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http://www.kotaksecurities.com/pdf/dmb/MorningInsight10042012.pdf
Q4FY12 RESULTS PREVIEW
For the quarter, we expect the companies under our coverage to report a
revenue growth of 15% yoy ex-Banking. Margins are expected to be lower
on account of raw material prices, competitive pressures and Rupee
depreciation (YoY). Profits for these companies are expected to be flat YoY.
For Banks/NBFCs we expect NII growth of 21% on moderating credit
growth. Profits are expected to rise by 39% YoY.
15% revenue growth expected during the quarter
We expect stocks under our coverage (ex-banking / NBFCs) to report revenue
growth of about 15% on a YoY basis mainly propelled by the IT sector and scale-up
in revenues of Cairn India. IT sector revenues would be driven by higher volumes
and the rupee depreciation (yoy). We forecast moderation in revenue growth for
Capital Goods and Construction companies. Mining major, Sesa Goa's revenues are
expected to be sharply lower due to combined impact of lower realization (down
16% yoy) and volumes (down 25% yoy).
For Banks / NBFCs, we expect muted credit growth during Q4FY12. Credit growth
came at 17.1% YoY (as on March 23, 2012), marginally higher than that witnessed
during last few months, though it remained lower than 21.5% growth witnessed a
year ago. However, disappointment came on the deposit mobilization front - deposit
growth for the system came down to 13.4% (as on March 23, 2012) and explains
the rationale of many banks hiking their deposit rates to garner more deposits.
Moreover, we are expecting flat/marginal compression in NIM (QoQ) during Q4FY12
(again depending on the CASA mix or liability franchise of the individual banks) as
banks are almost through with the last leg of deposit re-pricing. Tight liquidity environment has led to spike in wholesale deposit rates during the end of Q4FY12
though, we believe full impact of tight liquidity condition may be reflected in
Q1FY13. However, NBFCs are likely to witness continued compression on their margins, as borrowing costs for them have remained at elevated levels with limited
scope to charge higher rates from borrowers on back of moderating loan growth.
EBITDA Margin is expected to be lower for our coverage universe
EBIDTA margin for the companies under our coverage is expected to be lower on a
YoY basis. Most of the sectors, except IT, FMCG and Construction are expected to
witness erosion in margins on YoY basis. The margin compression is due to slack
revenues (Shipping) and higher raw material prices (Automobiles, Capital Goods)
which companies have not been able to pass on fully. For the Capital Goods companies, material cost has been higher due to weak Rupee in H2FY12. Sesa Goa's
margins are forecast to decline sharply due to steep decline in iron ore realization.
As far as banks are concerned, pre-provisioning profits are expected to rise by about
19.7% v/s a 20.7% rise in NIIs. A relatively lower treasury profit is expected to have
an impact. We also believe asset quality pressure to persist even though banks have
already shifted to system based NPA recognition system. We will be very closely
watching the corporate book especially exposure to sensitive sectors like power,
aviation, textiles, construction etc.
Economic slowdown and higher interest cost would be the key
concerns to be watched out for
During the quarter, the Rupee has recovered partly after the steep fall witnessed in
the third quarter. This may provide some relief to importers as well as foreign currency borrowers. We expect corporates with net imports/foreign borrowings to report
MTM gains. Apart from this, We will focus on the execution issues, if any, faced by
capital goods and construction companies. More importantly, the order bookings by
large capital goods and construction companies during the quarter will be of interest
to us. The past few quarters have seen a slow-down in order flows. Herein, the
management comments on any momentum in decision - making and order flows for
these companies would be keenly watched. Working capital cycle has also increased for the engineering sector and we would monitor the same. For power utilities, a key monitorable would be receivables from SEBs. We will also closely track
the management comments on the impact of the global economic issues on client
decisions and budgets. This will be more important for the prospects of the IT sector.
Conclusion
It has been one of the better quarters for the equity markets, especially the US markets, as the Dow Jones scaled the 13000 mark for the first time. Volatility originating
from the Eurozone subsided as the ECB, IMF and EU worked successfully in averting
a default by Greece. FII flows were strong during the quarter aided by the massive liquidity injection through LTRO. On the economic front, the RBI responded to liquidity tightness in the banking system by reducing the CRR by 125 bps. However, given
the upside risks to inflation, the RBI kept repo rate unchanged. The Budget was
appreciated for being realistic but market is awaiting follow-up action.The Budget
also proposed to introduce GAAR (General Anti Avoidance Rule). There were apprehensions that participatory notes (P-notes-accounts for ~ 19% of FII flow) through
Mauritius route would now fall under the purview of GAAR. However, unconfirmed
reports indicate that the government does not intend to target the P-notes in a blanket manner. However, there is further clarity required as far as taxation of gains of
FIIs operating from tax havens is concerned.
As we enter the earnings season, the management outlook for FY13 shared by
corporates would be of interest to us. Post the 9M FY12 numbers, there have been
significant earnings downgrades in Capital Goods, Infrastructure, Power, Banking
and Logistics sectors. Thus, expectations are not very high from these sectors, in our
view, which may limit the downside. Apart from Q3 numbers, markets would also
be influenced by policy initiatives including (RBI monetary policy on 17th April),
crude price, as well as developments in Europe and US. Disappointment in earnings
or on future outlook may result in corresponding/specific corrections.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/dmb/MorningInsight10042012.pdf
Q4FY12 RESULTS PREVIEW
For the quarter, we expect the companies under our coverage to report a
revenue growth of 15% yoy ex-Banking. Margins are expected to be lower
on account of raw material prices, competitive pressures and Rupee
depreciation (YoY). Profits for these companies are expected to be flat YoY.
