Earnings analysis: More misses than hits, says Hemang Jani

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Earnings analysis: More misses than hits, says Hemang Jani

Hemang Jani of Sharekhan spoke to CNBC-TV18 about his expectations of the earnings season and L&T results today. Check out his comments.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ News and Notices about Larsen See interviews with Larsen Management See what other Experts & Brokerages are saying about Larsen See previous Results of Larsen Larsen BSE | NSE 31/05/12 Are Mutual Funds betting on Larsen? Other Stocks in this news HCL Technologies | Tata Consultancy Services | Exide Industries | United Spirits | United Breweries | JSW Steel | Hindustan Construction Company | Jet Airways |

Hemang Jani of Sharekhan spoke to CNBC-TV18 about his expectations of the earnings season and L&T results today. Check out his comments.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: I will ask you then about you have made of earning season till now and what is your expectation from the big boy L&T today?

A: The earning season so far has been mixed with some companies reporting sub par growth compared to expectations. We had a reasonably good performances coming in from some of the banks and some of the IT companies particularly TCS and HCL Tech . As far as L&T numbers are concerned, we believe that at the net profit level, the number should be somewhere around Rs 950 crore. Though this was a very tough quarter given that the expectations have been low and in the sectors where L&T has a strong presence, the order in flow was a little better. So sentimentally, it could be better than expectations.

Q: You have given us a list of hits and misses. I am beginning with the hits because there have been so few this quarter. Exide you liked; what impressed you? What's your price target?

A: After two quarters of dismal performance, we are seeing about 19-20% growth in the top line which means both, for the OEM as well as for the replacement segment, the growth is coming back on track. This quarter we have also seen fall in the lead prices which should lead to some kind of improvement in the margin. Going forward, with the volume being slightly better than expected and the fall in the raw material cost, overall growth could be better. We think that there is a case for about 25-30% appreciation in Exide from current levels.

Q: You didn't like United Spirits or United Breweries . Just take us through that one?

A: Clearly both at the top line level, at the operating profit level as well as at the net level the performance was below expectations. In this quarter, the company registered the lowest ever volume growth which is quite concerning. Given the fact that it's a highly leverage company with debt-equity being at 1.7 times, going forward, unless the company is able recapitalize, it is going to be very tough. So we think that the numbers were much below the expectations; the stock could remain under pressure.

Q: What about JSW Steel . You gave that as one of your hits?

A: JSW, for obvious reasons, overall production volume was lower. What we liked is that the EBITDA level the profit per ton was about Rs 6500 as against expectation of Rs 6000. With improved iron ore availability and now the rupee also being at a much better level compared to what it was, the stock could look a little better from here on.

Q: What about Hindustan Construction , after doing the analysis post the extra ordinaries, what did you make of the numbers on that one?

A: Clear disappointment at the top line level. There was a higher provisioning which came as a major surprise to market participants. We are seeing slower order inflow, and given the high level of debt that the company is on, we are not seeing any clear indications of improvement in the capex cycle, we think that the going is going to be a little tough for Hindustan Construction.

Q: What about Jet Airways ?

A: Jet Airways, at the top line level, the numbers were ok. But at the operating and the net profit level, because of the high ATF fuel cost and other expenses, the overall margins and the net profit growth was muted. In fact there was a loss at the net profit level. It's more of a policy trigger that the airline industry is looking at. So unless we have something concrete and there's clarity on the ATF price, the stock could remain a little weak.

Q: On United Spirits, what is the price target you are looking at because some people have given a target as low as Rs 440?

A: Given the challenging environment and the fact that the debt-equity ratio is very high, the stock could actually correct to about 18-20% from current levels.