Corporate earnings hinge on overcoming margin hurdles

India Inc’s December-quarter (Q3FY24) earnings were a mixed bag. A key highlight was improved corporate profitability, driven by easing commodity prices, but demand momentum was muted.

- Harsha Jethmalani

Going ahead, there are several moving parts to the earnings-growth picture, both local and global. Potential negative developments could lead to disappointments in FY25, triggering more downgrades.

First, margin improvements from softening input costs are abating as global oil prices stabilise. "The Ebitda margins of most sectors (excluding oil & gas) are likely close to decadal highs in FY24E. While the consensus is forecasting further margin expansion for most sectors, we think this could be difficult to achieve unless demand improves or there is a supply-side tailwind from oil prices," said Prateek Parekh, vice president, institutional equities, Nuvama Wealth Management.

The margin strength seen in the nine months to December suggests the implied asking rate to meet FY24's earnings per share (EPS) estimates is low. The weak exit and fading margin tailwinds pose risks to the 15% consensus FY25 EPS growth estimate for Nifty50 companies, Parekh added.