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INDIA STRATEGY: 2QFY11 Results Review; Aggregate PAT up 22%, in line; 1% upgrade in FY12 Sensex EPS
- Aggregate performance in line with estimates; Sensex PAT up 27% YoY MOSL Universe (ex-RMs) 2QFY11 Sales grew 21% (est 20%), EBITDA 23% (est 23%), and PAT 22% (est 22%).Sensex aggregate performance was also in-line, with EBITDA growth of 28% (est 26%) and PAT growth of 27% (est 26%). Excluding the 3 companies with global businesses (Tata Motors, Tata Steel and Hindalco), Sensex PAT grew by 7% (est 10%).
- Several large caps outperform
Outperformers: Tata Steel, Sun Pharma, Tata Motors, BHEL, Bank of Baroda, Dr Reddy, L&T, Hindalco, TCS and Titan Inds
Underperformers: ABB, ACC, UltraTech, Sesa Goa, United Spirits, NTPC, Zee, Asian Paints, Cipla, Hero Honda and DLF
- Rating downgrades far exceed upgradesMajor rating downgrades are in FMCG (Britannia, Marico) and Cement (Shree, UltraTech). Ranbaxy and HCC were other downgrades. The only upgrade is Asian Paints (Neutral to Buy).
- 1% upgrade in FY12E Sensex EPS; estimate CAGR of 24% over FY10-12
Sep-10 Quarter Results Review
A) Aggregate performance in line with estimates
Sales for MOSL Universe (ex-RMs) grew 21% (est 20%), EBITDA was up 23% (est 23%), PAT grew 22% (est 22%).
43 companies in our Universe reported PAT higher than estimate, 37 in line and 43 below estimate. On the EBITDA front, 31 companies reported above estimate, 57 in line and 35 below estimate.
B) Sector performance: Engineering, Textiles above estimates, Cement, Utilities, Media below estimates
Among large sectors, Engineering and Textiles PAT were above estimates, whereas Auto (excl Tata Motors), Banking, FMCG, IT, Oil & Gas where in line with estimates.
Sectors where both EBITDA and PAT growth was disappointing include Cement (PAT de-growth 69% vs estimate of 58%),
Utilities (PAT growth of 1% vs estimate of 24%), and Media (9% PAT growth vs estimate of 24$)
C) Sensex performance in-line; sales up 22% (est 19%), PAT up 27% (est 26%)
10 companies reported higher than estimated PAT; 9 fell short.
Companies that surpassed estimates on all parameters – Tata Motors, BHEL, L&T, TCS, Hindalco, Tata Steel.
Companies that fell short of expectations on all parameters – Hero Honda, ACC, Cipla, DLF, NTPC.
D) Best and worst performing companies
Companies that reported above estimated earnings were: Tata Steel, Sun Pharma, Tata Motors, BHEL, Bank of Baroda, Dr Reddy, L&T, Hindalco, TCS and Titan Inds.
Companies that reported below estimated earnings were: ABB, ACC, Ultratech, Sesa Goa, United Spirits, NTPC, Zee, Asian Paints, CIpla, Hero Honda and DLF.
Sep-10 Quarter Results Review
Key sectoral highlights
AUTOS: Sector performance has been boosted single-handedly by Tata Motors, excluding which all others are below estimate or in-line. Tata Motors earnings have been upgraded by 17%, continuing the upgrade trend for the past several quarters. Hero Honda disappointed, leading to a 6% EPS downgrade for FY11.
BANKS: Banking sector PAT growth was in line with estimate, but was dragged down by SBI, which reported below expectations. All operating metrics for the sector continue to be positive – steady loan growth, improved margins, strong CASA traction, stable asset quality. Our coverage universe loan growth was 23% YoY (4% QoQ) vs industry growth of 19% YoY (1% QoQ).
CEMENT: The sector had the dubious distinction of all companies (except India Cement) reporting PAT below estimates, led by sharp decline in realizations. This has led to sharp downgrades in our FY11 and FY12 EPS estimates for all companies except India Cement, which is likely to benefit from recovery in South India. Shree Cement FY12 EPS is downgraded the highest at 32% followed by ACC at 19%.
ENGINEERING: Sector performance was above estimates with only ABB reporting below estimate numbers. We had increased sector weightage in our quarterly preview, and continue to believe that Engineering will remain one of the better performing sectors going forward as well.
FMCG: FMCG performance has been in-line or below estimate across companies. High inflation and rising competitive intensity caused us to significantly reduce sector weightage in our quarterly preview. Ratings of Britannia and Marico have been downgraded to Neutral. Asian Paints has been upgraded to Buy.
Sep-10 Quarter Results Review
Key sectoral highlights (contd.)
INFRASTRUCTURE: The sector reported 8% decline in aggregate PAT vs expected 28% growth. Widespread monsoon affected execution, as did political issues in Andhra Pradesh. Only Nagarjuna Construction reported in-line PAT performance.
IT: Operating performance was above expectations for IT majors; TCS, Tech Mahindra and Patni beat expectations. The quarter suggested improved demand, and signs of discretionary pick-up. Sustenance of buoyancy is contingent on client budgets for CY11. Currency headwinds have constrained earnings upgrades.
METALS: The performance of most domestic companies was below estimates. However, sector aggregate PAT performance was in line due to superior performance of both overseas majors, Corus and Novelis.
OIL & GAS: Sector performance was in-line on a low base (losses in 2QFY10 due to non-release of subsidy). Key disappointments for the quarter include – (1) no further reforms post partial deregulation 4 months ago, (2) no clarity on subsidy sharing, (3) no ramp-up of gas at Reliance’s KG-D6, and (4) Higher D,D&A charge continuing at ONGC.
PHARMA: Only Sun and Dr Reddy’s beat estimates at the EBITDA level. Lower operating performance has led to FY12 earnings downgrades across the sector led by Dishman (-30%), Jubilant (15%), Ranbaxy, Divi’s (both 13%).
TELECOM: Sector PAT was above estimates with profit de-growth being less than expected. RPM pressure has abated which is a structural positive. Revenue and EBITDA growth to rebound driven by 1) normalization of traffic growth, 2) lower RPM decline, and 3) launch of 3G services.
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