The equity markets are not enthused by the Q1 (April-June 2010) results of India Inc. There were a lot of disappointments ? with significant gaps between the actuals and the estimates. Share prices of many heavyweight stocks were down immediately on announcement of results. Reliance Communications,Jindal Steel, Hero Honda, Bharti and DLF topped the list of Sensex companies whose results were a disappointment, Bloomberg data shows.
Reliance Communications which recently reported its Q1 results exhibited 62% surprise (on the negative front) as its actual EPS (Earnings Per Share) of Rs 1.22 for Q1 was much lower than the estimated Rs 3.25. Its share prices were down 2.7% on announcement of the results. Wireless EBITDA (Earnings Before Interest, Tax and Depreciation ) was broadly in line with expectations, global and broadband EBITDA was 19% and 8% below estimates, mentions the latest Anand Rathi report on the company. It has recommended a ‘sell’ on the stock.
Jindal Steel had a negative ?surprise? element of 36%, it was 16% for Hero Honda. SBI and Tata Motors on the other hand had a positive ?surprise? element of 56% and 173%. The ‘surprise’ element is calculated as a percentage of difference between actual and estimates EPS (Earnings per share). For instance, actual Q1 EPS of Tata motors was Rs 34.8 while the estimated EPS was only Rs 12.71.
Lower Q1 earnings does impose challenges on the future market trajectory. ?From Q2 onwards, companies will lose out on the advantage of low base effect? says Jyotivardhan Jaipuria, MD, DSP Merrill Lynch on the sidleines of a conference arranged by the company on midyear outlook. This is expected to create the challenge of growing on a higher base in addition to catching up on earnings.
Bloomberg estimates – before the start of the Q1 earnings season – was Rs 1,045 for Sensex for this fiscal. But with the earnings disappointments from many Sensex companies, the target seems a stretch. ?Our revised estimates peg Sensex EPS at 950-1000? said Jaipuria.