How will the Covid-19 pandemic impact Nifty companies' earnings in Q4FY20?

Margins in some sectors could improve due to soft raw material prices.

In Q4FY19 Nifty sales/EBITDA/PAT grew nearly 10 per cent/6 per cent/16 per cent year-on-year (YoY), respectively. Hence, the base as far as earnings before interest, taxes, depreciation, and amortisation (EBITDA) and profit after tax (PAT) is concerned, is high in Q4FY20. However in Q4FY19, profitability was driven largely by banks. Excluding banks, the PAT growth was slow at <2 per cent. The topline growth for Nifty companies in Q4FY19 was the slowest since Q3FY17.

COVID 19 would impact the performance of Nifty companies and overall corporate sector in Q4FY20 and Q1FY21. In Q4FY20, we could see a decline in both the topline and bottomline in Nifty companies on a YoY basis. Analysts will rework their FY21 estimates lower after Q4FY20 results and management commentary.

Will margins benefit from lower input costs?

Margins in some sectors could improve due to soft raw material prices. However, this advantage could be partly nullified by lower operating leverage, especially due to lockdown in the last 10-11 days of March.

Which sectors may be relatively better, which will be worst affected?

Telecom would report better performance due to tariff hike wef December and higher data usage in March, both of which could pull up the average revenue per users (ARPUs) of telecom companies. FMCG (essential categories) could do well, aided by lower input costs. Pharma companies could report better numbers but their Q1FY21 performance could get impacted due to lack of patient visits to doctors and delayed surgeries and also disruption in manufacturing. City Gas distribution companies could do well, especially those who are less dependent on CNG volumes.