Q3FY11 Results Review: Margin pressure continues…Emkay

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Q3FY11 Results Review

Margin pressure continues…

Executive Summary

The Q3FY11 results were below expectation with a few positive while a few negative surprises. PAT growth for Emkay Universe* (ex- Oil & Gas and Banking) was  at  7% as against expectation of 12.8% growth.

We expected 17.7%, 16.4% and 12.8% growth in Net Sales, EBITDA and PAT respectively from Emkay Universe*; the actual turned out to be a growth of 20.4%, 11.5% and 7% respectively. We expected EBITDA margin to decline by 22 bps, the actual turned out to be a decline of 151 bps.

Emkay Large Cap, Emkay Mid Cap and Emkay Small Cap showed a PAT growth of 8.2%, 2.4% and -29.7% respectively.

EBITDA margins of Emkay Universe Companies declined by 151 bps YoY as against 33 bps decline in BSE 500. EBITDA margins improved, for Offshore Oil Field Services (192 bps). EBITDA margins declined for Cement (725 bps), Telecommunications (523 bps), Paper (304 bps), FMCG (283 bps) and Auto Ancillaries (281 bps).

EBITDA of Emkay Universe Companies improved by 11.5% against 15.5% of BSE 500. EBITDA increased for Emkay Universe in sectors like Print Media (25.4%), Automobiles (25%), Engineering & Capital Goods (18.2%), IT Services (15.3%) and Telecommunications (14.8%).

Interest cost grew by 38.2% YoY for Emkay Universe as compared to 35% increase in BSE 500. Interest cost increased for Emkay Universe Companies in Telecommunications (from Rs19mn to 10bn), Power (93%), Cement (81%), Auto Ancillaries (63%), and FMCG (62%).

Other Income declined by 4.6% YoY for Emkay Universe as compared to 6.7% increase in BSE 500. Other income increased for Emkay Universe Companies in Paper (119%), IT Services (116%), FMCG (85%), Automobiles (64%) and Print Media (35%).

PAT growth for Emkay Universe Companies was 7% YoY as against 13% of BSE 500*. Top sectors with significant PAT growth in Emkay Universe Companies are Automobiles (60%), Print Media (30.5%), Engineering & Capital Goods (22.2%), IT Services (19.5%) and Metals & Mining (18.4%) . PAT declined for Offshore Oil Field Services (42.1%), Telecommunication (40.7%), Cement (36.9%), Auto Ancillaries (18.7%) and Power (8.1%).

20% of Emkay Universe Companies have shown 0-15% EBITDA growth with 28% showing negative EBITDA growth. 22% of Emkay Universe Companies have shown EBITDA growth of 15-30% while 15% of  Emkay Universe Companies have shown EBITDA growth of 30-50%. 15% of Emkay Universe Companies have shown EBITDA growth of >50%.

13% of Emkay Universe Companies have shown 0-15% PAT growth with 36% showing negative PAT growth. 15% of Emkay Universe Companies have shown PAT growth of 15-30% while 17% of  Emkay Universe Companies have shown PAT growth of 30-50%. 19% of Emkay Universe Companies have shown PAT growth of >50%.

Post Q3 results; we have revised earnings of 74 companies (27 upwards, 47 downwards). We have also changed recommendation for 39 companies (32 upgraded, 7 downgraded) and changed target prices of 74 companies (16 upwards, 58 downwards).

Emkay Universe companies are estimated to show 18%, 24% and 22% growth in sales, EBITDA and PAT respectively for FY12.

Emkay Universe is currently trading at 14.8X FY11E and 12.2xFY12E earnings which is at a discount of 11% and 13% respectively to consensus Sensex PE of 16.6x FY11E and 13.9x FY12E respectively. 

Surprises

Positive	Negative
Bajaj Auto	Blue Star
Canara Bank	Dishman Pharma
Godawari Power & Ispat	Dr. Reddy's Lab
Panacea Biotec	HBL Power
United Bank Of India	Hero Honda
	India Cement
	Nava Bharat Ventures
	Ranbaxy Labs
	Shree Cement
	Sterlite Tech
	Tata Steel
	TRIL
	Voltas