The Q2 FY25 earnings season has highlighted challenges across several sectors, causing concern among investors as many companies reported weaker-than-expected performance.
With softening demand, rising input costs, and mixed results across industries, stocks of companies with poor earnings and outlooks have experienced noticeable corrections.
According to a report by JM Financials, key consumer-facing sectors such as FMCG, retail, auto, and mall operators reported weaker-than-anticipated results. A slowdown in urban demand was particularly evident, impacting sales and revenue growth.
The report said, “Q2FY25 earnings so far, have made investors jittery and we have seen stocks of companies reporting weak earnings/ weak outlook correcting”.
The report noted that Auto OEMs, for example, faced demand issues along with rising raw material costs, putting pressure on profitability. However, auto-ancillary companies managed to perform better, suggesting some resilience in parts of the industry’s supply chain.
In the chemicals and consumer durables sectors, demand also showed signs of moderation. Many consumer durable companies missed estimates due to a combination of weak demand, high raw material prices, and increased spending on advertising.
Additionally, BIS-related compliance requirements impacted overall profitability. The impact of elevated ad spends and weak consumer sentiment contributed to the slower-than-expected growth.
For the financial sector the report highlighted that Q2 presented a mixed picture. Public Sector Undertaking (PSU) banks reported strong numbers, largely driven by recoveries that reduced credit costs and lowered operating expenses.
In contrast, microfinance institutions (MFIs) struggled due to higher credit costs, while some private sector banks and Non-Banking Financial Companies (NBFCs) witnessed stress in their unsecured lending portfolios.
The report however said that “PSU banks reported strong numbers due to recoveries, which drove down credit costs and lower opex”.
The report further added that oil refining and marketing segment experienced a tepid quarter as weak gross refining margins (GRM) and challenges in the LPG business weighed on performance. City Gas Distribution (CGD) companies also missed earnings estimates, impacted by the rising cost of gas inputs.
On the brighter side, Electronics Manufacturing Services (EMS) companies posted strong Q2 results, benefiting from lower channel inventories and acquisitions, which helped drive growth.
Overall, the earnings report from Q2 FY25 has highlighted the pressures of rising input costs, raw material inflation, and limited ability to pass on price hikes.
While certain segments like PSU banks and EMS companies managed to shine, weaker demand and elevated costs are weighing on key consumer sectors and select financial institutions, creating a challenging landscape as companies look toward the next quarter.
