Emkay: India Strategy Q2FY11 Results Preview: Flat growth

India Strategy

Q2FY11 Results Preview: Flat growth

Executive Summary

We expect Emkay Universe’s (ex- Metals & Mining, Oil & Gas and Banking) earnings growth to be flat for Q2FY11. This is against the 0.1% growth witnessed in Q1FY11.  However if one excludes the results of Reliance Communication and Bharti Airtel, the PAT growth of Emkay Universe in Q2FY11 is expected at 4.6%. (While it was 12.8% in Q1FY11).

Ebitda margins for Emkay Universe are expected to contract by 195 bps to 20.4%. The Same are likely to contract by 190bps to 21%, by 229 bps to 18.2% and by 328 bps to 14.2%  for Emkay Large Cap, Mid Cap and Small Cap Universe respectively.

We do not expect any major upgrades during this earnings season.

Emkay Universe is likely to post Sales growth of 19.3% and EBITDA growth of 8.9% for Q2FY11. While  PAT growth for Emkay Universe is expected to remain flat for Q2FY11. Emkay Large Cap Universe is likely to show 21.7%, 11.6% and 1.7% growth in Sales, EBITDA and PAT respectively. Emkay Mid Cap Universe is likely to show 7.6%, -4.4% and -12.1% growth in Sales, EBITDA and PAT respectively.

The top performing sectors in terms of sales growth are Automobiles (34.1%), Paper (31.3%), Telecom ( 29.1%), Construction (25%) and Agri Input & Chemicals (22%).

EBITDA margins are likely to improve in sectors like Print Media (270 bps), Power (254 bps), Agri Input & Chemicals (64 bps) and Engineering & Capital Goods (62 bps). The same are likely to contract in case of  Cement (1406 bps), Telecom (401 bps), Auto Ancillaries (277 bps), Offshore Oil Field Services  (225 bps) and Automobiles (202 bps).

Sectors like Power (29.1%), Agri Input & Chemicals (26.7%), Print Media (25.5%), Paper (22.9%) and Construction (21.8%) are expected to witness better yoy EBITDA growth while sectors like Cement (49%) and Auto Ancillaries (7.4%) are likely to post yoy decline in EBITDA.

Emkay Universe is likely to post a 1.8% growth in other income with 0.4% and 7.5% growth in other income of Emkay Large Cap and Mid Cap Universe respectively.

Emkay Universe is likely to post 12.4% growth in interest cost with 17.8% and 2.2% growth in interest cost of Emkay Large Cap and Midcap respectively. Emkay Small Cap is likely to post de-growth of 15.9% in Interest cost.

PAT growth will be contributed by sectors like Paper (42%), Offshore Oil Field Services (29.5%), Print Media (27.4%), Agri Input & Chemicals (25.8%) and Automobiles (22%). While sectors like Cement  (61.7%), Telecom (26.1%) and Auto Ancillaries (19%) will witness de-growth in PAT.

Nifty has given a return of 14.8% over the last quarter and has outperformed against other markets (Nikkei 1.9%, Shanghai 11.9%, Kospi 11.1%, FTSE 11.8%, Dow 10.8% and Nasdaq 12.7%).