The Hindu Business Line : Brokerages’ earnings preview littered with downgrades

Kolkata, April 9 For the first time in four years, brokerages are painting India Inc earnings story with uneasy brushes and, mostly, in grey. The first flush of earnings previews by large domestic broking firms is littered with estimate downgrades and worries.

Motilal Oswal said in its latest prognosis: “Over the last eight quarters, we have witnessed consistent upgrades to our earnings estimates. Our Sensex EPS estimate for FY-08 was upgraded from Rs 810 in December 2006 to Rs 846 in June 2007 to Rs 883 in December 2007.

“Similarly, our Sensex EPS estimate for FY-09 was revised from Rs 891 in December 2006 to Rs 955 in June 2007 to Rs 1,064 in December 2007. After a series of upgrades, we have now downgraded our Sensex EPS estimates by 5.5 per cent to Rs 834 for FY-08 and by 5.8 per cent to Rs 1,002 for FY-09. However, the Sensex earnings growth remains healthy — our FY-09 EPS estimate is 20.1 per cent higher than our FY-08 Sensex EPS estimate.”

Sector trend

Religare said: “For the fourth quarter in FY08, we have cut sales and PAT estimates for our coverage universe by 2.8 per and 5.7 per cent respectively. Key sectors witnessing downward revisions are oil & gas, real estate, capital goods, metals and banks.

According to Prabudas Lilladher, market appeared to have seen it coming — a weak earning performance in the fourth quarter of FY08. “After having risen by 55.2 per cent for the first three quarters of FY08, the Indian market declined by 22.9 per cent in Q4 of FY08”.

The brokerage further said that decline has been much sharper in India than other emerging markets owing to relatively higher premiums enjoyed earlier in the financial year. “In just a month, the consensus has reduced the Sensex EPS from Rs 965 to Rs 943 for FY09, while FY10 EPS is forecasted at Rs 1,120 (implying 17.2 per cent growth). Using a peg between 0.8-1.0 (which is the historic band), at the reduced estimates, expect the market to trade at 14,600-18,900, with a median of 16,760 (around 9 per cent upside from the current levels).”

Religare has reduced its FY08 and FY09 Sensex EPS estimates by 2.6 per cent and 3.6 per cent to Rs 852 and Rs 1,021 respectively.

Extended view

Angel Broking has attempted to broaden the canvas by going a year back and has taken an extended view of the earnings curve. It said: “for FY07-10E, the Sensex companies are expected to log in a CAGR of 21.5 per cent. Excluding the commodity pack — cement, metals, oil & gas — growth during the period is expected to be a healthy 23 per cent.

“This growth would be led by real estate, construction, telecom, engineering and financial sectors. For FY2009E and FY2010E, the Sensex is expected to post an EPS of Rs 976 and Rs 1,193, respectively.”

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