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Cyclicals to drive earnings growth; Govt. action to provide further acceleration
In stark contrast with previous several quarters, 2QFY15 would see lower sales and PAT growth from global facing sectors, as the favourable impact o f INR depreciation wanes. This trend would continue for the rest of FY15. Domestic businesses, in contrast, would continue to show rebound in earnings growth.
We expect MOSL Universe (ex RMs) to report aggregate PAT growth of 13% YoY. Sales would grow at a muted 6% YoY due to the impact of inflation and absence of benefit of INR depreciation.
Base effect has been in play for sectors such as Telecom and PSU Banks, which would show impressive YoY PAT growth. The fastest growing sectors in 2Q would be Telecom (+93%), PSU Banks (+39%), Retail (+28%), and Metals (+22%). Sectors with earnings decline would be Oil (ex RMs; -1%), Utilities (-9%), and Capital Goods (-12%).
Margins have bottomed out. EBITDA margin would expand in the coming quarters, benefiting from the availability of operating leverage for growth. Interest costs have also peaked and would aid margin expansion.
Nifty PAT would grow 11% YoY. This would be the fourth consecutive quarter of double-digit growth; however, growth would be significantly lower than the 16% achieved in 1QFY15. Growth would be largely driven by Bharti Airtel (growth of 156% on a low base), SBI (growth of 46%), Tata Motors (growth of 22.5%), and TCS (21%). 60% of the Nifty constituents are likely to report double-digit YoY PAT growth. Top PAT de-growth companies would be largely cyclicals: BHEL (-53%), Grasim (-42%), Cairn India (-30%), Coal India (-29%), NTPC (-14%), and Tata Steel (-10%). Dr Reddy’s would also report 21% decline in earnings.
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