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India Equity Strategy:Sep-Q preview
Early signs of revenue growth slowdown?
Slowdown in broader economy likely to weigh on Sensex revenue growth
The key highlight of the upcoming September-quarter earnings season is likely to
be a slowdown in Sensex revenue growth. According to our analysts, Sensex
companies are likely to report 23% yoy growth in revenues vs. the 25% average
growth seen in the past 2 quarters. However, we would like to highlight that
excluding Reliance and ONGC, revenue growth for Sensex companies is likely to
show a sharp deceleration, coming in at 16% yoy versus an average of 23% yoy in
the past 2 quarters. Sensex’s EBITDA and PAT growth, however, are unlikely to
fall as sharply but are still likely to remain relatively subdued at 12% yoy and 11%
yoy, respectively (vs. 13% and 8% average yoy growth in the past 2 quarters).
Property and Cement lag on revenue growth; Oil & Gas, IT and Banks lead
We expect Property to report negative top-line growth of -4%yoy, due to a weak
demand environment and slower execution due to the monsoon. We expect
Cement/Construction to show muted revenue growth of 5% on account of JPA
(sole representative for the sector in Sensex), even as non-Sensex Cement stocks
are likely to witness reasonably robust growth of 17% yoy. Oil & Gas should post
the highest revenue growth (+40% yoy), with RIL benefitting from a 47% rise in
global crude prices and ONGC benefitting from higher net oil realization (~+40-
50% yoy). IT Services are also likely to post robust yoy revenue growth (+20%).
Financials are likely to witness 19% growth in net interest income, as system loan
growth was on an average of about 20% in the September quarter.
Cement, Auto and Utilities lag on EBITDA growth; Financials, Pharma lead
Cement/Construction should post negative EBITDA growth of -12%, with JPA’s
Cement operations impacted by price weakness in central India, while the
Construction business suffered from lower demand. The Autos business is likely
to witness just 3% EBITDA growth, as TaMo’s domestic and global businesses
face raw material price pressure and Maruti’s operations are likely to get hit by
high commodity price and a 9% yoy appreciation in Yen/INR. Power Utilities
should also witness muted EBITDA growth (+4%) mainly due to declining PLFs for
NTPC and TPWR, offsetting a coal-price hike-induced 24% EBITDA growth in Coal
India. We expect Banks to post the highest sectoral EBITDA growth at 20%,
buoyed by ~20% system credit growth and strong fee income growth in private
sector banks. Pharma should follow with 18% yoy EBITDA growth mainly due to
Sun Pharma’s acquisition of Taro.
Further downgrade to consensus Sensex earnings estimates likely
In response to elevated cost pressures, we have already witnessed ~6%/9% cuts
to consensus/Deutsche Bank estimates for FY12 Sensex EPS. We would not rule
out further cuts to consensus estimates for FY12, with macro headwinds (both
global and local) likely to persist in the near term. Currently, consensus estimates
for FY12 Sensex EPS growth range between 15% and 16%, which is much higher
than the Sensex EPS growth run rate of ~10% in 1HFY12. We see the rural
economy (buoyed by the strong monsoon) as relatively insulated from macro
headwinds, which should help moderate prevailing pressure in other segments of
the economy. Hence, we suggest positioning into companies that stand to benefit
from continuing positive momentum in India’s rural economy/hinterland, e.g.,
M&M, Hero Honda, Bajaj Auto, ITC, Asian Paints and Grasim.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Equity Strategy:Sep-Q preview
Early signs of revenue growth slowdown?
Slowdown in broader economy likely to weigh on Sensex revenue growth
The key highlight of the upcoming September-quarter earnings season is likely to
be a slowdown in Sensex revenue growth. According to our analysts, Sensex
companies are likely to report 23% yoy growth in revenues vs. the 25% average
growth seen in the past 2 quarters. However, we would like to highlight that
excluding Reliance and ONGC, revenue growth for Sensex companies is likely to
show a sharp deceleration, coming in at 16% yoy versus an average of 23% yoy in
the past 2 quarters. Sensex’s EBITDA and PAT growth, however, are unlikely to
fall as sharply but are still likely to remain relatively subdued at 12% yoy and 11%
yoy, respectively (vs. 13% and 8% average yoy growth in the past 2 quarters).
Property and Cement lag on revenue growth; Oil & Gas, IT and Banks lead
We expect Property to report negative top-line growth of -4%yoy, due to a weak
demand environment and slower execution due to the monsoon. We expect
Cement/Construction to show muted revenue growth of 5% on account of JPA
(sole representative for the sector in Sensex), even as non-Sensex Cement stocks
are likely to witness reasonably robust growth of 17% yoy. Oil & Gas should post
the highest revenue growth (+40% yoy), with RIL benefitting from a 47% rise in
global crude prices and ONGC benefitting from higher net oil realization (~+40-
50% yoy). IT Services are also likely to post robust yoy revenue growth (+20%).
Financials are likely to witness 19% growth in net interest income, as system loan
growth was on an average of about 20% in the September quarter.
Cement, Auto and Utilities lag on EBITDA growth; Financials, Pharma lead
Cement/Construction should post negative EBITDA growth of -12%, with JPA’s
Cement operations impacted by price weakness in central India, while the
Construction business suffered from lower demand. The Autos business is likely
to witness just 3% EBITDA growth, as TaMo’s domestic and global businesses
face raw material price pressure and Maruti’s operations are likely to get hit by
high commodity price and a 9% yoy appreciation in Yen/INR. Power Utilities
should also witness muted EBITDA growth (+4%) mainly due to declining PLFs for
NTPC and TPWR, offsetting a coal-price hike-induced 24% EBITDA growth in Coal
India. We expect Banks to post the highest sectoral EBITDA growth at 20%,
buoyed by ~20% system credit growth and strong fee income growth in private
sector banks. Pharma should follow with 18% yoy EBITDA growth mainly due to
Sun Pharma’s acquisition of Taro.
Further downgrade to consensus Sensex earnings estimates likely
In response to elevated cost pressures, we have already witnessed ~6%/9% cuts
to consensus/Deutsche Bank estimates for FY12 Sensex EPS. We would not rule
out further cuts to consensus estimates for FY12, with macro headwinds (both
global and local) likely to persist in the near term. Currently, consensus estimates
for FY12 Sensex EPS growth range between 15% and 16%, which is much higher
than the Sensex EPS growth run rate of ~10% in 1HFY12. We see the rural
economy (buoyed by the strong monsoon) as relatively insulated from macro
headwinds, which should help moderate prevailing pressure in other segments of
the economy. Hence, we suggest positioning into companies that stand to benefit
from continuing positive momentum in India’s rural economy/hinterland, e.g.,
M&M, Hero Honda, Bajaj Auto, ITC, Asian Paints and Grasim.
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