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UBS Investment Research
India Market Strategy
3QFY11 earnings disappoint
UBS India coverage stocks revenue grew 19.2%, Net Income 14.3% YoY
Earnings growth of UBS India stock universe (ex oil & gas) came in below our
estimates as the sales growth lagged our expectations while the operating margins
were inline. The main sectors where the earnings disappointment came from are
autos, power, capital goods and infrastructure. However, the earnings growth
showed improvement in 3QFY11 when compared to earnings growth in 2QFY11.
Among the sectors, strong earnings growth was shown by Banks, IT services,
media, capital goods and cement when compared to last quarter.
Beat percentage declines in 3QFY11 while inline percentage increases
32.5% of companies under our coverage beat expectations in 3QFY11 compared to
39.5% in 2QFY11 while the percentage of inline results increased to 31.6% from
21.0% in 2QFY11. Based on weighted mkt cap, the net beat percentage (% beat
minus % miss) was -4.1% vs. 0.1% in 2QFY11, suggesting that on a relative basis
large cap companies have fared poorly this quarter when compared to last quarter.
Indian stocks may remain under pressure in the near term
We expect Indian stocks to remain under pressure in the near term given concerns
on rising crude prices, lack of reforms by government and negative earnings
momentum in the coming months. On FY12 union budget, in our view, the market
expectations are low from the budget currently given impending state elections,
and we believe that the budget may surprise positively at the margin. We maintain
our positive view on Indian markets over the next 12 months. We see any decline
in stock prices (all other things being equal) as a buying opportunity to invest in
select stocks. Our top picks in large cap stocks are ICICI Bank, Bharti, Idea,
Maruti, Hero Honda, BHEL, & L&T.
UBS India coverage universe -
3QFY11 performance
Earnings growth rate of UBS India coverage universe decelerated to 27.4%
yoy in 3QFY11 (vs. UBS-e of 32.6%) from 32.2% yoy in 2QFY11 as the oil
& gas companies benefitted from reimbursement of oil subsidies (of two
quarters) from government in the last quarter.
Excluding the oil & gas sector UBS coverage universe earnings (ex oil &
gas) accelerated to 14.3% yoy in 3QFY11 (vs. UBS-e of 18.3%) from 9.8%
yoy in 2QFY11 primarily due to improvement in earnings of IT services,
cements, and Bank sectors when compared to last quarter. The earnings
growth was below UBS estimate as the sales growth came in below UBS
expectations.
Strong earnings growth was shown by such as Banks, IT services, media,
power, capital goods and consumers while sectors such as Autos, cements,
constructions, pharmaceuticals, real estate, and telecom were a drag on
earnings.
Beats and misses
In 3QFY11, the number of companies that beat our earnings estimates
decreased as compared to 2QFY11, while the number of companies that
reported inline results increased.
Of the 95 companies that we have analysed for 3QFY11 results performance,
32.6% of the companies beat our estimates vs. 39.5% in 2QFY11. The
percentage of companies that missed UBS-e decreased to 38.9% in 3QFY11
vs. 39.5% in 2QFY11.
The percentage of companies which met our expectation increased to 31.6%
in 3QFY11 from 21.0% in 2QFY11.
Based on market capitalization, the net beat percentage (% beat minus %
miss) was -4.1% vs. 0.1% in 2QFY11, suggesting that on a relative basis
large cap companies have fared poorly this quarter when compared to last
quarter.
Sensex - 3QFY11 performance
Sensex’s earnings growth came in at 20.5% yoy in 3QFY11, primarily inline
with our estimate of 21.4% growth. Excluding oil & gas sector, the earnings
growth of 16.0% yoy in 3QFY11 was below our estimate as earnings for
Telecom (Bharti), Petrochemicals (Reliance Industries), Pharmaceuticals
(Sun Pharma), Materials (Hindalco, Sterlite) and Capital goods (BHEL and
L&T) sectors came in below our estimates.
