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UBS Investment Research
India Market Strategy
1 QFY12 earnings disappoint
UBS India coverage stocks revenue grew 21.2%, Net Income 8.7% YoY
UBS India coverage universe (ex commodities) earnings growth (YoY) came in
below our estimates due to higher than expected finance and tax expense. Strong
earnings growth was shown by engineering, cement and consumers; whereas
telecom, real estate and construction witnessed earnings decline. Cement and
metals surprised on the upside, while telecom and construction disappointed. Given
Q1 is a seasonally weak quarter, earnings, on a sequential basis, declined for most
sectors (except consumers, pharma and real estate).
Beat percentage decreases in 1QFY12 while inline percentage increases
28.6% of companies under our coverage beat expectations in 1QFY12 compared to
45.4% in 4QFY11 while the percentage of inline results increased to 32.5% from
14.8% in 4QFY11. Based on market cap, the net beat percentage (% beat minus %
miss) was -16.5% vs. -2.4% in 4QFY11 suggesting that on a relative basis large
cap companies have disappointed more in 1QFY12 compared to 4QFY11.
Stick to bottom up stock picking to generate alpha
We believe that weakness in developed markets may lead to lower crude prices and
thus lower inflation going forward. We believe that India is at the last stage of
tightening cycle. While Indian stocks may correct in the immediate short term on
the back of FII outflows, we believe it is the right time to selectively buy into
strong bottom-up stock ideas. Our high conviction Buys are: Idea, Bharti Airtel,
Dr. Reddy's, M&M, Federal Bank, BHEL and Power Grid.
UBS India coverage universe - 1QFY12 performance
Earnings growth rate (yoy) of UBS India coverage universe (ex oil & gas)
decelerated to 9.2% in 1QFY12 (vs. UBS-e of 9.6%) from 13.0% in 4QFY11.
Since results of oil and gas companies like BPCL and HPCL are highly
dependent on government subsidies, which are difficult to forecast, we look
at the ex oil and gas universe, instead of the composite universe. 1
Excluding global commodities, UBS coverage universe earnings slowed to
8.7% yoy in 1QFY12 (vs. UBS-e of 10.5%) from 15% yoy in 4QFY11. This
was due to earnings decline across sectors, especially power and autos, when
compared to last quarter.
The few sectors showing strong earnings growth (yoy) were engineering,
cement, consumers and media while sectors such as telecom, banking and
real estate were a drag on earnings.
Beats and misses
In 1QFY12, the number of companies that beat our earnings estimates
decreased as compared to 4QFY11, while the number of companies that
reported inline results increased.
Of the 126 companies that we have analysed for 1QFY12 results
performance, 28.6% of the companies beat our estimates vs. 45.4% in
4QFY11. The percentage of companies that missed UBS-e marginally
decreased to 38.9% in 1QFY12 vs. 39.8% in 4QFY11.
The percentage of companies which met our expectations increased to 32.5%
in 1QFY12 from 14.8% in 4QFY11.
Based on market capitalization, the net beat percentage (% beat minus %
miss) was -16.5% vs. -2.4% in 4QFY11 suggesting that on a relative basis
large cap companies have disappointed more in this quarter when compared
to last quarter.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Market Strategy
1 QFY12 earnings disappoint
UBS India coverage stocks revenue grew 21.2%, Net Income 8.7% YoY
UBS India coverage universe (ex commodities) earnings growth (YoY) came in
below our estimates due to higher than expected finance and tax expense. Strong
earnings growth was shown by engineering, cement and consumers; whereas
telecom, real estate and construction witnessed earnings decline. Cement and
metals surprised on the upside, while telecom and construction disappointed. Given
Q1 is a seasonally weak quarter, earnings, on a sequential basis, declined for most
sectors (except consumers, pharma and real estate).
Beat percentage decreases in 1QFY12 while inline percentage increases
28.6% of companies under our coverage beat expectations in 1QFY12 compared to
45.4% in 4QFY11 while the percentage of inline results increased to 32.5% from
14.8% in 4QFY11. Based on market cap, the net beat percentage (% beat minus %
miss) was -16.5% vs. -2.4% in 4QFY11 suggesting that on a relative basis large
cap companies have disappointed more in 1QFY12 compared to 4QFY11.
Stick to bottom up stock picking to generate alpha
We believe that weakness in developed markets may lead to lower crude prices and
thus lower inflation going forward. We believe that India is at the last stage of
tightening cycle. While Indian stocks may correct in the immediate short term on
the back of FII outflows, we believe it is the right time to selectively buy into
strong bottom-up stock ideas. Our high conviction Buys are: Idea, Bharti Airtel,
Dr. Reddy's, M&M, Federal Bank, BHEL and Power Grid.
UBS India coverage universe - 1QFY12 performance
Earnings growth rate (yoy) of UBS India coverage universe (ex oil & gas)
decelerated to 9.2% in 1QFY12 (vs. UBS-e of 9.6%) from 13.0% in 4QFY11.
Since results of oil and gas companies like BPCL and HPCL are highly
dependent on government subsidies, which are difficult to forecast, we look
at the ex oil and gas universe, instead of the composite universe. 1
Excluding global commodities, UBS coverage universe earnings slowed to
8.7% yoy in 1QFY12 (vs. UBS-e of 10.5%) from 15% yoy in 4QFY11. This
was due to earnings decline across sectors, especially power and autos, when
compared to last quarter.
The few sectors showing strong earnings growth (yoy) were engineering,
cement, consumers and media while sectors such as telecom, banking and
real estate were a drag on earnings.
Beats and misses
In 1QFY12, the number of companies that beat our earnings estimates
decreased as compared to 4QFY11, while the number of companies that
reported inline results increased.
Of the 126 companies that we have analysed for 1QFY12 results
performance, 28.6% of the companies beat our estimates vs. 45.4% in
4QFY11. The percentage of companies that missed UBS-e marginally
decreased to 38.9% in 1QFY12 vs. 39.8% in 4QFY11.
The percentage of companies which met our expectations increased to 32.5%
in 1QFY12 from 14.8% in 4QFY11.
Based on market capitalization, the net beat percentage (% beat minus %
miss) was -16.5% vs. -2.4% in 4QFY11 suggesting that on a relative basis
large cap companies have disappointed more in this quarter when compared
to last quarter.
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