Q3FY12 RESULTS UPDATE Surprise on the upside:: Edelweiss

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At little more than the half way mark, results have been broadly ahead of
our expectations. Sectoral analysis reveals that strain remains within PSU
banks (deteriorating asset quality) and cap goods (stagnating power
sector order book and declining margins) while bright spots have been
consumer sector (robust topline growth), private sector banks (better
than expected asset quality) and pharma (a better than expected growth
in US markets). Meanwhile, the overall downgrade cycle has been
relatively benign with a 1% cut in FY13 Sensex EPS so far.
Results broadly above expectations so far
For the BSE‐200 universe companies within our coverage (which have announced
results so far), profit growth at 5.6% YoY has been ahead of expectations. However,
with more than 50% of the BSE‐200 universe already having reported, we may well end
up seeing another quarter of sub‐10% earnings growth (Edelweiss expectations: 2.0%
YoY for the coverage universe). This apart, the headline story has followed the usual
script: heady topline growth (25.6% YoY) punctuated by shrinking EBITDA margins
(17.4% in Q3FY12 vs 21.2% in Q3FY11).
Cap goods, PSU banks laggards, Consumers, Pvt banks outshine
Sector‐wise, few broad trends have emerged even as some of the pain‐points which we
observed for the last few quarters seem to persist. For example, the weakness in power
sector is being reflected in the order book status of BHEL wherein order intake declined
sharply for 9MFY12 by 60% YoY to INR153bn. Trends from PSU banks suggest that some
large ticket accounts would be slipping into NPLs even as few major accounts were
being restructured, leading to higher provisioning costs. Within the IT sector, results
were broadly in line with expectations, but management commentaries about Q4
concern us. Infosys guided for flat revenue growth in March 2012 quarter while TCS
highlighted few project delays.
However, there have been some bright spots as well: 1) better than expected results
within the consumer sector buoyed by a robust topline growth, 2) better asset quality
for private banks, specially within the mid‐cap space (Yes Bank and Federal Bank) and 3)
surprise on the upside from pharma sector on the back of favorable currency
movements and a better than expected growth in US markets.
Meanwhile, within oil & gas results, Reliance Industries disappointed owing to lower
gas production from KG‐D6 (down 3.3 mmscmd sequentially to 41.9 mmscmd) and
lower refining margins. A strong demand for LNG led to a better than expected result
for Petronet LNG