India Inc to record poor Q2

In the backdrop of higher inflation, high interest rates andslackening macros, India Inc , is expected to post about 138 basis points ( bpsor one bps equals one-hundredth of a percentage point) fall in overall profitmargins for the quarter ended September 2011 (Q2 of 2011- 12) against the year-agoquarter. However, they are expected to post a robust growth in revenues.

"We expect BSE Sensex companies to maintain healthy top-linegrowth momentum, with projected growth of 21.1 per cent ( YoY or compared toyear- ago quarter) in sales. However, profit growth is expected to beconsiderably lower at sub-10 per cent levels (8.2 per cent) due to margincompression," said Lalit Thakkar, managing director ( MD) (institution) ofAngel Broking.

Operating margins of Sensex firms are expected to contractsharply by 166 bps YoY during the quarter. Overall, operating margin isexpected to come in at 20.8 per cent vis- a-vis 22.5 per cent in the sameperiod of last year.

"Net profit margin for Sensex stocks is expected to come inlower at 11.7 per cent, registering a decline of 138 bps YoY. However, on asequential basis, both operating and net profit margins are expected toimprove, albeit marginally," Thakkar added.

Motilal Oswal Securities has projected the revenues andprofitability of Sensex stocks during the quarter to be at 21.1 per cent and9.6 per cent, respectively, compared to the same quarter last year. However,quarter-on-quarter ( QoQ or compared to the previous quarter) overall revenueand net profit were up by 3.6 per cent and 4.1 per cent, respectively.

"The percentage of companies in our Universe (of 140companies) with growth rates of over 30 per cent is the lowest at 19 per cent,while percentage of companies with YoY decline is at an eight-quarter-high of33 per cent," said Rajat Rajgarhia, research head of Motilal Oswal Securities.

Overall, the quarterly results are expected to have moredisappointments than jubilation.

Fast moving consumer goods (FMCG), private banks and retailare the only three sectors where all firms are expected to report earningsgrowth. Sectors which are likely to show muted growth are public sector banks,telecom and auto. With a decline of 44 per cent, telecom sector shaves off 200bps from aggregate growth.

"Sectors with strong YoY profit after tax ( PAT) growthinclude cement ( 67 per cent due to low base effect), private banks ( 23 percent) and oil and gas ( excluding refinery and marketing firms) ( 21 percent)," Rajgarhia added.

However, IDBI Capital analysts see banking stocks in thered, just like Moody's Investor Service did a couple of days back.

"Core income is expected to remain flat sequentially due tomoderation in advances growth and flat margins QoQ. Further, we expect lossesin bond portfolio as yields have moved up by 25 bps during the quarter," saidSandeep Jain, analyst of IDBI Capital.

However, Angel Broking expects strong numbers to be postedby oil and gas as well as banking, financial services and insurance ( BFSI)stocks in the just concluded quarter, accounting for 85 per cent of Sensex'snet profit growth. Even in terms of top-line, oil and gas stocks are expectedto drive growth, accounting for 45 per cent of top- line growth.

Angel expects margin compression to dent profitability atReliance Industries due to lower gas production from KG-D6 basin and highersubsidy-sharing burden is expected to hamper margins for ONGC. " Accordingly,we expect Sensex oil and gas stocks to post bottom- line growth of 17.6 percent YoY," Thakkar said.

Courtesy: Mail Today