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India Equity Research Reports, IPO and Stock News
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Strategy
Not so bad after all. Weak 3QFY11 results in certain sectors confirm cost pressures.
Adjusted net income for BSE-30 Index increased 17.5% yoy versus our 18.9% expected
increase; reported net income (including one-offs) increased 28.3% yoy. Our FY2012Ebased
fair valuation for the BSE-30 Index is 20,500 (23,000 on FY2013E earnings) post
changes to our 12-month target prices for stocks. The extent of recovery, if any, in
2HCY11, will depend on a favorable turn of events (governance, inflation, earnings).
3QFY11 results—not bad versus recent Street concerns
Reported net income of BSE-30 Index stocks grew 28.3% yoy. Stripped of one-off impact of priorperiod
revenues, net income grew a more modest 17.5% yoy. 16 companies in the BSE-30 Index
reported earnings below our expectations on an adjusted basis and stocks in auto, consumer,
construction and telecom disappointed the most. For our broader coverage universe, adjusted
3QFY11 net income grew 18.7% yoy.
We expect FY2012E BSE-30 Index’s net income to grow 18.2%
Post 3QFY11 results, we expect the net income of the BSE-30 Index to grow 21.8% in FY2011E
(`1,095 EPS, `1,039 EPS on a free-float basis) and 18.2% in FY2012E (`1,297 EPS, `1,228 EPS on
a free-float basis) compared to 21.8% and 22% at the start of the 3QFY11 results season.
Banking (21% of incremental profits), energy (20%), metals (12%) and technology (16%)
contribute 69% to incremental profits in FY2012E.
Risks to earnings exist; metals and technology seem least vulnerable
3QFY11 results brought out the risks to earnings in some of our underweight sectors such as
automobiles, cement, consumers and infrastructure through (1) cost pressures and a limited ability
to pass on the same to consumers and (2) higher interest rates. Earnings disappointed even with
respect to our already low expectations. We fear more pressure in 4QFY11 as companies feel the
full brunt of increase in raw material costs and interest rates.
Governance, inflation will determine performance in 2HCY11E
We expect investors to focus on improvement in governance and inflation before taking a more
positive view of the Indian market. We will wait for the Union Budget presentation on February
28, 2011 to review our Model Portfolio. We have made a few minor adjustments to realign for
changed weights in our benchmark index (BSE-30 Index).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
Not so bad after all. Weak 3QFY11 results in certain sectors confirm cost pressures.
Adjusted net income for BSE-30 Index increased 17.5% yoy versus our 18.9% expected
increase; reported net income (including one-offs) increased 28.3% yoy. Our FY2012Ebased
fair valuation for the BSE-30 Index is 20,500 (23,000 on FY2013E earnings) post
changes to our 12-month target prices for stocks. The extent of recovery, if any, in
2HCY11, will depend on a favorable turn of events (governance, inflation, earnings).
3QFY11 results—not bad versus recent Street concerns
Reported net income of BSE-30 Index stocks grew 28.3% yoy. Stripped of one-off impact of priorperiod
revenues, net income grew a more modest 17.5% yoy. 16 companies in the BSE-30 Index
reported earnings below our expectations on an adjusted basis and stocks in auto, consumer,
construction and telecom disappointed the most. For our broader coverage universe, adjusted
3QFY11 net income grew 18.7% yoy.
We expect FY2012E BSE-30 Index’s net income to grow 18.2%
Post 3QFY11 results, we expect the net income of the BSE-30 Index to grow 21.8% in FY2011E
(`1,095 EPS, `1,039 EPS on a free-float basis) and 18.2% in FY2012E (`1,297 EPS, `1,228 EPS on
a free-float basis) compared to 21.8% and 22% at the start of the 3QFY11 results season.
Banking (21% of incremental profits), energy (20%), metals (12%) and technology (16%)
contribute 69% to incremental profits in FY2012E.
Risks to earnings exist; metals and technology seem least vulnerable
3QFY11 results brought out the risks to earnings in some of our underweight sectors such as
automobiles, cement, consumers and infrastructure through (1) cost pressures and a limited ability
to pass on the same to consumers and (2) higher interest rates. Earnings disappointed even with
respect to our already low expectations. We fear more pressure in 4QFY11 as companies feel the
full brunt of increase in raw material costs and interest rates.
Governance, inflation will determine performance in 2HCY11E
We expect investors to focus on improvement in governance and inflation before taking a more
positive view of the Indian market. We will wait for the Union Budget presentation on February
28, 2011 to review our Model Portfolio. We have made a few minor adjustments to realign for
changed weights in our benchmark index (BSE-30 Index).
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