TOP VIEW: Q3 FY2011 Earnings Preview: Dolat Capital

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Sector View & Estimates: Q3 FY2011 Earnings Preview: Dolat Capital (Click on Sector Name for details)

• Autos 
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• Capital Goods 
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• Construction 
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• Financials
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• FMCG
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• IT Services 
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• Media 
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• Metals 
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• Oil & Gas
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• Pharmaceuticals 
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• Pipes 
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• Roofing and Building Material
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• Shipping 
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• Utilities 

Sector View & Estimates: Q3 FY2011 Earnings Preview: Dolat Capital (Click on Sector Name above for details)





REALITY CHECK….
• We view previous correction as a reality check on key sectors and stocks – painful for the short term, but healthy for
medium to long term ‐‐ key drivers still intact – earnings, growth, visibility, g y g , g , y, though valuations were turning to be too
optimistic
• No risk to our projected earnings for H2FY11 and FY12 as of now –Autos, Financials and Infrastructure would be
vulnerable to downward revisions if rate hikes go beyond 50‐75 bps from current levels while potential for
upgrades exists for IT Services, Metals
• Limited downsides to valuations, now close to averages ‐‐ neither too compelling nor outright absurd. Expect
consolidation next couple of quarters. Closely watching policy action ‐‐ perception of lame duck government for three
years could impact FII flows / assigned premium valuations
• Continue our preferred allocation towards visible earning plays – IGL, Dabur, PTC India, Bajaj Auto, Sadbhav
Engineering, Bank of India, Dishman Pharma
• Reiterate our preference for ferrous metals, now market consensus – Tata Steel remains preferred pick
• Upgraded positive stance on IT Services on supportive data points – Mphasis remains the mid cap favourite as do
Tier I vendors


TOP VIEW – QUARTERLY EARNINGS
• Coverage Universe of 91 companies expected to register sales growth of 14.6% yoy for third quarter. Operating profits
growth expected at 12.1% yoy while net earnings to grow at 22.9% yoy
• Net earnings growth positively aided by leverage from metals and auto majors
• Ex‐financials, earnings expected to grow at 26% yoy, operating profits at 8% yoy and topline at 13% yoy
• Amongst the outperformers Infrastructure (construction) outperformers, and IT Services stand out on projected revenue and
operating profits growth
• Autos, led by Tata Motors, expected to witness the highest growth for net earnings. Metals too stand to benefit on
the uptick in the average prices for the quarter
• Financials universe expected to grow at 29% at net interest income level, while operating profits at 21% is dented by
the higher expenses on account of pension liabilities in some of the banks. While third quarter shall part reflect the
impact of hike in deposit rates during the later part of the quarter, the fourth quarter shall fully reflect the same – we
estimate an impact of 5‐10 bps for fourth quarter


ECONOMY DATA – STILL SUPPORTIVE
• Economic Trajectory still up however inflation up, and spill away budget (read free sops) key to watch
• Inflation trending down, however fuel price hike and non‐food inflation to flatten the decline
• Food inflation also turning direction for the upside
• Tax collections robust, likely to achieve fiscal deficit target
• Monetary policy – we expect another round of rate hikes, starting with the January policy
• Global economic news flow encouraging, though a dampener for India’s premium valuation