Gaining momentum

The revival in earnings seen in the previous quarter is expected to gain further ground in the March 2010 quarter.

Even as the low base of last year may result in propping up growth rates, India Inc’s performance for the March 2010 quarter is expected to be healthy and inclusive. While analysts expect the 30 Sensex companies to deliver an aggregate profit growth of 27-35 per cent year-on-year, sales growth is also likely to be equally robust. On a broader level, a majority of sectors (barring telecom, cement, oil marketing and refining companies) are seen reporting a good show with auto, metals, real estate and retail seen leading the tally.

Even if one goes beyond the Sensex companies, the performance is expected to be good. For instance, while Citi Investment Research & Analysis estimates its universe of stocks (excluding refining and marketing (RM) companies) to deliver 35 per cent year-on-year profit growth, Motilal Oswal Securities expects its universe of 124 stocks (excluding RM) to deliver 33.2 per cent profit growth for the March 2010 quarter.

In fact, the March quarter could mark a new era of robust earnings growth. Says Rajat Rajgarhia, Director –Research, Motilal Oswal Securities, “In our India Strategy for the quarter ended December 2009, we had said that we see the beginning of a new cycle of earnings growth. Corporate performance for the quarter ending March 2010 should confirm that this new cycle is not only in motion but gaining momentum.” The brokerage expects its universe of stocks (excluding RM companies) to report an all-time high net profit of Rs 57,500 crore, breaching the previous peak of Rs 54,200 crore in September 2008 quarter.However, most of these expectations are already factored in stock valuations, and hence, expect the markets to react swiftly to any positive and negative surprises in the results. Overall, while there will be a handful of spoilsports and perhaps a few disappointments, read on to know the expectations for each of the key sectors and within them, the top companies.

Automobiles
Continuing the growth momentum of December 2009 quarter, all auto majors are expected to deliver robust numbers for March 2010 quarter; their top line growth is expected around 50 per cent. Fears of price increases due to excise duty hike, rise in raw material costs and change in the emission norms resulted in some advance buying by customers, and perked up volumes in March quarter. Overall, volumes picked-up by 37.6 per cent year-on-year and 6.5 per cent sequentially for auto majors.

A better product mix in favour of high margin Pulsar and Discover should help Bajaj Auto’s EBITDA margins expand by around 500 basis points year-on-year; however, these are expected to contract sequentially reflecting higher input costs. For Hero Honda, increase in commodity prices could hit EBITDA margins, but net profits could see surge by over 40 per cent year-on-year on account of a decline in tax rate, given the increased production at its Haridwar plant.

While Tata Motors performance is seen improving on the back of the spurt in volumes, its net profit would get a boost from the sale of stake in joint venture, Telcon, to Hitachi during the quarter. For Maruti, strong volumes and higher realisations (due to an increase in vehicle prices and higher contribution of A2 and A3 segments) are seen driving its performance during the quarter. Likewise, higher volumes and operating leverage should drive M&M performance.

Banking
On the back of improving economic activity, credit off-take picked up to around 16 per cent during the fourth quarter. Comparatively, the deposit growth continued to see further moderation through the large part of the quarter, but improved towards the end and managed 18 per cent year-on-year. The net interest income (NII) for most banks is expected to come in the range of 25-30 per cent year-on-year on account of improving loan volumes and better margins. From the PSU space, SBI could churn around 45 per cent growth in NIIs on a low base. Also, in the PSU space, compared to higher share of treasury gains profits booked in the fourth quarter last year, current quarter would not be that bright on account of relatively firmer yields. Amongst private banks, ICICI Bank could deliver sluggish growth of about 3-5 per cent in NIIs.

Overall, net interest margins for the banks could trend higher by 10-15 basis points in the quarter due to deposit re-pricing and enhanced share of CASA deposits. On the asset quality front, with economic scenario improving, the NPA accretion is expected at levels of December 2009 quarter. While provisions are expected to increase in Q4 FY10 for PSU banks, SBI could see lower profitability on account of this as it hikes its coverage ratio. Private players like HDFC Bank are expected to be better-off (net profits could see a jump of 30 per cent y-o-y).

Capital goods
Most companies in the sector are expected to report good revenue growth of about 19-20 per cent led by improvement in execution and revival in industrial and infrastructure projects. Margins are expected to be stable in the March quarter, but might come under pressure in the next quarter given the higher commodity prices. Led by stable margins and better execution, net profit growth could be in the region of 25 per cent for March quarter. Companies could also report improved order book led by revival in the private and government sector capex. Among companies, BHEL is seen reporting strong earnings growth led by higher volumes and improvement in margins due to the benefit of lower wage provisioning and input prices.

