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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
India
2QFY12 results: Forex the profit slayer. The BSE-30 Index’s 2QFY12 adjusted new
profits grew 10.8% yoy, marginally below our pre-results expectation of 11.5% yoy.
Rupee depreciation disrupted earnings through forex losses (un-hedged ECB exposure)
in several companies. Other highlights: a sharp jump in the NPLs of banks and net debt
of infra companies, low sales growth in the pharma sector and weak order booking for
Industrial and Construction companies. We now estimate the BSE-30 Index’s FY2012E
net profits to grow at 14.4% versus our 19% pre-results estimate.
2QFY12 results: Marginally below expectations
2QFY12 earnings were marginally below expectations with two major disappointments (Maruti
and Tata Steel). The BSE-30 Index’s adjusted new profits grew 10.8% yoy against our pre-results
expectation of 11.5% yoy. Our broader KIE universe delivered earnings decline of 27% yoy against
our expectation of 25% yoy; the large decline reflecting losses of Government-owned
downstream companies. In our broader KIE universe of 160 stocks, 57 stocks reported results on
the upside (>5% our expected net income), 44 stocks reported net income within 5% (+/-) of our
estimates while 59 stocks fell short (<5% below our expected net income).
Cement, consumers sectors beat expectations while industrials, metals fell short
Cement, Consumer and Utilities sectors beat expectations while Construction, Industrials, Metals &
Mining fell short in our coverage universe. 2QFY12 results confirmed continued ongoing weakness
in the domestic investment cycle. More important, management commentary was generally weak
in the investment-related companies.
Earnings downgrades continued for BSE-30 Index
We have fine-tuned our FY2012E BSE-30 Index ‘EPS’ (free-float basis) to `1,120 from `1,160
before the start of the results season and our FY2013E ‘EPS’ to `1,300 from `1,320 previously.
On a full-float basis, we estimate FY2012E earnings growth at 14.4% yoy versus 19% yoy before
the start of the earnings season and FY2013E earnings growth at 16.8% versus 14.6% yoy
previously. Banking, Energy (higher share of under-recoveries assumed for upstream companies),
Metals & Mining and Telecom sectors account for the bulk of the earnings downgrades.
Continue to focus on capital preservation
We continue to focus on capital preservation in light of a deteriorating macro environment—(1)
deteriorating fiscal position and (2) weakening BOP position. We focus on large cap. stocks with
(1) reasonable visibility in earnings irrespective of valuations (Consumers, Private Banks,
Technology) or (2) strong balance sheets, inexpensive valuations but some governance issues or
(3) a natural hedge against Rupee depreciation (Energy, Technology).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strategy
India
2QFY12 results: Forex the profit slayer. The BSE-30 Index’s 2QFY12 adjusted new
profits grew 10.8% yoy, marginally below our pre-results expectation of 11.5% yoy.
Rupee depreciation disrupted earnings through forex losses (un-hedged ECB exposure)
in several companies. Other highlights: a sharp jump in the NPLs of banks and net debt
of infra companies, low sales growth in the pharma sector and weak order booking for
Industrial and Construction companies. We now estimate the BSE-30 Index’s FY2012E
net profits to grow at 14.4% versus our 19% pre-results estimate.
2QFY12 results: Marginally below expectations
2QFY12 earnings were marginally below expectations with two major disappointments (Maruti
and Tata Steel). The BSE-30 Index’s adjusted new profits grew 10.8% yoy against our pre-results
expectation of 11.5% yoy. Our broader KIE universe delivered earnings decline of 27% yoy against
our expectation of 25% yoy; the large decline reflecting losses of Government-owned
downstream companies. In our broader KIE universe of 160 stocks, 57 stocks reported results on
the upside (>5% our expected net income), 44 stocks reported net income within 5% (+/-) of our
estimates while 59 stocks fell short (<5% below our expected net income).
Cement, consumers sectors beat expectations while industrials, metals fell short
Cement, Consumer and Utilities sectors beat expectations while Construction, Industrials, Metals &
Mining fell short in our coverage universe. 2QFY12 results confirmed continued ongoing weakness
in the domestic investment cycle. More important, management commentary was generally weak
in the investment-related companies.
Earnings downgrades continued for BSE-30 Index
We have fine-tuned our FY2012E BSE-30 Index ‘EPS’ (free-float basis) to `1,120 from `1,160
before the start of the results season and our FY2013E ‘EPS’ to `1,300 from `1,320 previously.
On a full-float basis, we estimate FY2012E earnings growth at 14.4% yoy versus 19% yoy before
the start of the earnings season and FY2013E earnings growth at 16.8% versus 14.6% yoy
previously. Banking, Energy (higher share of under-recoveries assumed for upstream companies),
Metals & Mining and Telecom sectors account for the bulk of the earnings downgrades.
Continue to focus on capital preservation
We continue to focus on capital preservation in light of a deteriorating macro environment—(1)
deteriorating fiscal position and (2) weakening BOP position. We focus on large cap. stocks with
(1) reasonable visibility in earnings irrespective of valuations (Consumers, Private Banks,
Technology) or (2) strong balance sheets, inexpensive valuations but some governance issues or
(3) a natural hedge against Rupee depreciation (Energy, Technology).
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