>QE Sep-09 Earnings Preview: A Mixed Bag (MORGAN STANLEY)

Quick Comment: MS analysts expect aggregate earnings for the 94 companies in MS coverage universe to rise 39% for the QE Sep-09, compared to a 7% increase in Jun-09. Excluding the volatile energy sector, earnings are expected to decline 3% (this would be a fourth consecutive quarter of declining earnings). Based on our analysts’ estimates, the BSE Sensex earnings
are likely to decline 3% YoY compared to a 1% fall in the QE Jun-09.

What's new: The aggregate of our analysts’ estimates reveals that revenues for the MS coverage stocks could fall 10% YoY – revenues could therefore be down for a third consecutive quarter. Ex-energy, our analysts expect revenues to grow 6% YoY (compared to 8% growth in the previous quarter). The sample’s aggregate EBITDA margins are likely to rise by 624bps YoY.
Ex-energy EBITDA margins are forecast to fall 34bps (a likely fall for the fifth consecutive quarter). Six out of the 10 sectors are likely to see margin expansion with energy leading the set and materials seeing the sharpest contraction in margins. The strongest earnings growth is likely in energy (as the public sector oil companies are likely making profits vs. losses a year ago) followed by consumer discretionary (mainly autos) and healthcare whereas materials and telecoms appear distinctly weak. If we exclude the energy, financials and materials sectors, earnings are forecast to be up 8% YoY for our sample. Our analysts expect 13 companies to report 50% or more fall in earnings while 12 of them are expected to deliver 50% or more earnings growth.

Implications: We expect earnings to surprise on the upside ahead of our analyst expectations (as has been the case for the past two quarters) with the broader market outpacing the narrow market in terms of growth. The broad market earnings were up 7% versus a 1% fall in Sensex earnings in the previous quarter (QE Jun-09).

To see full report: INDIA STRATEGY