2FY25, compared to the ₹8,500 crore reported in the same quarter last year. Interestingly, revenue is expected to show a 4% rise to ₹1,07,110 crore, reflecting a paradox where profitability is under pressure even as sales grow. The anticipated decline in EBITDA, from ₹13,010 crore to ₹7,820 crore, highlights the challenges facing the company.
Conclusion
The Q2 earnings preview indicates a mixed bag for companies within the MOFSL Universe, with significant gains in cyclical sectors contrasted by steep declines in profit for some major players. Investors and analysts will need to closely monitor forthcoming results and guidance from these companies to gauge their strategic responses to current market dynamics.
