The earnings season, which kicks off later this week with IT bellwether Infosys announcing its results for the March 2012 quarter on April 13 , could turn out to be a dull affair.
Analysts are anticipating Ebitda (earnings before interest, tax, depreciation and amortisation) margins to contract anywhere between 70 and 240 bps for the Sensex set of companies, given persistent cost pressures arising out of higher input and interest costs.
Morgan Stanley estimates Sensex earnings will grow at 10% y-o-y in the three months to March 2012, compared to a single-digit growth of close to 4.4% y-o-y in the December 2011 quarter.
While Tata Steel and Reliance Industries (RIL) are expected to drag down earnings, State Bank of India and Tata Motors, they believe, will turn out to be the biggest positive contributors to increase in the the Sensex earnings.
For the universe of stocks that it tracks, Morgan Stanley expects a moderate 4% y-o-y growth earnings and sees likely margin expansion in six out of 10 sectors.
According to Kotak Institutional Equities, while Sensex ( ex-energy) Ebitda margins may contract by 70 bps, that for energy and utilities sectors could see the highest contraction of the order of 620 and 190 bps, respectively. Morgan Stanley, on the other hand, believes materials and utilities will demonstrate the most margin compression of around 375 bps and 174 bps, respectively.
According to Edelweiss, the March 2012 quarter could be the fifth consecutive quarter of sub-par earnings growth. The brokerage expects earnings for the Sensex set of companies to grow, while it believes that earnings for the group of stocks that it covers (ex-oil marketing companies) would remain flat. However, the brokerage points out that much of this growth would be contributed by SBI, which could benefit from a base effect; the bank had posted negligible profits in the March quarter of 2010-2011.
Among the Sensex companies, Edelweiss expects Tata Steel and JSPL to see the most severe contraction in margins, followed by Coal India, RIL, Maruti Suzuki and BHEL. Stocks where Ebitda margins are expected to improve include the FMCG pack (ITC and Hindustan Unilever) and GAIL. Core defensive sectors, such as pharma and consumer goods, along with financials, are again expected to post a good set of results, whereas companies in the the materials, telecom and real estate spaces may report a y-o-y decline in net profits.
Amid such low expectations, analysts are hoping the earnings downgrade will bottom out. Edelweiss believes that Indian market is in the midst of a long drawn bottoming out process and expects a revival in profits in the next few quarters.
