Analysts are expecting the September quarter to be another season of modest earnings growth as companies grapple with cost pressures and demand shows signs of slowing down. In all, the overall earnings estimates for the financial year 2011-12 is expected to be revised downwards post the earnings season, according to market experts.
After an evident impact of higher input and interest costs in the June quarter of the financial year 2011-12, analysts are expecting a further decline in the margins of Indian corporates for the quarter ending September 2011. While the topline growth is expected to show healthy growth, analysts are expecting a contraction in the operating as well as net margin in Q2FY12.
According to Nomura, September quarter earnings are expected to be largely flat with a yoy increase of 1.3% while net sales are expected to increase 20.4% yoy. Morgan Stanley also expects the results to depict a challenging quarter with margin compression across sectors.
For Sensex companies, while the topline growth is expected in the range of 12-22% according to various estimates, analysts from Macquaire and IDFC are expecting a contraction in the operating or Ebitda margins of the order of 130 to 140 basis points. As a result, analysts are expecting the Sensex earning growth to be in the range of 4-12% on a year-on-year basis, which is the lowest in two years.
Sector-wise, most analysts are expecting dismal earnings from metals, telecom, energy and real estate companies. They expect margins of the steel companies to be affected by higher coking coal prices while earnings of non ferrous producers are expected to feel negative impact of economic slow down and output price corrections. According to Kotak Securities, ore producers JSW Steel and Sesa Goa’s September quarter numbers would be impacted by the iron ore mining ban in Karnataka.
Cement and consumer goods sector, on the other hand, are expected to show an improvement in yoy earnings growth. Analyst expect strong volume growth in certain regions, decline in energy prices as well as higher realisations to cushion the earnings of cement companies.
Most analysts see Sterlite, and ICICI bank to lead the Sensex earnings growth while Tata Steel, Bharti and Maruti to act as laggards amongst the bluechips. In case of Tata steel, besides the higher input cost, weak performance of its European operations due to tepid demand is seen to impact its profitability.
While the commodity prices in general have seen a decline in the September quarter, commodity-consuming Indian corporates may not be able to show any benefit of this decline in the Q2 results due to a lag effect, feel experts.
Further the depreciating rupee?which is down 1.5% in the september quarter?is seen impacting the earnings. On one hand, exporters, namely IT companies are expecting to benefit from the weakness in rupee while those from metals and telecom space are expected to lose out, thanks to FCCB and forex losses.
Analysts expect further downgrades in the consensus Sensex EPS estimate of FY12, which is currently in the range of R1140-1130 range.