SENSEX NIFTY
Feb 26, 2013, 05.33 PM IST | Source: Moneycontrol.com

Modest earnings in Q3FY13 on sluggish revenue growth: Angel

Angel Broking has come out with its report on earnings performance for 3QFY2013. According to the research firm, the Sensex EPS is expected to report a moderate 6.3% growth to Rs 1,195 in FY2013 and a more robust 16.1% growth to Rs 1,387 in FY2014.

Angel Broking has come out with its report on earnings performance for 3QFY2013. According to the research firm, the Sensex EPS is expected to report a moderate 6.3% growth to Rs 1,195 in FY2013 and a more robust 16.1% growth to Rs 1,387 in FY2014.

The earnings performance for 3QFY2013 came in below our expectations owing to the slower-than-expected pace of revenue growth. Margin pressure, though, has largely stabilized as margin compression during the quarter was lower than expected. Sensex companies, during 3QFY2013, reported an earnings growth of 9.4% yoy (5.5% yoy excluding ONGC ) as compared to our growth estimate of 11.0% yoy. Our coverage companies reported a subdued 5.5% yoy earnings growth (2.8% yoy excluding ONGC) as compared to our growth estimate of 10.0% yoy. Corporate earnings continue to feel the heat owing to slowdown in economic activity, weak capex and high interest rates.

Sensex companies witnessed a 9.7% yoy growth in revenue during the quarter as compared to our estimate of 10.3% yoy. Similarly, our coverage companies reported an 8.9% yoy revenue growth as against our estimate of a growth of 10.4% yoy. On a sequential basis, margin performance for Sensex companies improved by 40bp qoq (as against an estimated 6bp contraction) while it contracted by 13bp qoq for our coverage companies (as against an estimated 15bp contraction). Even on a yoy basis, margin contraction came in lower-than-anticipated at 53bp for Sensex companies (as against an estimated 110bp contraction) and 92bp for our coverage companies (as against an estimated 109bp contraction).

Oil and gas, private banks and IT companies drive earnings growth
Amongst our coverage universe, earnings performance was largely driven by oil and gas companies, new private banks and IT companies. Earnings for oil and gas companies came in better-than-expected at 36.4% yoy, largely aided by the performance of ONGC and RIL . New private banks reported a strong earnings growth of 28.5% yoy (estimated growth of 22.4% yoy) as they continued to face relatively lower asset quality pressures as compared to their PSU peers. IT companies reported a 17.4% yoy earnings growth, mainly led by better-than-expected revenue growth of large cap companies.

Telecom, auto and metal companies largely weighed on earnings performance of our coverage universe. Stressed margins led telecom companies to report a 56.3% yoy contraction in earnings. Auto companies, weighed down by the performance of Tata Motors , posted a 26.8% yoy decline in earnings. Metal companies surprised negatively with a 21.8% yoy decline in earnings as revenues for ferrous players declined, and lower realizations dented margins.

Sensex outlook and valuation: We expect the Sensex EPS to report a moderate 6.3% growth to Rs 1,195 in FY2013 and a more robust 16.1% growth to Rs 1,387 in FY2014. We maintain our 12-month Sensex target of 22,100, with a target multiple of 16x FY2014 earnings. Our target implies an upside of 14.4% from the present levels. We believe that with positive policy action, the medium-term growth outlook for the economy is gradually improving and there are possibilities for further upsides in the market arising out of improvement in the outlook for earnings growth and rollover to FY2015 earnings.

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