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Strong revenue growth offset by cost pressures
In line with the underlying economic momentum and our expectations, Sensex
revenue growth continued to remain robust at 23.4% in Mar-Q. However,
intensifying cost pressures across the board expectedly pulled down Sensex EBITDA growth to just +12% yoy, leading to shrinkage in EBITDA margin by 250bps yoy and 300 bps qoq. PAT margins also shrunk by a similar quantum.
Sensex PAT growth slows down led by SBI and ONGC
After three strong quarters, Sensex companies witnessed a slowdown in PAT
growth in Mar-Q at -2%yoy (for Deutsche Bank India universe the PAT growth was at 13% yoy). However, this was disproportionately skewed by unanticipated high provisioning by SBI and greater subsidy sharing devolving on ONGC. Hence, ex-
SBI’s and ONGC’s Mar-Q numbers, PAT growth moves into positive territory (at
+6% yoy), implying full-year FY11 Sensex PAT growth of 19% yoy (~24% on free
float basis). Overall, Sensex PAT was below our estimate (-15%, though ex-
SBI/ONGC it was 2% ahead of our estimate). Positive surprises and negative surprises were evenly distributed both at PAT and EBITDA levels.
Capital Goods and FMCG lead PAT growth, Telecom and Banks drag
Capital goods posted highest PAT growth (32% yoy) driven by BHEL’s strong
revenue growth flowing to PAT growth of 47%. FMCG posted PAT growth of 21% yoy as ITC continued to demonstrate strong pricing power. Telecom was the biggest laggard (PAT -51%yoy) driven primarily by: (i) RComm’s (-87%) weak
operational performance and higher-than-expected taxes and (ii) high interest and taxes for Bharti (-28%). Financials’ PAT was down -20%yoy as SBI’s provisioning
more than offset robust growth of ICICI Bank (+44%) and HDFC Bank (+33%).
Earnings cuts dominate raises; Banks, Oil & Gas, Autos see maximum cuts During the earnings season, earnings cuts outnumbered raises by a ratio of 2:1.
Banks, Autos and Oil & Gas witnessed the maximum number of earnings cuts.
Few key earnings cuts were: (i) ONGC (-21%) as our analysts factored in the
higher subsidy sharing (38.8% vs. 33% previously), (ii) Oil India (-13%): again due to higher upstream subsidy-sharing assumption, (iii) Aban Offshore (-30%) as we removed the Deep Venture JV contribution from our estimates, (iv) TVS Motor (-
12%): to account for higher guidance on tax rate. Within Financials all the cuts
were marginal barring SBI (-8%) and REC (-7%). Key raises were seen in: (i) Coal India (+7%), as we increased our assumption on volumes by 2% and realizations by 3%, (ii) Ranbaxy (+12%), factoring in more gainful product mix and cost focus.
We remain constructive on market with year-end Sensex target of 21,000
While overall Mar-Q numbers have come below our estimates, we are still maintaining our constructive view on the Indian market due to: (i) an expected
softening in global commodity prices, (ii) abatement of policy inertia, (iii) expectation of declining food inflation and (iv) a sharp YTD underperformance of India vs. EM peers. We maintain our year-end Sensex target of 21,000.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong revenue growth offset by cost pressures
In line with the underlying economic momentum and our expectations, Sensex
revenue growth continued to remain robust at 23.4% in Mar-Q. However,
intensifying cost pressures across the board expectedly pulled down Sensex EBITDA growth to just +12% yoy, leading to shrinkage in EBITDA margin by 250bps yoy and 300 bps qoq. PAT margins also shrunk by a similar quantum.
Sensex PAT growth slows down led by SBI and ONGC
After three strong quarters, Sensex companies witnessed a slowdown in PAT
growth in Mar-Q at -2%yoy (for Deutsche Bank India universe the PAT growth was at 13% yoy). However, this was disproportionately skewed by unanticipated high provisioning by SBI and greater subsidy sharing devolving on ONGC. Hence, ex-
SBI’s and ONGC’s Mar-Q numbers, PAT growth moves into positive territory (at
+6% yoy), implying full-year FY11 Sensex PAT growth of 19% yoy (~24% on free
float basis). Overall, Sensex PAT was below our estimate (-15%, though ex-
SBI/ONGC it was 2% ahead of our estimate). Positive surprises and negative surprises were evenly distributed both at PAT and EBITDA levels.
Capital Goods and FMCG lead PAT growth, Telecom and Banks drag
Capital goods posted highest PAT growth (32% yoy) driven by BHEL’s strong
revenue growth flowing to PAT growth of 47%. FMCG posted PAT growth of 21% yoy as ITC continued to demonstrate strong pricing power. Telecom was the biggest laggard (PAT -51%yoy) driven primarily by: (i) RComm’s (-87%) weak
operational performance and higher-than-expected taxes and (ii) high interest and taxes for Bharti (-28%). Financials’ PAT was down -20%yoy as SBI’s provisioning
more than offset robust growth of ICICI Bank (+44%) and HDFC Bank (+33%).
Earnings cuts dominate raises; Banks, Oil & Gas, Autos see maximum cuts During the earnings season, earnings cuts outnumbered raises by a ratio of 2:1.
Banks, Autos and Oil & Gas witnessed the maximum number of earnings cuts.
Few key earnings cuts were: (i) ONGC (-21%) as our analysts factored in the
higher subsidy sharing (38.8% vs. 33% previously), (ii) Oil India (-13%): again due to higher upstream subsidy-sharing assumption, (iii) Aban Offshore (-30%) as we removed the Deep Venture JV contribution from our estimates, (iv) TVS Motor (-
12%): to account for higher guidance on tax rate. Within Financials all the cuts
were marginal barring SBI (-8%) and REC (-7%). Key raises were seen in: (i) Coal India (+7%), as we increased our assumption on volumes by 2% and realizations by 3%, (ii) Ranbaxy (+12%), factoring in more gainful product mix and cost focus.
We remain constructive on market with year-end Sensex target of 21,000
While overall Mar-Q numbers have come below our estimates, we are still maintaining our constructive view on the Indian market due to: (i) an expected
softening in global commodity prices, (ii) abatement of policy inertia, (iii) expectation of declining food inflation and (iv) a sharp YTD underperformance of India vs. EM peers. We maintain our year-end Sensex target of 21,000.
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