L&T is expected to report strong revenue growth led by higher execution. Analysts will closely watch Punj Lloyd’s result given the concerns on its legacy orders. In this quarter, the company could book profit of about Rs 300 crore on account of its stake sale in Pipavav Shipyard. Going forward, the sector is expected to do well on the back of higher economy growth leading to increased private and infrastructure investment.

Construction & Infra
Most construction companies could report good revenue growth and strong jump in profits led by improved margins and lower interest costs. Also, in this quarter many companies have witnessed strong order inflow leading to improved visibility. However, analysts will watch revenue growth for companies like IVRCL Infra, Nagarjuna Construction, HCC and Patel Engineering, which have large exposure to projects in Andhra Pradesh, where execution has got delayed. JP Associates could post strong revenue growth led by higher volumes from the cement business along with improved traction in the construction business.

However, profit growth could be marginal due to lower margins, lower dividend income and expected increase in interest cost. GMR Infra could report marginal growth in revenues due to relocation of its power plant, but growth in profits could be strong.

The company has commissioned three road projects recently, which along with the increased revenue from the merchant power business should mean higher operating margins. HCC could post healthy growth in revenues and significant jump in the order book for the quarter, but due to lower operating profit margins its profits are seen declining.

FMCG
It would be another quarter of steady growth driven by higher volumes and better product mix. Overall, FMCG companies could post revenue growth of 15-16 per cent year-on-year. Amongst the leaders, ITC could mop higher sales on cigarette inventory stock up ahead of price hikes (around 7 per cent), post Budget. While Hindustan Unilever could see modest revenue growth due to price cuts taken across some of its categories like laundry. Amongst the smaller players, consolidation of Sara Lee portfolio could boost revenue growth to 50-60 per cent year-on-year for Godrej Consumer. While Marico could see volume de-growth this quarter, it affected price cuts in pure coconut oil and Amla which could help sustain volume growth, going ahead.

Due to firm commodity prices (palm oil, milk) on sequential basis, expect lower expansion in EBITDA margin as against December 2009 quarter. HUL could come under pressure on the margin front in Q4, while price hikes in some categories could see margin expansion for Nestle. However, the launch of GSK Consumer’s Horlicks Foodles and HUL’s Knorr Noodles could pack a punch to Nestle’s Maggi. Going ahead, the surge in food inflation might impact volume growth in certain segments, so FMCG players would be cautious of any price increases on account of higher raw material costs. HUL and P&G’s aggressive price cuts in the detergents could also hit margins.

IT services
A pick-up in discretionary spending could bolster revenue growth for top IT players. Experts suggest that larger vendors could report a sequential revenue growth of 3-5 per cent in the quarter on account of volume increases of about 5-7 per cent. Nevertheless, pricing may be under pressure on account of unfavourable currency movements. Adjusting for currency, IT players could deliver a sequential growth of 1-3 per cent. Infosys is expected to deliver the best revenue run-rate amongst leading players with revenue growth of 3-3.5 per cent. Earlier, BFSI led the charge for the most IT players’ fortunes; newer verticals like healthcare, retail could contribute more, going ahead. The rupee, on average, appreciated 1.5 per cent in March quarter against the US dollar, and could shave around 50 basis points from the margins.

Analysts expect that cross-currency headwinds could dent margins for IT players like HCL Tech and Tech Mahindra in a major way. An uptick in hiring could also eat some margins off for the industry. However, better SGA leverage and utilisation could help offset some of these pressures. Rahul Jain, analyst, Angel Securities says that revenue growth for top players would 5.2 per cent in dollar terms and 3.1 per cent in rupee terms.

Oil & Gas
Crude oil prices firmed up by 2.5 per cent during the March quarter and ranged $71-82/barrel. This led to stocks like Cairn and Reliance Industries (RIL) outperforming, while stocks of most oil PSUs were impacted. Gross refining margins, which reached historical low levels in December 2009 quarter, have rebounded on the back of demand revival for products like gasoline and heating oil. In line with an increase in Singapore GRMs, PSU Oil refiners could gain. Nevertheless, crude oil price increases could put pressure on the profitability of OMCs, as they continue to lose money on account of selling products at a discount to prevailing market prices. Analysts expect IOC to report a dip of 65 per cent in net profits this quarter. However, government subsidy could decide the actual losses that OMCs finally bear.

