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Q4FY11 RESULTS PREVIEW
22.5% revenue growth expected during the quarter (ex Oil &
Gas)
We expect stocks under our coverage (ex-banking / NBFCs) to report revenue
growth of about 26% on a YoY basis. This is partly helped by the scale up in
revenues of Cairn India. Ex - Oil & Gas, revenue growth is expected to be about
22.5%. Among others, Auto, Capital Goods and IT are expected to propel this
growth. Revenues of auto and IT companies are expected to be driven by volumes,
while that of cement would be driven by higher realisation. Higher execution levels
should drive revenues of capital goods companies, though the growth rate is not
expected to match up to our coverage average. We will watch our for execution
issues, if any, in construction and capital goods sectors.
Banks / NBFCs under our coverage are expected to post a 24.6% rise in NII. Our
banking universe is likely to grow faster with 27.6% growth (Public: 30.6%, Pvt:
20.0%); whereas NBFCs are likely to grow at 20.9%. Credit growth for banks has
picked up to 21.5% (as on March 25, 2011, 2010) v/s 17.0% in the corresponding
previous period. During the same period, deposits have grown by 16.0% YoY.
Moreover, we expect 10-20 bps compression in NIM during Q4FY11 (QoQ) on back
of lagged impact of deposit re-pricing at higher rates. However, this would be partly
compensated by the recent hike in lending rates as assets are re-priced faster than
the deposits. However, going forward, we do not foresee any significant pressure on
the margins as we believe FD rates have peaked and recent softening in short term
CD rates is likely to further aid in sustaining healthy NIMs.
Margins are expected to be steady for our coverage universe (ex-
Oil & Gas)
EBIDTA margins for the companies under our coverage are expected to remain
steady on a YoY basis (ex Oil & Gas). Most of the sectors, except Capital Goods &
Power, are expected to witness pressure on margins. The pressure on margins is due
to higher raw material prices, which companies have not been able to pass on fully.
Moreover, higher attrition and salaries are expected to hurt margins of IT
companies.
As far as banks are concerned, pre-provisioning profits are expected to rise by about
18.6% v/s a 27.6% rise in NIIs. A relatively lower treasury profit is expected to have
an impact. NBFCs are expected to report a growth of about 23.5% in preprovisioning
profits, slightly better than the NII growth. We also expect asset quality
deterioration to stabilize during Q4FY11. PSU banks are likely to report slightly
higher slippages with the shift to system-based NPA recognition. However, strong
recoveries & upgradation are likely to prevent a sharp rise in overall NPAs. At the
other end, private sector banks would further witness improvement in their asset
quality leading to lower credit costs.
Focus on concerns
While 4QFY11 results will be important, the focus has been and is expected to be on
some of the other pressing concerns.
Domestically, we will focus hard on the execution issues, if any, faced by capital
goods and construction companies. More importantly, the order bookings by large
capital goods and construction companies during the quarter will be of interest to us.
The past few months have seen a slow-down in order flows. We will also keenly
hear the management comments on any early signs of momentum in decision -
making and order - flows for these companies.
Inflation and the increase in interest rates will remain a focus point for the markets.
To that extent, stocks of debt heavy companies are expected to remain under
pressure. Also all rate sensitive sectors will be watched with caution by the markets
in the short term, we understand.
We will also maintain a close watch on the global commodity prices. These are
expected to impact margins in 4QFY11 and consistent increase in the same may
keep margins of corporate India under pressure, if the increases are not fully passed
on. Any lingering impact may dampen sentiments.
Conclusion
Markets have been on an uptrend since mid - March and have risen by about 9 -
10% over this period. The possible reasons for this uptrend are the fund flows and
likely short - covering. On the other hand, concerns remain in the form of high
inflation and increasing crude prices.
In such a scenario, corporate results assume greater importance if the markets have
to sustain and move higher from the current levels. Expectations are running high
about the ability of the Indian economy to sustain and improve the growth rates,
though some concerns like high crude prices have recently emerged. Consequently,
corporate revenue growth and profit growth rates are also expected to be sustained
and improved upon.
We opine that, if the markets have to sustain the current levels and move up, it will
need to have more confidence in the medium-to-long term growth rates of
Corporate India. Also, the above-mentioned concerns have to be effectively and
immediately addressed.
