Q4FY22 Earnings Preview

Q4FY22 Earnings Preview

by Shreya Anaokar Last Updated: Dec 12, 2022 - 03:06 pm 31.8k Views
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Q4FY22 is expected to be a wash-out quarter for many companies across sectors. The impact of the third wave of Covid caused due to Omicron variant in January and continued spiraling inflation has impacted demand while the elevated level of commodity prices amid extremely high volatility resulted in a significant margin squeeze across sectors.

For 8 consecutive quarters, the majority of the raw material prices have seen a continuous increase. As a result, W&C company's retail business volumes have been impacted. With Aluminum prices continuing their uptrend in Q4, dealers and distributors continued the trend of lower stocking. On the other hand, better execution in some of the government orders has helped the Cables segment witness YoY growth in Q4. Also, the Residential Real Estate market and the B2C side of the W&C industry saw some growth in Q4. Q4 also witnessed a maximum of the unorganized sector being operational, indicating some challenges to market share gains made earlier by some of the W&C players in recent quarters.

Consumer staple companies will see moderate revenue growth in the mid-high single-digit largely driven by pricing whereas volume growth is expected to be muted due to a high base and demand moderation in rural India. Consumption trends remained subdued amidst weak rural sentiments. Whereas persistent inflation continued to affect consumer wallets across urban and rural markets. As inflation moved ahead of income growth, downtrading and higher preference for value packs across categories were visible, especially in staples. Categories, where the pain was more visible, were home and personal care. However, a demand moderation will be a blip and should bounce back in the coming period as and when inflation stabilizes. Growth in the urban market is more uniform and modest whereas the rural market witnessed a larger impact of accelerating inflation.

The decorative segment witnessed a pickup in demand during the second half of Q4. Despite sharp price hikes, better than expected pick-up in the second half of the quarter indicates better demand, especially in urban pockets. Margin pressure appears to have bottomed out due to the full realization of the 22-23% YTD price hikes whereas industrial business is expected to continue facing margin headwinds as a full inflation passthrough is yet to happen.

Logistics companies are likely to witness revenue growth in the high single-digit led by decent industrial and economic activities. However, container port volume at major ports was muted with a 1% y-o-y decline in Q4FY22 to 2.9mn TEUs. In FY22, cumulative container port traffic grew by 16.7% to 11.2mn TEUs. Rail container volumes witnessed a 6.8% y-o-y growth in handling in Q4FY22 largely led by domestic container movements which grew by 25% y-o-y over a similar period while EXIM rail container movement was bit tepid at 1.8% y-o-y growth in handling. Decent pick-up in freight can be gauged from E-Way bill generations during Q4FY22. The total bill generated in Q4FY22 increased by 4% y-o-y to 206mn. Though it moderated a bit in March’22 with flat growth.

Indian Chemical sector continues to witness strong demand in Q4FY22 from exports along with the improved domestic consumption. The chemical prices saw a sharp increase on the back of higher crude oil prices. The sharp jump in crude oil prices to $130/barrel in March is driving the prices higher for other chemicals. The prices of a few chemicals like Acetone, Aniline, ABS, Benzene, and Propylene have seen an uptick with the movement in the crude oil prices. The volatility in the prices is likely to impact the company’s margin. The demand has remained strong from the exports market and the easing of the logistic issues and decline in the freight rates resulted in the strong topline growth. 

The pharmaceutical sector is likely to witness another quarter of weak earnings owing to the slowdown in the domestic markets with receding COVID-19 infections, higher input, and energy costs, sustained high pricing pressure in the US market, absence of large product launches in the US market, and the slowdown in the exports. The domestic market growth is likely to be 7-8% for 4QFY22 mainly due to the strong growth reported in Jan-22. This quarter would be critical for the pharma companies which have stocked the inventory of COVID-19 products (finished products, ingredients, APIs, etc.). Inventory provisioning/write-offs of the COVID-19 inventory are expected due to the decline in the COVID infections. On the other hand, CRO/CDMOs are likely to see sustained demand while ARV businesses are expected to see margin pressure due to the lower volumes and decline in the prices of key drugs.

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Asset quality across banks is likely to improve in Q4FY22 driven by moderation in slippages given that bounce rates in recent months are better than pre-covid levels. More so, strong collection efforts coupled with upgrades are likely to drive further moderation in GNPA ratios. Retail slippages should continue to abate. Corporate asset quality should remain resilient given that no lumpy accounts have slipped while restructuring is likely to be limited. Credit costs should decline along with slippages for most banks as they utilize their contingent buffers, barring those that look to increase their provisioning coverage and strengthen balance sheets. Operating profit performance is likely to be impacted by rising in bond yields which will weigh on treasury gain and there could be a mark-down of non-HTM portfolios of banks as well.

 

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About the Author

Shreya Anaokar is a Content Writer at 5paisa. She has completed her Master’s in Finance and Graduation in Statistics from the University of Mumbai. 

Disclaimer

Investment/Trading is subject to market risk, past performance doesn’t guarantee future performance. The risk of trading/investment loss in securities markets can be substantial. Also, the above report is compiled from data available on public platforms.
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