Inc is likely to post a muted earnings growth for the second quarter of
this fiscal, largely due to fall in rupee value, rising interest costs,
high inflationary pressures and a global economic slump. The analysts
expect the rupee's sharp depreciation alone to impact the corporate
earnings by an average of 3-5 per cent, on account of losses suffered
due to their forex exposure such as overseas loans.
the global economic slowdown, as also headwinds in domestic
macroeconomic scenario, might have a ripple effect on the companies'
second-quarter financial results, they said. Investment banking and
equity research major CLSA said in its Q2 earnings preview report that
the sharp depreciation of rupee is likely to significantly impact the
earnings of companies with unhedged foreign currency liabilities.
"Overall earnings growth would be muted due to the one- time impact of
rupee depreciation, estimated at 3 per cent of earnings," CLSA said.
Brokerage firm Religare Capital also said that the signs of economic
slowdown were expected to be reflected in the Q2 results and the Sensex
companies could report a profit growth of less than 9 per cent for the
quarter. Religare Capital expects good Q2 figures in the IT, banking,
FMCG, cement and pharma sectors, while companies in the real estate,
telecom, power and metal space could post disappointing results.
Excluding the oil companies, the Q2 earnings growth for the Sensex
companies could fall to below 5 per cent, as per Religare Capital
CLSA has estimated an earnings growth of 7 per cent
for the Sensex companies for the second quarter. Interestingly, the
earnings growth of the Sensex companies before taking into account
exceptional items such as forex losses is estimated at over 13 per cent
as per CLSA. The earnings season for the second quarter of the current
financial year will commence when IT bellwether Infosys would declare
its result on October 12. The country's most valued firm RIL is
scheduled to announce its results on October 15.
The Q2 results
are likely to act as the next trigger for the stock market, where its
benchmark Sensex index has dropped by about 14 per cent in the second
quarter. CLSA said that the rising interest costs was likely to have
affected the margins across the board, making funds costlier for the
companies. It said that the full impact of higher interest costs would
be visible from the second quarter onwards and could become a potential
source of disappointments.
Making things worse for the
corporates, inflation remains at high level despite softening commodity
prices, and this has already led to the Reserve Bank hiking its key
rates 12 times in the past 18 months to control the price rise. "While
the RBI's hawkish policy has now started hurting business growth,
inflation remains meaningful despite the recent softening in commodity
prices. Early to say if margins are reverting and if the earnings cycle
has bottomed out," Religare said.
As per CLSA, the depreciation
in rupee value -- of 10 per cent against the US dollar and 15 per cent
against the Japanese yen -- would be another dampener for Q2 results.
CLSA said that companies like Lanco, Ranbaxy and Tata Power were likely
to report loss on this account in Q2, while the numbers could also be
impacted of firms like Bharti Airtel, PFC, Suzlon, L&T, Tata Motors,
Tata steel, JSW steel and a host of IT companies.
firm Unicon Financial further cautioned that issues like shortage of
fuel and environmental clearances also remain a major concern for the
power sector. "The power ancillary companies are expected to post robust
earnings on the back of strong order book. However new order inflows
for these companies remains slow," it said.
``We expect consensus downgrade to continue in the current quarter. It
is skeptical about double digit earnings growth of FY12 and anticipates
consensus earnings cut of 3-5% in Jul-Sep 2011 for the current fiscal.
Earnings for Nifty are likely to grow by 8.6% (vs Cons.: 11.7%) YoY for
FY12, whereas for FY13 growth is expected to be 15.1% (vs Cons.: 16.1%)
YoY. We expect PAT (FY12e) for Nifty to grow by 14.7% YoY, against
consensus expectation of 19.6% YoY growth. Moreover, for FY13 we are
maintaining the growth momentum stable at 14.1% YoY growth, versus
deceleration in consensus momentum to 16.2% YoY growth. We are expecting
growth contribution to come from BFSI, Technology, and FMCG for FY12
and FY13, however we expecting mid to high single digit growth in Auto,
Metals, Telecom and Cement.
Revenue growth of NIFTY companies
(excl. Oil & Gas) would show a sharp drop to 15.5% in Q2FY12 YoY
from 21.5% in the preceding quarter. This would mark the lowest QoQ
growth in last 18 months. PAT growth continues on a downward trajectory
and expected to post an anaemic 6.8% growth YoY, the lowest in 18
months. For companies under our coverage, Revenue and PAT are expected
to grow YoY by 21.9% and 10.8%, respectively and QoQ by 5.2% and 3.4%,
respectively. EBITDA margin (ex-BFSI) is expected to decline by 149bps
YoY and 45bps QoQ. Elevated raw material costs, slackening demand due to
uncertainty in macro environment and high interest rates are expected
to impact the margins of Corporate India.``
``2QFY12 earnings will be reported amidst an adverse macro backdrop.
Interest rates are up further 50-75bp during the quarter, demand
continued to weaken in domestic economy and India rupee depreciated by
~10% against the USD. Aggregate (ex RMs) Sales growth 20.9%, EBIDTA
growth 11.7%, PAT growth 9.7%. EBIDTA margin will contract 190bp YoY to
23.6% (2nd lowest in last 8 years), PAT margin will contract 120bp YoY
to 12.7% (lowest in last 8 years).
Number of companies with
growth rates of over 30% is the lowest at 19%, while percentage of
companies with YoY decline is at a 8 quarter high of 33%.
Top 3 contributors to aggregate earnings are Financials, Oil & Gas and Metals, accounting for 57% of the 2QFY12 earnings.
Sectors with strong YoY PAT growth include Cement (67% YoY due to low
base effect), Private Banks (+23% YoY) and Oil & Gas (excl. RMs) 21%
YoY. FMCG, Private Banks and Retailing are the only 3 sectors where all
companies will report earnings growth. Sectors with disappointing /
muted growth are PSU Banks, Telecom, Autos. Telecom with a decline of
44% shaves off 200bp from aggregate growth.``
``The I-direct coverage universe (ex- BFSI) is expected to post a YoY
revenue growth of 21.3% while QoQ growth would be modest at 2.1% since
Q2 is a cyclically weak quarter for most sectors. At the same time,
EBITDA growth of 7% YoY will not mirror the revenue growth as most of
the companies under coverage will face the full blown impact of high
input prices and rise in other operating expenditure. This, we believe,
will impact operating margins by 215 bps to 16.1% in Q2FY12. Even though
topline and operating profits will register positive growth rates,
profitability will come under pressure due to the unabated hike in key
policy rates by the RBI. Hence, we estimate an 11.4% YoY decline in net
profit for our coverage universe for Q2FY12. This performance would be
slightly better as PAT, excluding oil & gas, would decline 6.5% YoY.
What will be highly crucial to determine during the quarter would be
whether the earnings downgrade cycle gets intensified as we face
significant local and macro headwinds? As of now, we expect the broader
market earnings to grow at 11% CAGR over FY11-FY13E.``
``Margin pressures have dented the profitability of Indian corporates
over the past few quarters and are likely to continue in 2QFY2012 as
well. While top-line growth for Sensex companies is expected to remain
healthy at 21.1% yoy (muted 2.6% qoq), margin pressures are likely to
result in PAT growth falling to sub-10% (at 8.2%) level. However, on a
sequential basis, both operating and net profit margins are expected to
improve, albeit marginally. Earnings expected to grow at 7.4% yoy,
driven by 18.6% yoy top-line growth.`
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