>QE Sep-09 Earnings Season thus Far (MORGAN STANLEY)

Quick Comment: So far, eight companies in our coverage universe have reported results. Aggregate earnings are up 13% YoY, a tad ahead of our analyst expectations of 12%. In terms of surprise breadth, three of these eight companies reported net profit that exceeded expectations by 5% or more, while two trailed our expectations by 5% or less (see page 2 for company-wise details). Four companies in the BSE Sensex have reported 20% growth in earnings, ahead of
MS analysts’ expectations of 15% growth. It is still early days to analyze the earnings at the sector level. Nevertheless, Industrials is the best-performing sector while Materials is the worst-performing sector in terms of profit growth thus far.

EBITDA Margins Rise: EBITDA margins for the sample are up 3.5ppt. Excluding the materials sector, EBITDA margins are up 4.3ppt. Out of the four sectors that have reported earnings, three have seen margin expansion, with Industrials leading the list. Revenue growth for the sample is up 8% YoY and for the Sensex companies it is up 4%.

Broader Market Earnings Lead the Narrow Market: So far, 212 companies have reported. Aggregate earnings for the broad market are up 24%. The sharp recovery in margins, up 5.8ppt YoY, is the key driver for the strong earnings growth. However, revenues for the sample are up 4% YoY. Of these 212 companies, only 31 companies or 15% have reported losses for the quarter while almost 30% or 62 companies have reported earnings growth in excess of 50% for the quarter ended June 2009. We maintain our view that earnings are likely 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.

To see the full report: INDIA STRATEGY