FINANCIAL INSTITUTIONS

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Analysts expect the quarter ended March 2009 to an be an unexciting one for the four financial institutions, which expect to post a single-digit growth in net interest incomes (NII) and a decline in net profits during the period. Net interest margins are expected to come under pressure because of a mismatch in re-pricing of assets and liabilities, poor credit growth during the quarter as against a strong deposit growth and low yields in priority sector lending.

Edelweiss expects HDFC’s disbursement growth to be at about 10 per cent. The spreads are expected to improve due to a decline in the cost of funds. MOSL expects HDFC's disbursement growth to be muted at 4 per cent, compared with 22 per cent in the nine months ended December 2008. KRC expects HDFC to show a decline in interest income due to a reduction in lending rates. The NII and net profit growth rate of HDFC Bank is expected to be over 21 per cent.

Edelweiss expects an unchanged margin for HDFC Bank as the bank did not revise its prime lending rate. MOSL expects the bank to post lower treasury gains during the quarter as against a robust gain in earlier quarters. On a reported basis, net profit growth is expected to be around 37 per cent and, on an adjusted basis, it would be 29 per cent.

ICICI Bank may fare badly in the fourth quarter with a decline in NII and net profit. The net profit margin is expected to decline on lower treasury gains due to mark-to-market (MTM) provisions. Banking analysts expect loans to decline by 4 per cent due to a slowdown in retail loan growth. Deposits of the bank are expected to decline by 12 per cent on net repayments of bulk deposits in the quarter.

State Bank of India (SBI) is expected to post a 15 per cent rise in NII, while the net profit growth is pegged at 7 per cent. The bank is expected to show a decline in margins due to a rise in high-cost deposits during the third quarter. With deteriorating asset quality and exposure to riskier asset classes, MOSL expects non-performing asset (NPA) provisions to remain high. Edelweiss expects SBI's q-o-q credit growth to be strong, but margins will come under pressure due to re-pricing of loans.
 

PHARMA

The Indian pharmaceutical sector is expected to post a lacklustre growth in the fourth quarter on the sales front due to the high base effect as the corresponding quarter of last year was buoyed by Sun Pharmaceuticals’ extraordinary sales.

The rupee’s fall of 6.5 per cent q-o-q is likely to affect the net profit of Ranbaxy Laboratories due to mark-to-market (MTM) translational forex losses on outstanding foreign currency loans and hedges.

Operationally, exporters are expected to benefit by recording higher top line growth, but significant forward cover options will prevent any major growth in profit. The worst is over for Indian generic companies and so expect improvement in Sun Pharmaceuticals’ performance.

Despite a favourable currency, Ranbaxy is expected to post a sharp fall in revenue due to the ongoing US FDA ban on some products as well as the significant forward covers taken in the past. A slowdown in emerging markets is also likely to adversely impact top line growth.

Ranbaxy is likely to report a loss at the operating profit level due to forex losses on outstanding foreign currency loans. MOSL analysts expect the company to report a net loss of Rs 270 crore. Excluding the MTM forex losses on foreign currency loans, the net loss could be Rs 165 crore.

Sun Pharmaceuticals is expected to post a 20 per cent-plus decline in net sales and profit in the fourth quarter due to the absence of exclusivity-based Pantoprazole and Oxcarbazepine supplies. Excluding patent challenge, the company’s net sales are expected to grow by 24 per cent. An expanding generic portfolio coupled with change in product mix in favour of high-margin exports is likely to bring in long-term benefits for the company.
 

SOFTWARE SERVICE

The three software companies in the BSE Sensex are expected to report a decline in quarter-on-quarter (q-o-q) revenues and net profit in the fourth quarter ended March 2009. The year-on-year (y-o-y) revenue growth is expected to be over 20 per cent, while their net profit is likely to grow by around 12 per cent.

Infosys Technologies, with the lowest hedges among its peers, will benefit the most from the rupee's depreciation, while TCS and Wipro are likely to report higher hedging losses in the fourth quarter. A technology analyst at MOSL expects Infosys’ q-o-q revenue in dollar terms to decline by 1.1 per cent. The q-o-q operating margin is expected to slide by 65 basis points (bps), owing to a decline in pricing and utilisation.

A KRC analyst expects Infosys to get a push from the depreciation in the rupee's value and outsourcing deals in the telecom vertical. Another analyst at Edelweiss expects Infosys to show a robust y-o-y revenue and profit growth of over 20 per cent.

In TCS' case, an MOSL analyst expects the firm's q-o-q dollar revenue to drop by 3.2 per cent, while operating margin is expected to be lower by 200 bps due to a decline in pricing. TCS experienced project cancellations during third and fourth quarters, which will affect billed volume in the current quarter. A KRC analyst expects TCS' operating margin to be impacted by higher employee costs. And, Edelweiss expects the company to report a decline in profit on pricing and forex losses.

As for Wipro, an MOSL analyst expects the Azim Premji-led firm to report a decline of 7.3 per cent in dollar revenue on a comparable basis. The operating margin is expected to slip by 140 bps on account of lower utilisation and pricing assumptions. Edelweiss expects Wipro to post a 17 per cent drop in y-o-y net profit on forex losses and a slower growth in revenue. KRC expects Wipro's revenue growth from telecom to suffer as global telecom operators reduce spending and headcount.
 

