Profitability will be under pressure in the first quarter of 2011-2012 although companies will register healthy topline growth, estimate brokerages. Corporate revenues will grow in the 22-23 per cent range mark, say broking houses.

Rising input costs, moderation in volume growth and increased competition have been cited as reasons for decline in the bottomline, according to Crisil.

“While EBITDA margins would stabilise on a sequential basis, we expect margins to decline by about 200 basis points on a y-o-y basis because of high input costs and rising wages. Companies are being forced to partly absorb the rising costs, as slower volume growth and intense competition are restricting their pricing flexibility. Further, with increase in interest rates, we expect net margins to fall even more sharply,” said Mr Prasad Koparkar, Head - Industry and Customised Research, Crisil Research.

A report by Citi shows that the first quarter offers limited upside risks. Around 54 per cent of the growth in the Sensex will be generated by the energy sector. Upside surprises would lie with the sectors such as cement and power, and companies such as SBI, Tata Steel, Jindal Steel and Power, it said.

“The earnings growth estimates for Sensex companies seem to show lot of dispersion within sectors. Even as two-wheelers are likely to report modest growth, the four-wheelers are likely to see weak earnings. Similarly, SBI is likely to see a fall in earnings while HDFC Bank is likely to report a growth of 31 per cent y-o-y. That is also the case with Tata Steel and Sterlite in materials, Wipro and Infosys/TCS in technology, and Reliance Infra and Tata Power in utilities,” said a Morgan Stanely report.

According to a report by Motilal Oswal, the Sensex Profit After Tax (PAT) growth will be slow at 11 per cent. “This is the second in the series of lowest four consecutive quarters of Sensex PAT growth ex global crisis period,” said the report. It said the top five PAT growth Sensex companies are expected to be Sterlite Industries (62 per cent), ONGC (36 per cent), HDFC Bank (32 per cent), ICICI Bank (25 per cent) and Bajaj Auto (24 per cent).

EBIDTA margins will be under stress. Edelweiss expects EBIDTA margins to shrink by 98 basis points for the Sensex year-on-year.

IDFC Securities says the Sensex is expected to grow at around 6.4 per cent this financial year. Topline growth for the Sensex companies has been pegged at 20.3 per cent. This would be led by healthy growth in automobiles (21.9 per cent y-o-y), IT Services (21.2 per cent y-o-y), petrochemicals (25.9 per cent y-o-y) and consumer goods (15.7 per cent y-o-y), said the report.

The margins of Sensex companies have been estimated to contract by 150 bps year-on-year. IT services companies are estimated to register a margins decline of 180 bps year-on-year on the back of wage hikes, according to IDFC securities report.

The CRISIL report, which said the IT sector will witness strong growth this sector, also said that margins would decline around 250 bps year-on-year.

Many brokerages expect strong topline growth across the consumer goods, petrochemicals, and oil and gas sectors. Topline growth is expected to be strong across sectors especially consumer sectors such as FMCG, retail and media. Other sectors expected to post healthy topline growth include engineering and capital goods, IT and oil & gas, according to Edelweiss.

There have been some sectors which have been identified as “losers” in this quarter. Most brokerage houses have marked telecom, real estate, metals, cement and construction sectors as being in this category.

The consensus Earnings per Share (EPS) for Sensex for FY12 and FY13 stands at Rs 1,234 and Rs 1,453 respectively according to Edelweiss.

EPS for Sensex FY12 is estimated to be Rs 1,187 by IDFC Securities.

Related Topics
comment COMMENT NOW