Mumbai: India’s top listed companies may post a sharp fall in revenue and profit for the fourth quarter of FY20 due to largescale shutdown of factories, offices and public places in the second half of March.

Revenue for Nifty50 firms, which include some of India Inc’s biggest companies, may fall 8% while net profit is expected to slide 21.4%. An analysis by the ET Intelligence Group shows the worst-hit will be automobiles, cement, metals and mining. Banks and finance companies, FMCG firms, IT and pharma sectors may be impacted moderately, the analysis shows.

Net profit for this sample of companies had risen 54.8% in December 2019 quarter, driven by growth in select banks, finance, and oil & gas firms. But that is unlikely to be repeated for at least the next six months of FY21.

“The impact of Covid-19 is quite severe for FY21. We expect Nifty’s earnings growth to turn flattish for FY21 compared with our earlier forecast of more than 20% rise,” said Gautam Duggad, institutional research head, Motilal Oswal Securities.

Consumer-facing sectors are unlikely to be impacted much due to demand for essentials, but discretionary spend will be hit. “Staples should be reasonably resilient, while discretionary spending will be hurt,” said Sunil Tirumalai, research head at Emkay Global Fin Services.

‘Investors Need to be Patient’

“Also, some export categories, including pharma and agrochem, should fare better,” said Tirumalai.

Lower commodity prices may boost some manufacturing companies, but that is likely to be offset by tepid demand and sales. The operating margin of Nifty50 companies may contract 200 basis points to 18.6% from the year-ago period, shows the ETIG analysis.

“We do expect margin benefit from lower input costs, but they may still contract due to lack of operating leverage as revenues would be severely impacted,” said Duggad.

For investors, patience is the key as a turnaround is at least two quarters away, said experts. In addition, companies are expected to face earnings downgrades by brokerages amid the economic slowdown. “We see 18% and 15% cut to Nifty EPS for FY21 and FY22, respectively, from the current consensus level,” said Duggad.

Automobiles

Automobiles is likely to be among the worst-hit sectors as it will bear the combined impact of lower production due to new emission norms and the nationwide lockdown. Revenue may decline by over 26% year-on-year, while profit could be half of the previous quarter. Operating margins may shrink by 200-300 basis points.

Capital Goods

Capital goods firms may suffer as new orders, most of which are typically won during the fag end of the year, dry up. Diversified conglomerates such as L&T may suffer limited impact due to better execution of projects. While these companies will lose little by way of revenue, working capital requirements will stay stretched in the near term.

Cement

Cement volumes are expected to fall by nearly 9% year-on-year while revenues of large cement companies such as ACC, Ambuja Cements, Shree Cement and UltraTech could fall 15-17%. Lower crude prices could cushion the earnings shock.

FMCG

ITC is likely to be the worst-hit due to a complete halt in cigarette sales, and its volumes could drop by 4-5%. Among FMCG players, bulk-buying of essential and personal hygiene products in the last 10 days of March may support volumes growth.

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