>Revenue growth at an inflection point (DEUTSCHE BANK)

■ Revenue growth driven by robust domestic consumption: We believe that the key highlight of the Dec 09 quarterly results will be the inflection point in revenue growth which is set to turn robustly positive after three quarters of muted growth, primarily driven by robust domestic consumption, which seems to have grown impressively despite concerns of a poor harvest. We estimate revenue growth of 26%/20% yoy for Sensex and DB universe
respectively. Although exaggerated by a base effect, we believe that the robust top-line growth is a reflection of strong recovery in domestic aggregate demand. Indeed, some of the key metrics, such as growth in auto sales, consumer appliance sales, air traffic, etc have posted multi-period highs during the Dec quarter. We strongly believe that private and government consumption expenditure will be the key driver of Indian GDP growth.

■ Revenue growth momentum will propel earnings growth to 26% in Dec 09: Earnings growth, which had already seen an inflection point in Jun-09 quarter, will gain further momentum as we expect Sensex’ earnings to grow by 26% yoy while DB univ’s should also grow by 26%yoy (41% cum-PSU OMCs). This will be due mainly to momentum in topline, unlike preceding quarters when margin expansion (driven by lower raw material prices and cost cutting measures) was the key driver for earnings growth. We view this as a more positive signal of recovery and hence emboldened to expect further improvement going forward.

■ Auto, Oil, and Metals (ex-Corus) to lead while Telecom, Real Estate to lag: We expect the Auto sector to stand out (reflecting strong demand, benign commodity prices and low base), with earnings likely to grow by 261% and EBITDA by 216%. Oil and gas should also show a significant profit jump, but mainly due to lower base in PSU OMCs in the Dec-08 quarter. Ex- OMCs Oil sector earnings should still grow by an impressive 64% yoy due to lower upstream sharing by ONGC. Metals should report EBITDA and PAT growth of ~80% yoy (ex-Corus) on the back of rising volumes, despite lower realizations. The telecom, sector which witnessed an intense tariff battle in the quarter, should unsurprisingly be the biggest laggard with EBITDA and PAT growth at -5%/-28% yoy respectively.

■ We remain convinced that market will overshoot our fair value target in 4Q: We believe that earnings upgrades, which had reversed in past few months, should resume, underpinned by a significant upturn in quarterly results, rising expectations of upward revisions to GDP growth and better-than-expected growth across key global economies. We remain convinced that the market will overshoot our fair value target of 16,500 in 4QFY10.

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