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India Equity Research Reports, IPO and Stock News
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Earnings growth at 12.1% YoY for Sensex and 4.1% YoY for the coverage
universe (ex OMC) surprised on the upside, but was largely driven by oneoff
gains from ONGC. Revenue growth surprised on the upside, while
EBITDA margins though in line with expectations continued to contract
(down 173bps YoY). Post results, the asking rate for H2FY12 Sensex
earnings has inched up to a moderately high 11%. Sector‐wise indicators
point to growing pain within rate cyclicals with cap goods, PSU banks and
real estate showing worsening metrics. The silver lining, however, is a
better than expected operational show from core defensive sectors. The
threat to earnings downgrade cycle has now clearly shifted to FY13, which
has deteriorated 3% in reporting season and by ~10% in this fiscal.
Earnings surprise on one‐offs
Earnings growth for the Sensex at 12.1% YoY did surprise on the upside, but was largely
led by one‐off gains from ONGC. This apart, earnings season was generally lacklustre
with four out of every ten sectors clocking a decline in PAT. Revenue surprised on the
upside for the Edewleiss coverage (20.9% vs 17.2% expectations, YoY) with auto,
cement, FMCG, IT and metals posting a better than expected topline, while EBITDA
margins, though in line with expectations, continue to contract (down 173bps YoY). For
the Sensex, this implies an asking rate of 11.0% for H2FY12 earnings growth ‐ a
moderately daunting task, allowing for the macro economic slowdown.
Rate cyclicals face another hard quarter, pharma, FMCG dazzle
Rate cyclicals had yet another forgettable quarter as higher interest costs and the general
macro slowdown singed earnings. Interest expenses now account for ~1.9% of the Nifty
topline, the highest since Q4FY09. In the wake of a weak macro, capital goods sector
witnessed yet another slump in new orders with the bellwether L&T slashing its FY12
order intake growth guidance to 5% from 15%. The PSU banking sector continues to face
headwinds from higher provisioning due to the new system based NPA recognition norms
while the real estate and construction sector continue to reel from higher interest costs.
The solitary bright spot has been the performance of core defensives‐ pharma (higher
gross margins) and consumer goods (volume surprise) though even they could not offset
the general tardiness in earnings.
Earnings trajectory caves in, banks remain vulnerable
It is no longer about the FY12 earnings momentum – our spot of bother is the sharp cut in
FY13 earnings estimates which currently stand at INR1,330, shedding 3% during the
reporting season and 10% since the beginning of this fiscal. The breadth and depth of the
downgrade cycle during the results season has been vicious with 2/3 of Sensex universe
seeing a cut in earnings. With almost half a year left before FY13 actually sets in, we could
well be staring down the barrel at an EPS of INR1,300 or below. Vulnerable spots to FY13
earnings include banks – a sector which contributes about 25% to the incremental EPS
growth, but has only seen marginal downgrades so far.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Earnings growth at 12.1% YoY for Sensex and 4.1% YoY for the coverage
universe (ex OMC) surprised on the upside, but was largely driven by oneoff
gains from ONGC. Revenue growth surprised on the upside, while
EBITDA margins though in line with expectations continued to contract
(down 173bps YoY). Post results, the asking rate for H2FY12 Sensex
earnings has inched up to a moderately high 11%. Sector‐wise indicators
point to growing pain within rate cyclicals with cap goods, PSU banks and
real estate showing worsening metrics. The silver lining, however, is a
better than expected operational show from core defensive sectors. The
threat to earnings downgrade cycle has now clearly shifted to FY13, which
has deteriorated 3% in reporting season and by ~10% in this fiscal.
Earnings surprise on one‐offs
Earnings growth for the Sensex at 12.1% YoY did surprise on the upside, but was largely
led by one‐off gains from ONGC. This apart, earnings season was generally lacklustre
with four out of every ten sectors clocking a decline in PAT. Revenue surprised on the
upside for the Edewleiss coverage (20.9% vs 17.2% expectations, YoY) with auto,
cement, FMCG, IT and metals posting a better than expected topline, while EBITDA
margins, though in line with expectations, continue to contract (down 173bps YoY). For
the Sensex, this implies an asking rate of 11.0% for H2FY12 earnings growth ‐ a
moderately daunting task, allowing for the macro economic slowdown.
Rate cyclicals face another hard quarter, pharma, FMCG dazzle
Rate cyclicals had yet another forgettable quarter as higher interest costs and the general
macro slowdown singed earnings. Interest expenses now account for ~1.9% of the Nifty
topline, the highest since Q4FY09. In the wake of a weak macro, capital goods sector
witnessed yet another slump in new orders with the bellwether L&T slashing its FY12
order intake growth guidance to 5% from 15%. The PSU banking sector continues to face
headwinds from higher provisioning due to the new system based NPA recognition norms
while the real estate and construction sector continue to reel from higher interest costs.
The solitary bright spot has been the performance of core defensives‐ pharma (higher
gross margins) and consumer goods (volume surprise) though even they could not offset
the general tardiness in earnings.
Earnings trajectory caves in, banks remain vulnerable
It is no longer about the FY12 earnings momentum – our spot of bother is the sharp cut in
FY13 earnings estimates which currently stand at INR1,330, shedding 3% during the
reporting season and 10% since the beginning of this fiscal. The breadth and depth of the
downgrade cycle during the results season has been vicious with 2/3 of Sensex universe
seeing a cut in earnings. With almost half a year left before FY13 actually sets in, we could
well be staring down the barrel at an EPS of INR1,300 or below. Vulnerable spots to FY13
earnings include banks – a sector which contributes about 25% to the incremental EPS
growth, but has only seen marginal downgrades so far.
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