>QE Sep 09 Earnings: A New Earnings Cycle to Begin Next Quarter

Here are our key takeaways from the recently concluded September 2009 quarterly earnings season:

•Corporate India (represented by an MS sample of 99 companies) reported its fastest growth since Jun-07 – 35% growth in net earnings for the quarter ended September 2009 compared to a trailing five-year quarterly average growth rate of 22%.

•Excluding the Energy sector, profits fell 2% YoY compared with a trailing five-year average growth rate of 19% – earnings are down YoY for the fourth consecutive quarter.

•Earnings growth for our coverage universe was in line with our MS analysts’ expectations. MS analysts’ were expecting profits to grow 38% for our coverage universe (fall of 4% ex-Energy).

•F2010 earnings were revised up for five out of 10 sectors and by 0.5% for market aggregate at the end of the earnings season. Upward revisions outstripped downward revisions 2:1 at the end of the season versus where earnings were at the start of the season. Telecom sector seems to have surprised the consensus negatively. The revisions were a bit more broad based for F2011 earnings. This indicates an element of positive surprise in the quarterly earnings, but not by a big margin.

•The Sensex constituents reported a rise of 1% YoY on an aggregate basis, ahead of MS analysts’ forecasts (of 5% fall). This is the first quarter in 12 months that Sensex earnings growth is in positive territory, albeit marginally.

•At the sector level, seven out of 10 sectors reported a rise in profits The best performances came from Energy and Healthcare. The laggards versus the aggregate numbers were Materials and Telecom.

• Compared to MS expectations, the biggest positive surprises came in Healthcare and the key negative surprise came in Materials.

• Excluding the volatile energy sector, revenues for our sample rose 4% YoY while for the aggregate revenues fell 9% YoY.

•EBITDA margins rose 535bp YoY and 43bp YoY excluding the Energy sector. Seven out of 10 sectors saw margin expansion with Energy leading the list while Materials was at the bottom. Rising capital costs offset the improvement in EBITDA margins, causing net profit growth to lag EBITDA growth.

•Broad market earnings (sample of 1,061 companies) outperformed the narrow market for the second consecutive quarter. The earnings for the broad market companies are up 27% YoY (ex-Energy, up 5%).

To read the full report: INDIA STRATEGY