Q1 Earnings Preview: Oil Marketing Companies To Drag India Inc Profits

The June quarter may turn out to be a weak one for India Inc despite healthy growth in sectors such as financials, telecom and metals. The reason is the sharp hit expected at oil marketing companies (OMCs), which is likely to pull down overall corporate earnings.

Brokerage estimates suggest profit after tax (PAT) for the companies under their coverage could slip 3% from a year ago, making it the weakest quarterly showing since September 2020. The picture looks different for Nifty companies, where earnings are estimated to rise 10% year-on-year (YoY) because of their sector mix.

The impact appears concentrated in oil marketing companies. Strip out OMCs, and earnings across the coverage universe are expected to grow 14% from a year earlier.

Oil & Gas Sector Set For Sharpest Profit Decline

Brokerages expect the oil and gas sector to post the steepest fall in earnings among all sectors under its coverage, with profits projected to plunge 94% YoY.

OMCs are expected to bear the brunt of elevated crude oil prices during the quarter following tensions in West Asia. Brokerages estimate that the three state-run fuel retailers together could report losses of about ₹36,400 crore. As per brokerages:

• Hindustan Petroleum Corporation Limited (HPCL) can report an earnings before interest, taxes, depreciation, and amortisation (EBITDA) losses of about ₹13,900 crore.

• Bharat Petroleum Corporation Ltd (BPCL) is to post EBITDA losses of around ₹15,800 crore.

• Indian Oil Corporation Ltd (IOCL) is to report EBITDA losses of nearly ₹17,300 crore.

Brokerages attribute the losses to under-recoveries on petrol, diesel and LPG sales, as companies could not fully pass on higher crude prices to consumers. It added that stronger refining margins are likely to partly cushion the marketing losses.

Apart from oil and gas, cement companies are expected to report a 13% decline in profits. Auto, healthcare and media sectors are each likely to post a 3% drop.

Telecom, Financials Expected To Lead Growth

Telecom is projected to be the best-performing sector in the June quarter, with profits expected to rise 3.3 times YoY. The growth is likely to be driven by Bharti Airtel and supported by lower losses at Vodafone Idea. Other sectors expected to report strong earnings growth include:

• Building Materials: 36%

• Metals: 31%

• EMS: 29%

• Non-banking financial company (NBFC)-Lending: 27%

• Retail: 27%

• Consumer Durables: 27%

Financial companies are also expected to remain key contributors to overall earnings. Brokerages estimate NBFC lenders will deliver 27% YoY profit growth. Private banks and public sector banks are expected to post earnings growth of 10% and 9%, respectively.

Excluding financials, earnings across the brokerage's coverage universe are expected to decline 12% YoY, underscoring the sector's contribution to overall profitability. Technology companies are projected to report 14% earnings growth, while capital goods and infrastructure are each expected to grow profits by 10%. The broader consumer sector is likely to post 6% growth.

Smallcaps Expected To Outperform

The earnings divergence is expected to extend across market capitalisation. Brokerages project their small-cap universe to deliver 20% YoY PAT growth during the June quarter. In contrast, earnings are expected to decline 2% for large-cap companies and 14% for mid-cap firms, largely due to losses in the oil and gas sector.

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