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Q2FY15E: Earnings quality on the mend…
ƒ We expect Sensex earnings growth (including oil & gas and financials) of
~7% YoY in Q2FY15E. The quarterly growth rate in Q2FY15E is relatively
sober in comparison with 12% YoY growth of Q2FY14 and ~24% YoY in
Q1FY15. This can be mainly attributed to the appreciation of Rupee vis-à-
vis US dollar to the tune of 2.4% YoY, which will moderate growth
trajectory for exchange sensitive sectors like IT and Pharma which are
expected to grow 13.6% YoY (29.2% YoY in Q2FY14) and 6.4% YoY
(48% in Q2FY14). Elsewhere, profitability of government regulated
sectors like Oil & Gas will also be impacted owing to lower YoY crude
realisations and elevated subsidy sharing.
ƒ In a nut shell, Sensex companies are expected to record revenue growth
of 4%, which will be the second lowest over Q1FY14-Q2FY15E. However
margin gains of 50 bps will ensure PAT growth of ~7% YoY in Q2FY15E.
ƒ Even though growth rates have sobered over the past few years, the
internals of earnings clearly indicate that overall quality of the earnings is
on mend as many cyclical sectors like cement (16% YoY revenue growth
coupled with 439 bps margin expansion) and telecom (10.7% YoY
revenue growth with 53.6 bps margin expansion) and also capital goods
sector which is expected to witness 90 bps margin expansion and
deceleration in Interest/EBITDA ratio in Q2FY15E. Improving matrices,
albeit at a gradual pace, is a clear indicator of bottoming out of earnings
cycle and an ensuing recovery phase. This argument is further
supported by favourable macro variables like falling commodity prices
(especially crude prices), receding inflationary expectations and strong
government intent to fasten up reforms process.
ƒ On a sectoral basis, the top 5 performing companies (on the basis of
PAT growth) come each from Auto, Telecom. IT, Financials and Mining.
Hence, the top five companies that top the chart in term of growth in
profitability include Bharti (~153% YoY), Hero Honda (43% YoY), Infosys
(22% YoY), SBI (25% YoY) and Coal India (~23% YoY).
ƒ Conversely, the bottom five performing companies (on the basis of PAT
growth) come from Mining, Capital goods, Power (two companies) and
Pharma. Hence, the bottom five includes Tata power (-57% YoY), Tata
Steel (-42% YoY), Bhel (-20% YoY), Dr Reddy (-20% YoY) and NTPC (-
12% YoY)
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
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Q2FY15E: Earnings quality on the mend…
ƒ We expect Sensex earnings growth (including oil & gas and financials) of
~7% YoY in Q2FY15E. The quarterly growth rate in Q2FY15E is relatively
sober in comparison with 12% YoY growth of Q2FY14 and ~24% YoY in
Q1FY15. This can be mainly attributed to the appreciation of Rupee vis-à-
vis US dollar to the tune of 2.4% YoY, which will moderate growth
trajectory for exchange sensitive sectors like IT and Pharma which are
expected to grow 13.6% YoY (29.2% YoY in Q2FY14) and 6.4% YoY
(48% in Q2FY14). Elsewhere, profitability of government regulated
sectors like Oil & Gas will also be impacted owing to lower YoY crude
realisations and elevated subsidy sharing.
ƒ In a nut shell, Sensex companies are expected to record revenue growth
of 4%, which will be the second lowest over Q1FY14-Q2FY15E. However
margin gains of 50 bps will ensure PAT growth of ~7% YoY in Q2FY15E.
ƒ Even though growth rates have sobered over the past few years, the
internals of earnings clearly indicate that overall quality of the earnings is
on mend as many cyclical sectors like cement (16% YoY revenue growth
coupled with 439 bps margin expansion) and telecom (10.7% YoY
revenue growth with 53.6 bps margin expansion) and also capital goods
sector which is expected to witness 90 bps margin expansion and
deceleration in Interest/EBITDA ratio in Q2FY15E. Improving matrices,
albeit at a gradual pace, is a clear indicator of bottoming out of earnings
cycle and an ensuing recovery phase. This argument is further
supported by favourable macro variables like falling commodity prices
(especially crude prices), receding inflationary expectations and strong
government intent to fasten up reforms process.
ƒ On a sectoral basis, the top 5 performing companies (on the basis of
PAT growth) come each from Auto, Telecom. IT, Financials and Mining.
Hence, the top five companies that top the chart in term of growth in
profitability include Bharti (~153% YoY), Hero Honda (43% YoY), Infosys
(22% YoY), SBI (25% YoY) and Coal India (~23% YoY).
ƒ Conversely, the bottom five performing companies (on the basis of PAT
growth) come from Mining, Capital goods, Power (two companies) and
Pharma. Hence, the bottom five includes Tata power (-57% YoY), Tata
Steel (-42% YoY), Bhel (-20% YoY), Dr Reddy (-20% YoY) and NTPC (-
12% YoY)
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
LINK
http://content.icicidirect.com/mailimages/ConsolidatedResultPreview_Q2FY15.pdf
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