The September quarter earnings season is shaping up broadly as expected, with companies in aggregate reporting double-digit growth in both revenue and net profit. A strong showing by select firms in capital goods, metals, consumer durables, chemicals and auto ancillaries is driving the numbers.
Banking and finance, information technology (IT) and pharmaceuticals, however, grew more slowly year-on-year than they did in the June quarter.
Strong headline numbers
A common sample of 357 companies that have reported September quarter results so far shows revenue up 22.1% from a year earlier. That is the fastest pace in nine quarters. Net profit rose 27.5%, well ahead of the 9.7% growth recorded in the June quarter.
A soft base helped. In the year-ago quarter, revenue had grown just 6.7% and profit 12.4%, which made the latest comparison easier.
Margins under pressure at lenders
Operating margin for the whole sample narrowed by 150 basis points from a year earlier to 20.8%. The main reason was weaker profitability in banking, where net interest margins stayed under pressure through the quarter.
Leaving out lenders gives a different picture. For the rest of the sample, operating margin improved by 20 basis points to 15.1%. Revenue growth rose to 26.9% and profit growth to 33.9% once banking and finance companies are excluded.
The lending sector’s weight in the sample has also shrunk. It now accounts for 34.8% of revenue and 54.6% of profit, down from 37.3% and 56.8% a year ago.
IT loses ground
The IT sector’s contribution has slipped too. Its share of revenue fell to 15.5% from 16.8%, and its share of net profit dropped to 18.1% from 20.4%.
The industry is struggling with longer project execution cycles. Clients are taking more time to judge how new technologies, artificial intelligence in particular, will affect their businesses before committing to spending.
What analysts had expected
Going into the results season, analysts had expected aggregate revenue and net profit of the companies they track to grow at a double-digit pace, supported by broad-based momentum.
Elara Securities (India) said it expects 13 of 18 sectors to post double-digit sales growth. It sees automobiles leading at around 29%, followed by non-banking financial services at over 27%, consumer discretionary at over 23% and industrials at over 22%.
With the season still under way, the figures are based only on companies that have reported so far, and the picture could shift as more results arrive. For now, the data suggests that growth outside banking and IT is doing the heavy lifting, while lenders’ margins and the IT sector’s slow project cycles remain the main drags on the overall scoreboard.