For RIL, an improvement in GRMs, enhanced volumes from Jamnagar refineries and overall good performance from its petrochem and E&P could a see a spurt in the top line by more than 100 per cent year-on-year. For companies like ONGC, even though realisations have increased, subsidy outgo inched up in the same token.

Metals
Steel prices are higher sequentially as well as on a year-on-year basis, which along with robust volume growth will help companies report significantly higher earnings growth for the quarter. Backed by 67 per cent growth in volumes and higher realisation, JSW is seen reporting a 54 per cent growth in revenues while turnaround in terms of profitability (compared to a loss last year). SAIL and Tata Steel (consolidated) could have marginal growth in revenue as growths in volumes were not significant. However, Tata Steel could report profits in this quarter as against the loss last year due to cost saving at Corus along with better realisations in Europe.

On the flip side, a marginal impact will be seen on the margins on account of higher raw material prices for iron ore and coking coal, even as steel companies have been increasing their product prices. Going forward, companies might further increase steel prices to accommodate the cost push.

In the non-ferrous space, too, companies will benefit due to higher international prices. In March quarter, average copper and zinc prices have more than doubled compared to last year. The benefit of this will go to Sterlite Industries and Hindustan Zinc, which are seen reporting strong growth in revenues and profits.

Telecom
Indian telecom players faced another difficult quarter, although its severity was lower compared to the December 2009 quarter. Idea could report top-line growth of 5 per cent sequentially (10-12 per cent year-on-year) on account of strong subscriber additions of around 67 lakh. Comparatively, Bharti Airtel (87 lakh) and Reliance Communications (84 lakh) continued to brace another strong growth quarter in subscriber base, despite high competition. However, RCom is expected to witness revenue decline of 1-2 per cent sequentially due to a comparatively higher fall in monthly ARPUs than Bharti and Idea.

EBITDA Margins for telecom majors could decline by 100-150 basis points sequentially (300-450 basis points year-on-year) on the back of higher network expansion costs, subscriber acquisition expenses and a decline in tariffs. RCom and Idea are expected to show a 15 per cent sequential decline each in the bottomline, mainly due to margin pressures. Analysts suggest that bottomline of companies could decline on an average by 10 per cent sequentially. However, Bharti is expected to fare relatively better.