The room for disappointment is very limited, in our view. Disappointment in earnings
or on future outlook may result in corresponding specific corrections.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Q4FY11 RESULTS PREVIEW
22.5% revenue growth expected during the quarter (ex Oil &
Gas)
We expect stocks under our coverage (ex-banking / NBFCs) to report revenue
growth of about 26% on a YoY basis. This is partly helped by the scale up in
revenues of Cairn India. Ex - Oil & Gas, revenue growth is expected to be about
22.5%. Among others, Auto, Capital Goods and IT are expected to propel this
growth. Revenues of auto and IT companies are expected to be driven by volumes,
while that of cement would be driven by higher realisation. Higher execution levels
should drive revenues of capital goods companies, though the growth rate is not
expected to match up to our coverage average. We will watch our for execution
issues, if any, in construction and capital goods sectors.
Banks / NBFCs under our coverage are expected to post a 24.6% rise in NII. Our
banking universe is likely to grow faster with 27.6% growth (Public: 30.6%, Pvt:
20.0%); whereas NBFCs are likely to grow at 20.9%. Credit growth for banks has
picked up to 21.5% (as on March 25, 2011, 2010) v/s 17.0% in the corresponding
previous period. During the same period, deposits have grown by 16.0% YoY.
Moreover, we expect 10-20 bps compression in NIM during Q4FY11 (QoQ) on back
of lagged impact of deposit re-pricing at higher rates. However, this would be partly
compensated by the recent hike in lending rates as assets are re-priced faster than
the deposits. However, going forward, we do not foresee any significant pressure on
the margins as we believe FD rates have peaked and recent softening in short term
CD rates is likely to further aid in sustaining healthy NIMs.
Margins are expected to be steady for our coverage universe (ex-
Oil & Gas)
EBIDTA margins for the companies under our coverage are expected to remain
steady on a YoY basis (ex Oil & Gas). Most of the sectors, except Capital Goods &
Power, are expected to witness pressure on margins. The pressure on margins is due
to higher raw material prices, which companies have not been able to pass on fully.
Moreover, higher attrition and salaries are expected to hurt margins of IT
companies.
As far as banks are concerned, pre-provisioning profits are expected to rise by about
18.6% v/s a 27.6% rise in NIIs. A relatively lower treasury profit is expected to have
an impact. NBFCs are expected to report a growth of about 23.5% in preprovisioning
profits, slightly better than the NII growth. We also expect asset quality
deterioration to stabilize during Q4FY11. PSU banks are likely to report slightly
higher slippages with the shift to system-based NPA recognition. However, strong
recoveries & upgradation are likely to prevent a sharp rise in overall NPAs. At the
other end, private sector banks would further witness improvement in their asset
quality leading to lower credit costs.
Focus on concerns
While 4QFY11 results will be important, the focus has been and is expected to be on
some of the other pressing concerns.
Domestically, we will focus hard on the execution issues, if any, faced by capital
goods and construction companies. More importantly, the order bookings by large
capital goods and construction companies during the quarter will be of interest to us.
The past few months have seen a slow-down in order flows. We will also keenly
hear the management comments on any early signs of momentum in decision -
making and order - flows for these companies.
Inflation and the increase in interest rates will remain a focus point for the markets.
To that extent, stocks of debt heavy companies are expected to remain under
pressure. Also all rate sensitive sectors will be watched with caution by the markets
in the short term, we understand.
We will also maintain a close watch on the global commodity prices. These are
expected to impact margins in 4QFY11 and consistent increase in the same may
keep margins of corporate India under pressure, if the increases are not fully passed
on. Any lingering impact may dampen sentiments.
Conclusion
Markets have been on an uptrend since mid - March and have risen by about 9 -
10% over this period. The possible reasons for this uptrend are the fund flows and
likely short - covering. On the other hand, concerns remain in the form of high
inflation and increasing crude prices.
In such a scenario, corporate results assume greater importance if the markets have
to sustain and move higher from the current levels. Expectations are running high
about the ability of the Indian economy to sustain and improve the growth rates,
though some concerns like high crude prices have recently emerged. Consequently,
corporate revenue growth and profit growth rates are also expected to be sustained
and improved upon.
We opine that, if the markets have to sustain the current levels and move up, it will
need to have more confidence in the medium-to-long term growth rates of
Corporate India. Also, the above-mentioned concerns have to be effectively and
immediately addressed.
The room for disappointment is very limited, in our view. Disappointment in earnings
or on future outlook may result in corresponding specific corrections.
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