Sensex sales growth in 3QFY11 came in at 19.9% yoy below our estimate of
27.6% as sales from metals and petrochemicals sectors were below our
estimates. Excluding global commodities, Sensex sales growth was at 26.6%
yoy in 3QFY11, ahead of our estimates of 24.0% as autos and capital goods
sectors sales were above our estimates.
Change in consensus Sensex/Nifty FY11E/FY12E
earnings estimates
FY12E consensus earnings estimates for Nifty and Sensex were revised
down by 0.6% and 0.5% during the earnings season.
The key stocks whose consensus earnings were revised downwards were
Reliance Communications (-29.2%), DLF (-17.8%), Suzlon (-16.3%), SAIL
(-15.3%), Jai Prakash (-12.4%), BPCL (-8.7%), Hero Honda (-7.5%), L&T (-
5.5%) and Cipla (-5.2%).
The key stocks whose consensus earnings were revised upwards were
Ranbaxy (+12.6%), Tata Motors (+11.3%), Maruti (+6.8%), Siemens
(+5.8%) and Ambuja (+5.1%).
UBS India model portfolio performance
As at 24 February 2011, our portfolio had generated a return of 96.4%. This
compares with the BSE Sensex’s 82.4%; the Nifty’s 76.3%; and the MSCI
India’s 89.7% (MSCI perf as on 23 Feb 2011). Key sectors that have
outperformed compared with the BSE Sensex are Banks (91.3% excess return),
IT services (89.6%), Metals (41.8%), Auto (28.4%) and Power (25.3%), while
Real Estate (107.4%), Telecom (-106.3%), Oil & gas (-77.1%), Petrochemicals
(-68.2%) Pharmaceuticals (-57%) have underperformed.
The indicated performance returns of our model portfolio are based on capital
appreciation, excluding dividends and transaction costs such as commissions,
fees, margin interest, and other charges. Actual transactions adjusted for such
transaction costs will result in reduced total returns. Prices of stocks in the
performance calculations reflect closing prices. A complete record of all the
recommendations upon which this report is based is available from UBS
Securities India Private Ltd. upon written request. Past performance is not an
indication of future results.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Market Strategy
3QFY11 earnings disappoint
UBS India coverage stocks revenue grew 19.2%, Net Income 14.3% YoY
Earnings growth of UBS India stock universe (ex oil & gas) came in below our
estimates as the sales growth lagged our expectations while the operating margins
were inline. The main sectors where the earnings disappointment came from are
autos, power, capital goods and infrastructure. However, the earnings growth
showed improvement in 3QFY11 when compared to earnings growth in 2QFY11.
Among the sectors, strong earnings growth was shown by Banks, IT services,
media, capital goods and cement when compared to last quarter.
Beat percentage declines in 3QFY11 while inline percentage increases
32.5% of companies under our coverage beat expectations in 3QFY11 compared to
39.5% in 2QFY11 while the percentage of inline results increased to 31.6% from
21.0% in 2QFY11. Based on weighted mkt cap, the net beat percentage (% beat
minus % miss) was -4.1% vs. 0.1% in 2QFY11, suggesting that on a relative basis
large cap companies have fared poorly this quarter when compared to last quarter.
Indian stocks may remain under pressure in the near term
We expect Indian stocks to remain under pressure in the near term given concerns
on rising crude prices, lack of reforms by government and negative earnings
momentum in the coming months. On FY12 union budget, in our view, the market
expectations are low from the budget currently given impending state elections,
and we believe that the budget may surprise positively at the margin. We maintain
our positive view on Indian markets over the next 12 months. We see any decline
in stock prices (all other things being equal) as a buying opportunity to invest in
select stocks. Our top picks in large cap stocks are ICICI Bank, Bharti, Idea,
Maruti, Hero Honda, BHEL, & L&T.
UBS India coverage universe -
3QFY11 performance
Earnings growth rate of UBS India coverage universe decelerated to 27.4%
yoy in 3QFY11 (vs. UBS-e of 32.6%) from 32.2% yoy in 2QFY11 as the oil
& gas companies benefitted from reimbursement of oil subsidies (of two
quarters) from government in the last quarter.
