Q3FY15 Result Review - Subdued Earnings :: Edelweiss

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

Q3FY15 earnings were extremely subdued with our coverage universe (excluding OMCs) PAT declined 0.4% YoY (Edelweiss estimate: 0.9% growth) and top line posting a mere 2.8% YoY growth (Edelweiss estimate: 1.9%). The weakness in earnings was broad based. Volume growth of almost all consumption companies slowed down, with Hindustan Unilever (HUL) gaining market share with just 3% YoY volume growth. On the investment front, while order backlog improved, execution remains a concern. Appreciation in INR relative to EUR and other EMs impacted earnings of export-oriented sectors namely, IT and pharma. Banking sector asset quality deteriorated significantly. Overall, it was an extremely soft quarter with FY15E/FY16E Sensex EPS pruned by ~5-6% to INR1,430/INR1,740 during the quarter.

The silver lining was amidst the sharp correction in input prices and weak demand, output prices have declined. This should imply faster disinflation and hence stronger monetary policy response. However, 18-20% FY16 and FY17 Sensex EPS growth forecasts appear optimistic.

Sharp slowdown in corporate earnings…

Top line of our coverage universe (ex OMC) deteriorated further to an anemic 2.8% YoY (versus 6.1% last quarter and 12-13% in quarters prior to that). While lower commodity prices did play a role, there was definite slowdown in real demand, with consumption, investment and exports all slowing simultaneously. On profitability front, lower raw material prices did aid the corporates, but its full effects would be visible only over next couple of quarters when impact of inventory losses fades away. However, weak demand resulted in higher operating costs, as a % of sales, thus resulting in flat EBITDA margins for our universe. Owing to these factors, PAT of our coverage universe (ex OMC) fell by 0.8% YoY.

…with almost all sectors losing pace

Almost all sectors lost momentum during Q3FY15. Top line of consumer goods companies is now tracking single-digit growth, and HUL gained market share with mere 3% volume growth. On the investment side, L&T cut its revenue guidance and highlighted weak execution. Growth in the faster growing export-oriented sectors namely, IT and pharma, also faltered owing to INR appreciation and slowdown in EMs and Europe. In the banking sector, asset quality deteriorated, with managements guiding for another couple of quarters of stress.

LINK
https://www.edelweiss.in/research/Q3FY15-Result-Review--Subdued-Earnings/28419.html