Q4FY11 Results Review Slowdown in earnings; ‘the funnel impact’ clearly visible:: Emkay

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Q4FY11 Results Review

Slowdown in earnings; ‘the funnel impact’ clearly visible

Apparently the overall quarterly numbers were better than expected. We expected 20.3% and 17.2% growth in Net Sales, and EBITDA from Emkay Universe* (ex- Oil & Gas and Banking); the actual turned out to be a growth of 25.2% and 21.3%. We expected EBITDA margin to decline by 53 bps, the actual turned out to be a decline of 62 bps.

PAT growth for Emkay Universe* was better at 11.3% as against expectation of 4.1% growth.

However, the PAT growth number is skewed in favour of a few companies. Excluding the top 3 / top 5 contributors to the incremental PAT, the PAT growth is significantly lower at 3.2%/-1.4%.

Sales growth for Emkay Universe excluding top 3/5 contributors to the incremental PAT was 25%/24.4%. The EBITDA growth for the same was lower at 15.9%/12.8%. PAT was lowest at 3.2%/-1.4%. The ‘Funnel impact’ is clearly visible if the top contributors to incremental PAT are excluded. A sign of worry going forward…

Post Q4 results; we have revised earnings of 100 companies (30 upwards, 70 downwards). We have also changed recommendation for 28 companies (12 upgraded, 16 downgraded) and changed target prices of 87 companies (44 upwards, 43 downwards).

Emkay Universe companies are estimated to show 17%, 20% and 16% growth in sales, EBITDA and PAT respectively for FY12E.

Emkay Universe is currently trading at 13.9xFY12E earnings which is at a 6% discount to consensus Sensex PE of 14.8x FY12E  consensus EPS of Rs 1238.

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