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Earnings Preview: Q4FY09

Earnings Preview: Q4FY09
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First Published: Mon, Apr 06 2009. 10 43 AM IST
Updated: Mon, Apr 06 2009. 10 43 AM IST
We expect MOSL Universe (comprising 117 companies) excluding oil refining and marketing companies (RMCs) to report 1.5% y-o-y decline in sales, 11.8% y-o-y decline in EBITDA and 19.3% y-o-y decline in net profit in 4QFY09.
RMCs would be reporting significant profits due to issuance of oil bonds; hence we have excluded them from the comparison.
Most sectors would report either a decline or single-digit growth in earnings with just 3 out of 16 sectors reporting double-digit earnings growth.
The decline in aggregates would be largely due to sharply lower earnings from Metals and Real Estate. Excluding these two sectors, aggregate earnings would grow 3% YoY.
Sensex EPS estimates
Downgrade in our Sensex EPS estimates commenced with our 4QFY08 quarterly results preview and has continued in the following quarters.
Since our 3QFY09 results review released in February 2009, there is no change in our FY10 Sensex EPS estimate of Rs886. The major changes in assumptions have already been factored in post 3QFY09 results.
This is positive, given that some of the incremental data points have started looking up and these are also being reflected in our estimates.
For FY09, we estimate Sensex EPS at Rs877 v/s Rs840 in our 3QFY09 results review, which implies an upgrade of 4.4% and translates into a growth of 5.2% over FY08.
General Elections
In 1QFY10, the most important event for the markets would be the General Elections scheduled for April-May 2009.
The recent history of state election results in Rajasthan, MP, Chattisgarh, Delhi, J&K, etc and the stance of various regional parties do not provide any pointers to the likely winner.
While the government will be formed through a coalition of multiple political parties (no single party is likely to win a majority on its own), the dominant party, its allies and their willingness to introduce economic reforms would be a significant catalyst for Indian equities.
This becomes even more important in the current environment of economic slowdown. Market reaction was very adverse to the unexpected outcome of the elections in May 2004.
Inflation concerns
After an above-average growth of 8-9% since FY03, GDP growth for FY09 is likely to decline to 6.7% on strong global headwinds and rub-off impact on the Indian economy.
The estimated real GDP growth of 6.7% in FY09 is still better than most economies and is led by strong domestic consumption. Several sectors that had reported significant drop in business momentum in 3QFY09, have witnessed strong recovery in 4QFY09.
FY09 has witnessed high inflation of 12.9%, and subsequently, a 30-year low of 0.3% in the latest weekly data. In CY08, the average week-on-week change in WPI was 0.156%, much above the preceding 3-year average change of 0.107%.
The two key drivers of this inflation were prices of base metals and oil, which have declined significantly in the last six months.
We expect inflation to turn negative for the next six months. A deflationary environment would be conducive for both the RBI and the government to pursue more measures to stimulate growth.
Recommendation
We recommend investing in financials, autos, telecom, oil and gas, and pharmaceuticals.
Among the large caps, we like HDFC Bank and Punjab National Bank (PNB) in Financials, Hero Honda and Mahindra and Mahindra (M&M) among auto counters, Bharti and Reliance Communications in the telecom space.
BPCL and RIL in oil and gas, and Divis Labs, Dr Reddy’s Lab and Sun Pharma in pharmaceuticals are good bets. We also like Jindal Steel and Power.
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First Published: Mon, Apr 06 2009. 10 43 AM IST
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