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| Low-base growth, sequential pain |
| Sarath Chelluri & Ram Prasad Sahu / Mumbai Jul 08, 2010, 00:21 IST |
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Led by cyclicals such as metals and discretionary sectors such as auto, retail, media and hospitality, most major sectors are expected to report revenue growth in excess of 20 per cent for the June quarter, though on a low base. Sequentially, however, there could be a slight decline due to seasonal factors. Telecom, oil and gas and cement are likely to be the biggest drags. (SECTOR OUTLOOK)
Auto
Robust volume growth despite being a lean period and maintenance issues will help the sector post revenue growth of over 40 per cent, with Bajaj Auto, Tata Motors and TVS Motors exhibiting sequential growth too. Though raw material costs have increased, price hikes and good volumes should help the companies absorb these. Expect earnings growth of more than 30 per cent, driven by Bajaj Auto and Tata Motors.
Banking
Credit pick-up grew 19.5 per cent, while deposit growth was more muted. However, deposits and credit are expected to grow 20 per cent in 2011. Interest margins will come off marginally due to the change in the way interest is calculated on savings deposits. Bond yields dropped 30 basis points (bps) to 7.55 per cent, which should boost treasury profits. Asset quality could be a concern for PSU banks considering the high proportion of restructured assets in the last couple of quarters.
Cement
Poor demand, excess capacity and price cuts have seen volume growth drop to single digits in recent months. This will result in a one per cent drop in revenues. Higher input costs and drop in prices will lead to a 600 bps fall in Ebitda (earnings before interest, tax, depreciation, and amortisation) margins to about 25 per cent, says Edelweiss Securities. Lower sales and higher costs and interest rates will result in a drop in earnings growth to the tune of 20 per cent. Ambuja Cement is the exception.
Construction & Infrastructure
Healthy order inflows and receding impediments like delays in financial closures and client issues will lead to a strong quarter. Order activity was strong in the urban infrastructure segment. A pick-up in the industrial space was also seen. Compared to a muted FY2010 that saw top companies report revenue growth of 10 per cent, the June quarter could see growth rates revive to 13-15 per cent.
Engineering & Capital goods
New orders, a low base and improvement in industrial activity should lead to 20 per cent revenue growth. While rising input costs are likely to put pressure on margins, companies such as BHEL will see margins expand due to operating leverage. Expect healthy earnings growth for most major companies, with the exception of ABB (due to sluggish growth and low profitability in power systems).
IT
Expect the top four IT companies to report five-seven per cent q-o-q revenue growth in dollar terms, driven by volumes. However, the revenue growth in the reported currency will range from three-five per cent. With salary increases effective from April for most players, expect Ebitda margins to decline by 100-150 bps q-o-q. Overall profits are likely to be down by one-five per cent.
Metals
Despite the price cuts by steel companies in June, sales will be lower sequentially. Squeezed by price cuts and higher costs, margin contraction for steel producers is likely. On a year-on-year basis, however, profits are expected to rise due to the base effect.
Oil & Gas
The government increased the administered price mechanism gas price by 100 per cent to $4.2/mmbtu and announced measures like full deregulation of petrol prices. Gross refining margins have improved from the lows (around $2/bbl) of the third quarter and could help refiners like IOC and RIL. Petrochem margins have improved on a q-o-q basis.
Telecom
Subscriber additions continue to be strong with over 1.5 million being added in April and May each. Though listed compenies are expected to record over three per cent revenue growth q-o-q on strong net additions, competition will mean a decline in average revenue per user. Ebitda margins are likely to fall over 400 bps to 34 per cent. Bharti’s net profit is likely to fall on account of the interest cost related to the Zain acquisition, while RCom’s earnings will be lower due to forex losses.
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