| Summary of Contents SHAREKHAN SPECIAL Q3FY2013 earnings preview
Revenue growth momentum eases further but so does pressure on margins Key points -
Revenue growth to slip further: For Q3FY2013, the Sensex companies are expected to show an aggregate revenue growth of 10.4% year on year (YoY; 11% YoY ex oil companies), which is the slowest growth in 12 quarters. The growth in aggregate revenues would be led by the pharmaceutical (pharma; up 20.5%), automobile (auto; up 16 %) and fast moving consumer goods (FMCG, up 13.3%) sectors. However, the slowdown in revenue traction continues in the capital goods and energy sectors as well as in some biggies like Reliance Industries Ltd (RIL). -
Margin pressure easing off: Amid a slowing revenue growth, the stablisation of the operating profit margin (OPM; EBITDA margin) is emerging as a comforting factor. On an aggregate basis, the OPM of the Sensex companies is expected to be 18.2 % (vs 18% in Q2FY2013), which is slightly higher on a sequential basis. This could be attributed to a higher OPM driven by a better volume offtake in the festive season. Thus, the festive demand-driven sectors like FMCG and auto would see some margin improvement sequentially. -
Subdued earnings growth; consensus expectation indicates pick-up in earnings growth on the back of cyclical recovery in economy: On an aggregate basis, the Sensex companies' earnings are expected to grow by 8% YoY in Q3FY2013. However, excluding the oil companies the earnings growth is likely to be around 8.6%. Moreover, the breadth of the earnings is expected to improve as around 21 companies (out of 30-company index) are expected to post a growth in the earnings YoY.
After a long period of downgrades in the consensus earnings estimates, there hasn't been any downgrade in the aggregate earnings of the Sensex companies over the past few months. This is seen as an early sign of a potential reversal of the trend. The trend reversal could be backed by a revival in corporate earnings growth on the back of a cyclical upturn in the economy. The consensus estimates are factoring an earnings growth of 14% for FY2014 (much above 7-8% for this fiscal).
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