India Inc results preview Q3FY14: We expect stocks under our coverage (ex-banking / NBFCs) to report revenue growth of about 13% on a YoY basis. Among sectors, IT and Auto are expected to predominantly propel this growth driven by the near 14% rupee depreciation (average) YoY.
Within Auto, Tata Motors is expected to report high growth on the back of JLR. On the other hand, Capital Goods and Metals are expected to be a drag largely due to the lower investment activity in infrastructure and weak demand.
For banks / NBFCs, net interest income is expected to grow at 13.2% YoY, with private banks growing at 19.6% YoY while PSU banks likely to report moderate growth (10.8% YoY). Credit growth has moderated to sub-15% levels (as on December 13, 2013) on back of revival in CP/CBs market, as compared to 17-18% range reported during the months of September & October 2013. However, deposit mobilization remained strong at 16.9% YoY (as on December 13, 2013) partly aided by strong capital inflows in recent times.
We expect NIM to remain flat QoQ with some negative bias as the full impact of rise in deposit costs is likely to be reflected during current quarter. Although CD rates have moderated from the peak of July-August 2013, re-pricing of bulk deposits at higher rates is likely to pinch banks with higher dependence on wholesale funding.
Margins are expected to improve for our coverage universe (exbanking/ NBFCs)
EBIDTA margins for the sectors under our coverage are expected to be higher YoY.
Companies in Auto, IT, metals and oil sectors are expected to report improved margins YoY, whereas those Power and real Estate are expected to deteriorate. The YoY rupee depreciation should help margins in the IT and auto sectors. Higher raw material costs due to rupee depreciation, lower revenue growth, higher freight costs, etc are expected to impact margins for domestically-oriented sectors.
As far as banks are concerned, pre-provisioning profits are expected to remain flat (0.5% YoY) v/s 13.4% rise in NIIs on subdued non-interest income and higher opexfor PSU banks. Banks are likely to report weak treasury profits with marginal albeit divergent movement in bond yields - 1 Yr G sec declined ~30bps while 10 Yr G sec has gone up by ~10bps during Q3FY14. We expect fresh slippages during Q3FY14 to remain at the previous quarter levels with slightly higher fresh restructuring. PSU banks might report lower