For Banks/NBFCs we expect NII growth of 21% on moderating credit
growth. Profits are expected to rise by 39% YoY.
15% revenue growth expected during the quarter
We expect stocks under our coverage (ex-banking / NBFCs) to report revenue
growth of about 15% on a YoY basis mainly propelled by the IT sector and scale-up
in revenues of Cairn India. IT sector revenues would be driven by higher volumes
and the rupee depreciation (yoy). We forecast moderation in revenue growth for
Capital Goods and Construction companies. Mining major, Sesa Goa's revenues are
expected to be sharply lower due to combined impact of lower realization (down
16% yoy) and volumes (down 25% yoy).
For Banks / NBFCs, we expect muted credit growth during Q4FY12. Credit growth
came at 17.1% YoY (as on March 23, 2012), marginally higher than that witnessed
during last few months, though it remained lower than 21.5% growth witnessed a
year ago. However, disappointment came on the deposit mobilization front - deposit
growth for the system came down to 13.4% (as on March 23, 2012) and explains
the rationale of many banks hiking their deposit rates to garner more deposits.
Moreover, we are expecting flat/marginal compression in NIM (QoQ) during Q4FY12
(again depending on the CASA mix or liability franchise of the individual banks) as
banks are almost through with the last leg of deposit re-pricing. Tight liquidity environment has led to spike in wholesale deposit rates during the end of Q4FY12
though, we believe full impact of tight liquidity condition may be reflected in
Q1FY13. However, NBFCs are likely to witness continued compression on their margins, as borrowing costs for them have remained at elevated levels with limited
scope to charge higher rates from borrowers on back of moderating loan growth.
EBITDA Margin is expected to be lower for our coverage universe
EBIDTA margin for the companies under our coverage is expected to be lower on a
YoY basis. Most of the sectors, except IT, FMCG and Construction are expected to
witness erosion in margins on YoY basis. The margin compression is due to slack
revenues (Shipping) and higher raw material prices (Automobiles, Capital Goods)
which companies have not been able to pass on fully. For the Capital Goods companies, material cost has been higher due to weak Rupee in H2FY12. Sesa Goa's
margins are forecast to decline sharply due to steep decline in iron ore realization.
As far as banks are concerned, pre-provisioning profits are expected to rise by about
19.7% v/s a 20.7% rise in NIIs. A relatively lower treasury profit is expected to have
an impact. We also believe asset quality pressure to persist even though banks have
already shifted to system based NPA recognition system. We will be very closely
watching the corporate book especially exposure to sensitive sectors like power,
aviation, textiles, construction etc.
Economic slowdown and higher interest cost would be the key
concerns to be watched out for
During the quarter, the Rupee has recovered partly after the steep fall witnessed in
the third quarter. This may provide some relief to importers as well as foreign currency borrowers. We expect corporates with net imports/foreign borrowings to report
MTM gains. Apart from this, We will focus on the execution issues, if any, faced by
capital goods and construction companies. More importantly, the order bookings by
large capital goods and construction companies during the quarter will be of interest
to us. The past few quarters have seen a slow-down in order flows. Herein, the
management comments on any momentum in decision - making and order flows for
these companies would be keenly watched. Working capital cycle has also increased for the engineering sector and we would monitor the same. For power utilities, a key monitorable would be receivables from SEBs. We will also closely track
the management comments on the impact of the global economic issues on client
decisions and budgets. This will be more important for the prospects of the IT sector.
Conclusion
It has been one of the better quarters for the equity markets, especially the US markets, as the Dow Jones scaled the 13000 mark for the first time. Volatility originating
from the Eurozone subsided as the ECB, IMF and EU worked successfully in averting
a default by Greece. FII flows were strong during the quarter aided by the massive liquidity injection through LTRO. On the economic front, the RBI responded to liquidity tightness in the banking system by reducing the CRR by 125 bps. However, given
the upside risks to inflation, the RBI kept repo rate unchanged. The Budget was
appreciated for being realistic but market is awaiting follow-up action.The Budget
also proposed to introduce GAAR (General Anti Avoidance Rule). There were apprehensions that participatory notes (P-notes-accounts for ~ 19% of FII flow) through
Mauritius route would now fall under the purview of GAAR. However, unconfirmed
reports indicate that the government does not intend to target the P-notes in a blanket manner. However, there is further clarity required as far as taxation of gains of
FIIs operating from tax havens is concerned.
As we enter the earnings season, the management outlook for FY13 shared by
corporates would be of interest to us. Post the 9M FY12 numbers, there have been
significant earnings downgrades in Capital Goods, Infrastructure, Power, Banking
and Logistics sectors. Thus, expectations are not very high from these sectors, in our
view, which may limit the downside. Apart from Q3 numbers, markets would also
be influenced by policy initiatives including (RBI monetary policy on 17th April),
crude price, as well as developments in Europe and US. Disappointment in earnings
or on future outlook may result in corresponding/specific corrections.
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