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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Earnings growth for the Sensex at 21.8% YoY and 11.8% for the coverage universe (ex-OMCs) was well ahead of our expectations of 6.4% and 1.0%,respectively. However, we are not particularly enthused by the pace as there are still enough pain points—asset quality of PSU banks, declining order momentum within cap goods, pressure within the all important BFSI vertical for IT—which warrant a more guarded view. Also, much of the beat was driven by a handful of stocks, adjusting for which earnings were broadly in line. Worryingly, after a brief lull, the downgrade cycle seems to be gaining pace with FY13 EPS estimates having been downgraded 1.7% since the beginning of the earnings season.
Earnings surprise on the upside but driven by a handful of stocks
Earnings growth for the Sensex at 21.8% YoY and 11.8% for the coverage universe (ex-OMCs) was well ahead of our expectation (6.4% and 1.0% respectively). However, we are not particularly enthused by the pace as much of the beat was driven by few stocks (ONGC, Tata Motors, BHEL and SBI) adjusting for which earnings were broadly in line. After putting up a stiff resistance over the last few quarters, revenue growth seems to be waning off, pointing to a weakening overall demand (in the coverage universe, ex-OMC growth was at 18.8%, Sensex at 19.4%, YoY). In fact, for our coverage universe, this was the slowest ever topline growth since Q3FY10. The trend of margin contraction continues with EBITDA margins down by 292bps for coverage universe (ex-OMCs) and by 223bps for the Sensex.
Sectorwise headwinds persist
On the operational front, some of the sectoral pain points observed in the previous quarters continue to persist. BFSI sector continues to face headwinds as regards to asset quality especially within the PSU space as plump SEB and aviation accounts along with an increased CDR momentum have led to a sharp rise in the restructured pool for most of the banks. For the capital goods sector, order inflow continues to decline, and is down 29%YoY, leading to a grimmer revenue visibility for the sector. This apart, within the IT sector, top four players have reported a sequential drop in revenues for the all important BFSI vertical.
Earnings downgrade cycle resumes
We are ending FY12 with Sensex EPS at INR 1,098 (7% YoY growth). Sectors which have driven the earnings growth between FY11 and FY12 include energy, banks and autos while metals, telecom and power have been the laggards. More worryingly, after a brief lull, the downgrade cycle seems to be gaining pace with FY13 Sensex EPS estimates having been downgraded by 1.7% since the beginning of the earnings season. For FY13E, the consensus Sensex EPS stands at INR1,280 (Edelweiss: INR1,276). The stocks which have been downgraded during the earnings season include Bharti Airtel, Tata Steel and Tata power while upgrades were seen in Maruti Suzuki, ICICI Bank and Hindustan Unilever.
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