TELECOM

Bharti Airtel is expected to outperform Reliance Communications (RCom) due to a stronger revenue and a better growth in profit. A KRC analyst expects Bharti's revenue to grow by over 50 per cent, while analysts at Edelweiss and MOSL expect it to grow by 28-29 per cent.

The Sunil Mittal-led firm is expected to benefit from lower forex losses due to a sharp depreciation in the yen's value during the quarter as half of Bharti's loans are denominated in the Japanese currency.

RCom, despite having witnessed a strong q-o-q subscriber growth of 10-14 per cent, is expected to post a revenue growth of around 14-17 per cent only. Also, the company is expected to see a drop of 4-6 per cent in revenue per minute (RPM) despite a strong growth in traffic. This weakness in RPM along with launch expenses and other associated costs is also likely to push down y-o-y margin by 390 bps. This may result either in a single-digit growth or even a decline in y-o-y net profit.

MOSL expects Bharti's revenue to grow 28.1 per cent y-o-y and 4 per cent q-o-q due to a 10 per cent increase in q-o-q mobile services. Mobility revenues are expected to grow 3.3 per cent q-o-q, implying an ARPU (average revenue per user) of Rs 305. The margin is expected to decline by 80 bps y-o-y and 20 bps q-o-q to 40.7 per cent. But Edelweiss estimates Bharti's mobility ARPU to decline by 2.6 per cent q-o-q on lower usage.

MOSL expects RCom's revenue to grow 13 per cent y-o-y and 2.6 per cent q-o-q due to strong subscriber momentum. The ARPUs are expected to go down by 5-10 per cent on lower quality of incremental subscribers and free promotional minutes in GSM. The margin is expected to decline by 420 bps y-o-y due to an aggressive network expansion. The net profit is expected to fall by 10 per cent y-o-y and 5 per cent q-o-q.

Edelweiss estimates mobility ARPU of RCom to decline by 9.5 per cent q-o-q owing to aggressive promotional schemes offered at the launch of its GSM services. Uncertainty in derivative income is a risk and, hence, Edelweiss expects a 9 per cent decline in RCom's net profit.
 

AUTOMOBILES

All auto companies reported sequential improvement in sales in the fourth quarter, though sales in medium and heavy commercial vehicle segment were significantly down y-o-y. The slowdown in industrial activities continued to dampen truck sales, whereas bus sales improved due to government spending on urban infrastructure. Although prices of key raw materials such as steel, aluminum and rubber softened, the benefits got diluted due to the depreciation in the value of rupee.

An MOSL auto analyst expects Mahindra & Mahindra to report a flat y-o-y net sales growth, while q-o-q volume growth is expected to be 24 per cent on the back of a sharp improvement in the utility vehicle segment, boosted by the launch of the Xylo. The company is expected to show a modest 7 per cent decline in net profit due to savings in raw material costs coupled with the return of operating leverage as well as non-recurrence of excess hedging-related losses.

Maruti Suzuki is likely to show a 20 per cent-plus growth in net sales due to improvement in realisation and the launch of its A-Star model. The q-o-q operating margin would expand by 230 bps, while it is expected to go down by 590 bps y-o-y. The y-o-y decline in margins is due to heavy discounting and movement in exchange rates. Higher depreciation provisions would result in a decline in net profit.

Tata Motors is expected to post a 24 per cent decline in y-o-y volume growth. But q-o-q volume growth is expected to rise sharply by 35 per cent, driven by a rise in demand for commercial and utility vehicles. However, the net profit will be impacted by a drop in other incomes, higher interest rates and higher depreciation.
 

CEMENT

Cost push in the form of energy prices and freight costs had impacted cement profitability in the last few quarters. Now prices of imported coal and pet coke have softened 60 per cent, whereas crude prices have declined 70 per cent from the peak. This should benefit Grasim, ACC and Jaiprakash Industries in the fourth quarter, according to cement analysts.

ACC is expected to post 10-17 per cent rise in net sales on a 4-7 per cent growth in dispatches. However, average realisations are expected to remain flat. The benefit of lower energy cost is likely to help improve q-o-q margin by 290 bps, though the y-o-y margin is projected to decline by 100 bps. The company could benefit from the decline in the prices of domestic coal, on which it is mostly dependent. It is also likely to benefit from fuel and freight costs, which are expected to come down by 330 bps and 160 bps as percentage of net sales.

Grasim is expected to benefit from the commencement of the new 4.5 million tonne capacity in Rajasthan. The growth in cement volume is expected to increase by 4-7 per cent, while realisations are likely to improve by 200 bps q-o-q and 560 bps y-o-y. The cement division’s operating margin is expected to improve by 70 bps q-o-q and decline by 450 bps y-o-y, says an MOSL analyst.

MOSL expects Jaiprakash Associates to benefit from the newly commissioned 2-million tonne cement capacity at Siddhi in Madhya Pradesh. The management expects to commission a 2.5 million tonne cement unit in Uttar Pradesh soon. KRC expects the company’s sales during the quarter to be driven mainly on account of an 11 per cent rise in cement production.

An Edelweiss analyst expects cement revenue of Jaiprakash to be strong with 5 per cent q-o-q realisation and 17 per cent q-o-q volume growth. The company records 50 per cent of its sales in UP, which has witnessed maximum price hike in February and March.
 

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