Thursday, January 7, 2010


A strong recovery in domestic cyclicals, mixed performance of defensives and divergence amongst global cyclicals will mark the 3Q reporting season, beginning this Friday. Overall profits for Sensex as well as for our universe would be up 27-29% YoY, on our estimates.

• While headline profit growth would be flattered by the year-ago period’s low base (profits had dropped 14% YoY in 3QFY09 for our coverage), an acceleration in revenue growth (to ~20% from sub 5% in the previous three quarters) too would contribute to strong profit growth.

• Beyond YoY comparisons, absolute profits (as well as EBITDA) during the quarter will likely be 10-20% higher than even 3QFY08 levels for our universe. Sequentially (QoQ), aggregate profits are likely to have grown for the fourth consecutive quarter, with revenues growing for the second consecutive quarter.

• All sectors, save four (Capital Goods, Cement, IT Services, Financials), would likely report acceleration in YoY profit growth from the previous quarter. Also, all sectors except five are likely to report double-digit profit growth.

• Autos and Commodities, two sectors that were the first to be hit by the slowdown last year, will likely report the strongest growth and be the biggest contributors to growth during 3QFY10; we reckon they would contribute over three fourths of our universe’s profit growth. These two sectors will also contribute over two thirds of the quarter’s revenue growth.

• Domestic consumption-linked sectors will show continued momentum. We expect Auto sector to maintain margins sequentially as higher commodity costs are offset by operating leverage and better product mix. Revival in urban demand will buoy results of retailers which will report modest acceleration in revenues and sharp uptick in profits as Shoppers Stop reports a profit from loss in December 2008 quarter. Same store sales could exceed 40-50% in some formats for Pantaloon during the quarter.

• Capital Goods, Telecom and Financials will be the laggards during the quarter. The decline in Capital Goods would be due to last year’s extraordinary gains at L&T (otherwise it will likely report strong operating performance). The Telecom sector will likely report deterioration in core performance as well, as increased competition takes its toll. Lower trading income and weak credit growth will hurt financials results.

To read the full report: EARNINGS PREVIEW