Sensex earnings - Strong Q3 likely

After the near flat growth reported during the previous quarter, Angel Broking analyst expects third quarter earnings of India Inc will be robust, aided by the low base effect of quarter ended December 2008. Net sales of Sensex companies are likely to increase by about 23 per cent while the net profit to register a growth of about 20 per cent. Operating margins are expected to improve by about 50-60 basis points with power, metals, cement and automobiles are expected to deliver robust numbers for the third quarter.

Oil & Gas is also expected to be a key contributor despite subdued growth expected from Reliance Industries. However, FMCG, Banking, IT and Telecom are expected to be the key underperformers during 3QFY2010. The capital goods giant BHEL expected to report a 35 per cent growth in net profit while Sun Pharmaceuticals and DLF are expected to report de-growth in earnings in the third quarter. The telecom giant Bharti Airtel is expected to show a single digit growth in profit while Reliance Communication is expected to post a 59 per cent decline in net profit. Further, continued pressure on operating margins and high interest costs have also led to lower our earnings estimate for Tata Steel.

Angel Broking has down grade earnings estimates for the Sensex companies post the third quarter preview. The analyst estimate for FY2010E Sensex EPS is at Rs 820, down two per cent from earlier projected earnings. The key reason for the downgrade has been Reliance Industries as analyst have downgraded its earnings on account of weaker refining and petrochemical margins. Refining margins have been running weak during the first nine months of 2010 and are likely to remain low for next couple of quarters before witnessing a recovery.