Ambit : 2QFY11 Result Preview

2QFY11 Result Preview

• We expect 2QFY11 earnings of our Ambit universe to grow 39% YoY. EBITDA growth likely lower at 29% YoY. Within our Ambit universe, Banking continues to deliver steady 24.4% earnings growth, Metals (711% YoY), and high Auto (109.7% YoY) growth rates, driven by Corus and JLR. Sectors in which YoY earnings growth will be significantly lower are Cement and Media; however on QoQ (sequential) basis, the sectors Telecom, Metals & Mining and Cement will be notably lower.
• Key sectors with QoQ earnings downtrend include Cement (47.5%), Metals & Mining (15.4%) and Telecom (24.3%). Sectors driving QoQ earnings of the Ambit universe QoQ include IT (6.7 %), FMCG (12.3%) and Media (28.2%).
• 2QFY11E YoY earnings growth for much of the Ambit Universe is more broad-based with 64% companies in a positive earnings growth trajectory and 36% of the universe likely to report negative earnings growth.
• More than the greater-than-15% earnings growth in our coverage universe is 52%, which is a 12% increase over the previous period. Companies with muted growth (0-15%) comprise 13% of the universe.
• The biggest swing factor, on a YoY basis, are commodity stocks; the other companies in the Sensex to report higher contributions are Hindalco, Bajaj Motors, Tata Motors and HDFC Bank. The five low earnings candidates YoY are Hero Honda, HUL, JSW Steel, RCom and DLF.
• Our top sectors relative to the MSCI India where we have an Overweight stance are Industrials, Consumer Discretionary, Healthcare, Financials and IT. We are Underweight Metals, Consumer Staples, Energy, Telecom and Utilities.
• Our Top Picks include Infosys, Reliance, BHEL, Tata Motors, HDFC Bank and Tata Steel.