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India Strategy
QE Mar-11 Earnings
Preview: Another Solid
Quarter
Quick Comment: MS analysts forecast 14% YoY
growth for 116 companies: This compares with growth
of 29% YoY in QE Dec-10. Excluding governmentowned
oil companies, earnings are forecast to rise 20%
YoY versus 11% growth in QE Dec-10. They expect
BSE Sensex earnings to increase 17% YoY vs. 26%
growth in QE Dec-10.
Margin compression in seven out of 10 sectors: MS
analysts expect aggregate (ex-government-owned oil
companies) revenue to grow 21% YoY with an
expansion of 69bp YoY in EBITDA margins. Telecoms is
likely to see the most margin expansion, while
Healthcare followed by Consumer Discretionary is likely
to see the most contraction in margins. Our analysts
expect the strongest earnings growth for Industrials at
37% YoY (for the third straight quarter, 22% Ex-Tata
Motors) followed by Financials (at 22% YoY), whereas
Telecoms earnings (down 40% YoY) are likely to be the
weakest for the sixth quarter in a row.
Key observations about our analysts’ forecasts: 1)
Depreciation expenses to rise 15% YoY; 2) net financial
income is likely to turn to net financial expense.
(ex-Telecoms, it is likely to fall 59% YoY). This is
creating pressure on net margins, and, thus, 37% of our
coverage universe is likely to report a drop in net profit
YoY (vs. one-fifth of the sample in the previous quarter).
About two-fifths of our sample will likely report profit
growth in excess of 25%.
The broad market could lag the narrow market
again: The narrow market beat the broad market
earnings growth in the previous quarter, and this should
continue for the quarter-ended March 2011.
F2011 Thus Far: Key Highlights
• For the first three quarters of F2011, Sensex and
broad market (for 1,717 companies) earnings
grew at 23% YoY and 22% YoY, respectively.
• Industrials and Telecom have reported the
strongest and weakest earnings growth so far,
respectively.
• More than one-half of the companies have beaten
expectations during the last two quarters.
• The detailed analysis of this data suggests that
the global earnings of the Sensex companies in
F2011 grew by 48% YoY, while the domestic
earnings for the index companies grew by 8% YoY
during the period.
QE Mar-11 Earnings Expectations
• Sensex companies are likely to grow 17% YoY
during the QE Mar-11.
• Excluding the Telecom sector, Sensex growth is
likely to be 26% YoY.
• The biggest contributors to Sensex earnings
growth are ONGC, Tata Motors, Reliance
Industries, and Tata Steel (in that order).
• The largest negative contributors to Sensex
earnings growth are Bharti and RCOM.
• Industrials and Telecom are likely to report the
strongest and weakest earnings growth,
respectively, from the MS coverage universe.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Strategy
QE Mar-11 Earnings
Preview: Another Solid
Quarter
Quick Comment: MS analysts forecast 14% YoY
growth for 116 companies: This compares with growth
of 29% YoY in QE Dec-10. Excluding governmentowned
oil companies, earnings are forecast to rise 20%
YoY versus 11% growth in QE Dec-10. They expect
BSE Sensex earnings to increase 17% YoY vs. 26%
growth in QE Dec-10.
Margin compression in seven out of 10 sectors: MS
analysts expect aggregate (ex-government-owned oil
companies) revenue to grow 21% YoY with an
expansion of 69bp YoY in EBITDA margins. Telecoms is
likely to see the most margin expansion, while
Healthcare followed by Consumer Discretionary is likely
to see the most contraction in margins. Our analysts
expect the strongest earnings growth for Industrials at
37% YoY (for the third straight quarter, 22% Ex-Tata
Motors) followed by Financials (at 22% YoY), whereas
Telecoms earnings (down 40% YoY) are likely to be the
weakest for the sixth quarter in a row.
Key observations about our analysts’ forecasts: 1)
Depreciation expenses to rise 15% YoY; 2) net financial
income is likely to turn to net financial expense.
(ex-Telecoms, it is likely to fall 59% YoY). This is
creating pressure on net margins, and, thus, 37% of our
coverage universe is likely to report a drop in net profit
YoY (vs. one-fifth of the sample in the previous quarter).
About two-fifths of our sample will likely report profit
growth in excess of 25%.
The broad market could lag the narrow market
again: The narrow market beat the broad market
earnings growth in the previous quarter, and this should
continue for the quarter-ended March 2011.
F2011 Thus Far: Key Highlights
• For the first three quarters of F2011, Sensex and
broad market (for 1,717 companies) earnings
grew at 23% YoY and 22% YoY, respectively.
• Industrials and Telecom have reported the
strongest and weakest earnings growth so far,
respectively.
• More than one-half of the companies have beaten
expectations during the last two quarters.
• The detailed analysis of this data suggests that
the global earnings of the Sensex companies in
F2011 grew by 48% YoY, while the domestic
earnings for the index companies grew by 8% YoY
during the period.
QE Mar-11 Earnings Expectations
• Sensex companies are likely to grow 17% YoY
during the QE Mar-11.
• Excluding the Telecom sector, Sensex growth is
likely to be 26% YoY.
• The biggest contributors to Sensex earnings
growth are ONGC, Tata Motors, Reliance
Industries, and Tata Steel (in that order).
• The largest negative contributors to Sensex
earnings growth are Bharti and RCOM.
• Industrials and Telecom are likely to report the
strongest and weakest earnings growth,
respectively, from the MS coverage universe.
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