Excluding the oil & gas sector UBS coverage universe earnings (ex oil &
gas) accelerated to 14.3% yoy in 3QFY11 (vs. UBS-e of 18.3%) from 9.8%
yoy in 2QFY11 primarily due to improvement in earnings of IT services,
cements, and Bank sectors when compared to last quarter. The earnings
growth was below UBS estimate as the sales growth came in below UBS
expectations.
Strong earnings growth was shown by such as Banks, IT services, media,
power, capital goods and consumers while sectors such as Autos, cements,
constructions, pharmaceuticals, real estate, and telecom were a drag on
earnings.
Beats and misses
In 3QFY11, the number of companies that beat our earnings estimates
decreased as compared to 2QFY11, while the number of companies that
reported inline results increased.
Of the 95 companies that we have analysed for 3QFY11 results performance,
32.6% of the companies beat our estimates vs. 39.5% in 2QFY11. The
percentage of companies that missed UBS-e decreased to 38.9% in 3QFY11
vs. 39.5% in 2QFY11.
The percentage of companies which met our expectation increased to 31.6%
in 3QFY11 from 21.0% in 2QFY11.
Based on market capitalization, the net beat percentage (% beat minus %
miss) was -4.1% vs. 0.1% in 2QFY11, suggesting that on a relative basis
large cap companies have fared poorly this quarter when compared to last
quarter.
Sensex - 3QFY11 performance
Sensex’s earnings growth came in at 20.5% yoy in 3QFY11, primarily inline
with our estimate of 21.4% growth. Excluding oil & gas sector, the earnings
growth of 16.0% yoy in 3QFY11 was below our estimate as earnings for
Telecom (Bharti), Petrochemicals (Reliance Industries), Pharmaceuticals
(Sun Pharma), Materials (Hindalco, Sterlite) and Capital goods (BHEL and
L&T) sectors came in below our estimates.
Sensex sales growth in 3QFY11 came in at 19.9% yoy below our estimate of
27.6% as sales from metals and petrochemicals sectors were below our
estimates. Excluding global commodities, Sensex sales growth was at 26.6%
yoy in 3QFY11, ahead of our estimates of 24.0% as autos and capital goods
sectors sales were above our estimates.
Change in consensus Sensex/Nifty FY11E/FY12E
earnings estimates
FY12E consensus earnings estimates for Nifty and Sensex were revised
down by 0.6% and 0.5% during the earnings season.
The key stocks whose consensus earnings were revised downwards were
Reliance Communications (-29.2%), DLF (-17.8%), Suzlon (-16.3%), SAIL
(-15.3%), Jai Prakash (-12.4%), BPCL (-8.7%), Hero Honda (-7.5%), L&T (-
5.5%) and Cipla (-5.2%).
The key stocks whose consensus earnings were revised upwards were
Ranbaxy (+12.6%), Tata Motors (+11.3%), Maruti (+6.8%), Siemens
(+5.8%) and Ambuja (+5.1%).
UBS India model portfolio performance
As at 24 February 2011, our portfolio had generated a return of 96.4%. This
compares with the BSE Sensex’s 82.4%; the Nifty’s 76.3%; and the MSCI
India’s 89.7% (MSCI perf as on 23 Feb 2011). Key sectors that have
outperformed compared with the BSE Sensex are Banks (91.3% excess return),
IT services (89.6%), Metals (41.8%), Auto (28.4%) and Power (25.3%), while
Real Estate (107.4%), Telecom (-106.3%), Oil & gas (-77.1%), Petrochemicals
(-68.2%) Pharmaceuticals (-57%) have underperformed.
The indicated performance returns of our model portfolio are based on capital
appreciation, excluding dividends and transaction costs such as commissions,
fees, margin interest, and other charges. Actual transactions adjusted for such
transaction costs will result in reduced total returns. Prices of stocks in the
performance calculations reflect closing prices. A complete record of all the
recommendations upon which this report is based is available from UBS
Securities India Private Ltd. upon written request. Past performance is not an
indication of future results.
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