ON A FIRM FOOTING ESTIMATES FOR THE QUARTER ENDED MARCH 2010
in Rs crore	net sales	% chg	EBIDTA	% chg	Net profit	% chg
Auto
Bajaj Auto	3,302	75.3	701	145.1	463	204.2
Hero Honda	4,088	19.4	701	27.6	562	39.7
Maruti	8,374	30.2	1,128	151.0	719	195.7
M&M	5,136	41.2	761	88.8	479	71.2
Tata Motors	11,515	69.2	1,415	241.5	661	474.9
Banking *
HDFC Bank	2,443	31.9	1,769	12.6	838	32.8
HDFC	1,222	21.7	1,145	10.1	798	8.8
ICICI Bank	2,214	3.5	2,360	9.5	918	23.4
PNB	2,462	29.2	1,951	22.8	1,001	15.6
SBI	7,021	45.0	5,931	12.4	2,895	5.6
Capital goods & Engineering
ABB	1,518	9.0	131	3.3	91	15.9
BHEL	12,328	17.0	2,646	27.8	1,869	38.7
Crompton Greaves	2,689	9.3	351	6.7	213	9.7
L&T	13,200	26.1	1,780	12.1	1,248	9.2
Thermax	977	3.0	121	804.9	78	-15.8
Cement
ACC	2,144	4.3	589	-8.9	368	-9.1
Ambuja Cement	2,013	9.0	580	10.6	394	18.0
Grasim	3,315	13.9	1,044	48.7	614	59.6
India Cements	926	4.2	157	-30.4	57	-39.3
Shree Cements	950	17.8	378	14.3	187	-22.5
UltraTech Cements	1,942	4.5	497	-6.8	262	-15.3
Construction & Infrastructure
GMR Infra	1,504	13.3	438	53.1	97	82.2
HCC	1,126	14.9	165	9.3	35	-31.7
IVRCL Infra	1,950	19.9	190	34.0	89	11.7
JP Associate	2,994	43.6	818	16.0	332	-13.9
Nagarjuna Const.	1,611	46.7	162	92.9	68	79.1
FMCG
Dabur	876	19.0	182	35.5	126	21.0
HUL	4,227	6.0	643	7.8	493	-1.7
ITC	4,632	17.9	1,632	25.7	1,028	27.1
Nestle	1,513	19.5	337	8.7	229	15.9
IT
HCL Tech	3,066	1.1	592	-3.7	307	3.5
Infosys	5,940	3.4	2,104	11.3	1,633	1.3
TCS	7,855	2.7	2,344	24.7	1,852	40.9
Wipro	6,982	1.3	1,538	-1.1	1,235	1.4
Metals
Hindalco Industries	5,552	47.2	868	176.3	520	341.0
Hindustan Zinc	2,320	83.7	1,390	139.1	1,175	113.1
Nalco	1,357	24.7	271	364.1	245	195.4
Sterlite Industries	7,360	67.0	1,942	131.5	1,217	211.4
JSW Steel	5,566	53.7	1,451	514.6	627	NA
SAIL	12,902	7.0	3,221	52.8	2,163	45.5
Tata Steel	29,190	10.5	3,711	9538.0	1,335	NA
Oil & Gas
Cairn	759	317.3	444	411.9	359	1818.4
GAIL	6,743	8.2	1,330	25.0	665	9.4
IOC	62,867	17.0	5,866	-34.5	2,288	-65.5
ONGC	14,519	5.0	8,028	35.8	3,388	53.5
RIL	60,235	112.4	10,096	90.5	5,428	40.1
Pharma
Cipla	1,454	8.1	378	15.2	291	13.3
Dr Reddy's	1,787	-10.0	261	-43.3	200	-210.5
Ranbaxy	2,139	36.3	469	-	359	LP
Sun Pharma	1,102	-1.6	395	3.2	370	-8.4
Power Utilities
NTPC	12,384	8.2	3,448	55.3	2,287	8.2
Tata Power	1,594	8.1	399	36.0	213	-40.1
Reliance Infra	3,721	42.1	423	36.4	361	4.4
Realty
DLF	2,046	82.3	945	511.0	470	195.3
HDIL	476	33.1	233	141.5	157	154.0
Unitech	550	44.1	248	101.4	195	-28.7
Pantaloon	2,072	27.6	214	23.9	59	71.9
Titan	1,106	25.6	106	93.2	57	124.2
Shoppers Stop	10,59	21.1	160	478.6	39	NA
Telecom
Bharti	9,783	-0.4	3,876	-3.1	2,054	-8.3
Idea Cellular	3,253	10.5	817	0.5	148	-41.9
Reliance Communications	5,331	-13.1	1,829	-23.3	633	-56.5
* For Banks, net sales= Net Interest Income, EBIDTA= Operating profit % Change is year-on-year, except for IT companies which is quarter-on-quarter All figures consolidated, wherever available Source: Analysts reports

Miscellaneous
Most cement players are expected to report healthy revenue growth due to a mix of higher volumes and realisations. But, due to higher input costs (like coal), margins are seen under pressure for most companies. However, Ambuja Cements’ margins are likely to better due to cost savings led by lower purchases of clinker. Likewise, Grasim’s performance will get a boost from its VSF business.

Power utilities could report 8-10 per cent growth in revenue. Notably, margins are likely to get a boost, led by higher RoE under the new norms. Tata Power could report strong growth in margins due to higher merchant power and addition of new capacities leading to strong growth of 120 per cent in net profits (after adjusting for non-recurring items). Reliance Infra could report strong growth in revenue by more than 40 per cent helped by contribution from other segments like construction and EPC business.

On the back of recent recovery in the real estate market, companies in this sector are expected to report robust revenue growth. Strong revenue growth is seen in the case of DLF led by revenues from the new launches, better pricing and rental incomes. Further, higher margins along with the advantage of lower interest cost (due to reduced leverage) could lead to significant growth in profits for the sector. For Unitech, too, revenue growth is expected to be strong.

And, adjusting for last year’s extra ordinary income of Rs 338.5 crore, its net profits are expected to be higher by about 289 per cent. Improved consumer sentiment is driving revenue growth for retail companies. Same store sales growth of around 10 per cent coupled with contribution from new stores added in the year is expected to drive growth for both Pantaloon and Shopper’s Stop. Early wedding season and stable gold prices should lead to more demand for Titan’s jewellery and Watches.