>INDIA STRATEGY (MORGAN STANLEY)

QE Jun-09 Earnings: The Final Cut

Quick Comment – Earnings Beat MS Analysts’ Expectations: 93 companies in our coverage universe have reported results for the QE-Jun-09. Aggregate earnings are up 7% YoY (ex-energy down 1% and ex-materials up 18%) against our analysts' expectation of 1% fall (ex-energy 4% fall and ex-materials 8% growth). In terms of surprise breadth, 46 of these 93
companies have reported net profit that exceeded expectations by 5% or more while 34 trailed by 5% or less. BSE Sensex companies have reported a 4 percent fall in earnings ahead of MS analysts’ expectations of 10% fall. At the sector level, consumer discretionary and
energy are the key positive surprises whereas healthcare is the key negative surprise. For the quarter, energy is the best-performing sector with a net profit growth of 38%, followed by consumer discretionary while materials is the worst-performing sector. If one excludes real estate whose earnings were down 76% YoY, financials top the list with a growth of 40%.

EBITDA Margins Rise: EBITDA margins for the sample are up 4ppt (Ex- energy down 155bps and Ex-materials up 5.5ppt). Five sectors have seen margin expansion with energy leading the list and materials and healthcare at the bottom. Revenue growth for the sample is down 12% YoY (ex-energy, up 8%) whereas for the Sensex companies it is down 2% (ex-energy, up 9%).

Broader Market Earnings Ahead of MS Coverage Marginally: 2578 companies in the broader market have reported a 9% fall in revenue (ex-energy flat). Aggregate earnings for the broad market are up 9% YoY (up 5% ex-energy). EBITDA margins for the sample are up 4.2ppt to 23% while ex-energy margins are up 2ppt to 25.3%. Of these 2578 companies, 25% or 636 reported losses while 18% or 468 companies have reported earnings growth in excess of 50% for the quarter.

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