Thursday, November 24, 2011

>INDIA STRATEGY: 2QFY12 Review: Slow but in line profit growth

Margins at 5-year lows
The bad news is that profit growth continues to be mediocre, growing 11.4%
during the quarter. The good news is that after sharp disappointments in the
previous 2 quarters, earnings were slightly ahead of our expectations for the
Sensex companies. Excluding oil PSUs, however, earnings were a slight
disappointment. Also, our earnings exclude forex mark to mark losses that impact
~3% of the Sensex earnings. However, the spread is still poor – almost half the
companies disappointed in earnings growth. Lastly, Margins continued to decline
with Sensex margins falling by 240bps and currently at 7-year lows.

Energy & Banks drive profit growth; Metals & telecom drag
Energy (RIL), Banks (ICICI Bank, HDFC Bank) and Consumers (ITC) were the
key profit drivers for Sensex earnings. The biggest contributors to slowdown in the
profit growth were Metals (TISCO, Hindalco), Bharti and DLF were the drag on
Sensex earnings.

Earnings downgrades continue; FY13 more at risk
The result season has seen FY12 Sensex EPS downgraded by 2% to Rs1115
and FY13 by 5% to Rs1275. This justifies our view that FY13 is at greater risk
than FY12 (we expect FY13 EPS to be downgraded to Rs1200).

To read the full report: INDIA STRATEGY