India Inc is poised for another quarter of muted earnings and revenue growth, according to brokerage estimates. While the December quarter earnings season is also expected to sustain decline in margins, the pace of descent, especially that of operating margins, is likely to have bottomed out, believe analysts.
However, after two years of stern downgrades, they see limited downside to earnings per share (EPS) estimates for the Sensex companies hereon.
A compilation of analyst estimates for the third quarter 2012-13 results of Sensex companies indicates that the net earnings of the top 30 companies may grow by 2.5-11% y-o-y, while net sales are expected to expand 9-13% compared to the same quarter last year.
Both Deutsche Bank and Bank of America Merrill Lynch expect revenue growth of Sensex companies to drop to its lowest in the past 13 quarters due to weakening demand amid a slowing economy. Consumer goods, pharma, auto and banking and financial institution sectors are expected to drive the revenue growth of the index.
Despite a marginal improvement in the sequential performance, net profit is, however, expected to demonstrate a muted average growth of the order of 7%. The Ebitda or operating margin, which on an y-o-y basis is expected to contract by about 100 basis points, is seen indicating a stabilisation.
?Ebitda margins have largely been stable over the last three quarters in the 15-16% band, indicating a bottom,? noted a BofA-ML report on the earnings expectations. As per Edelweiss the q-o-q improvement in the margins of real estate, capital goods and auto companies may play a role in this stability.
Following this firmness, expectations have mounted that earnings downgrades may turn muted from this quarter onwards also as interest costs decline. Currently, the consensus estimates depict Sensex earnings for fiscal 2012-13 and 2013-14 at R1,230 and R1,410, respectively. Edelweiss points out that while the last three months saw about 1% of downgrades, the current outlook imply 13-14% growth in the Sensex EPS for next fiscal.
?While we may see some marginal downgrades to FY13 and FY14 EPS, we believe the large part of downgrades are behind us,? agreed BofAML.
Sectorwise, IT, telecom and auto and capital goods players like Tata Motors, ONGC, BHEL and Infosys are expected to weigh on the bottom-line performance of the Sensex. On the other hand, analysts see banks ( ICICI Bank and HDFC Bank), pharma (Sun Pharma, Cipla), ITC, RIL, M&M and L&T leading the earnings growth.
