Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
n FY11 earnings dominated by cost concerns; focus shifts to FY12
Earnings for FY11 has been dominated by a tug of war between healthy topline growth and rising cost pressures, leading to pressure on the operating margins. We are expecting the fourth quarter earnings to be no less different. Thus for the current reporting season, more than the actual earnings, what will be keenly watched is how expectations for earnings growth pan out and whether margins will yield to rising cost pressures in FY12. Broadly, we have kept our Sensex EPS estimate intact for FY11 at INR 1,040, implying earnings growth rate of 14.1% for Q4FY11 (coverage universe ex-OMCs at 16.0%). For the full year FY11E, we expect earnings growth for Sensex companies to come in at ~25.2%.
n EBITDA margins to continue to remain stable
Y-o-Y, Q4FY11E EBITDA margins are expected to come in at 21.0% for our coverage universe (ex-OMCs) and 21.7% for the Sensex. Margins for the coverage universe (ex OMCs) have been hovering around 21% levels over the last three quarters (22.1% for Q1FY11, 21.0% for Q2FY11 and 21.1% for Q3FY11). However, as we move into FY12, headwinds from rising costs will continue to challenge the margins’ trajectory. For the current quarter though, margin expansion in some sectors is expected to be led by one-offs. For example, within autos, if we remove the effect of JLR, EBITDA margins are expected to contract 270bps Y-o-Y while in engineering and cap goods, if we remove Punj Lloyd, margins are expected to contract 75bps Y-o-Y.
n IT and commodities to drive the topline
Revenues are expected to increase 21.0% Y-o-Y for our coverage universe (ex-OMCs) and 20.0% Y-o-Y for the Sensex. We remain bullish on the overall demand outlook. Topline growth is expected to be strong, especially for global-facing sectors such as tech, metals, and oil & gas. Within tech, healthy topline growth is expected to be supported by strong demand and momentum in deal sign ups, while in metals, topline growth is expected to be led by improvement and realisations within the steel sector (volumes up 4.4% Q-o-Q).
n Downside risks intensify; downgrades in FY12 estimates likely
Our EPS estimates for FY11, FY12 and FY13 stand at INR 1,040, INR 1,264 and
INR 1,484, respectively. What surprises us is that the earnings trajectory has remained fairly stable despite visible cost pressures. In our view, the consensus is still ignoring the cost pressures which could lead to downgrades for FY12 earnings. For example, within the broad universe of BSE-100 stocks, for FY12, consensus is still holding on its expectations of margin expansion in majority of stocks. In face of rising raw material prices, higher interest rates and higher salaries, cost pressures will increase. According to our estimates costs have gone up by 4-5% cumulatively, whereas, earnings expectations for FY12 remain unchanged. It needs to be seen how much of these cost increases will be passed onto the end consumer, given high inflation.
INR 1,484, respectively. What surprises us is that the earnings trajectory has remained fairly stable despite visible cost pressures. In our view, the consensus is still ignoring the cost pressures which could lead to downgrades for FY12 earnings. For example, within the broad universe of BSE-100 stocks, for FY12, consensus is still holding on its expectations of margin expansion in majority of stocks. In face of rising raw material prices, higher interest rates and higher salaries, cost pressures will increase. According to our estimates costs have gone up by 4-5% cumulatively, whereas, earnings expectations for FY12 remain unchanged. It needs to be seen how much of these cost increases will be passed onto the end consumer, given high inflation.
No comments:
Post a Comment