Most companies report fall in margins during the third quarter
Ebitda growth continues to disappoint and is now back in the negative terrain. Ebitda margins at 15.4% are at eight-year low. Two-third of the companies showed a decline in margins. The broader BofAML Universe also showed a decline in sales growth. Ebitda (earnings before interest, taxes, depreciation, and amortisation) growth is marginally negative.
The headline net profit (PAT) growth for Sensex companies continued to disappoint, falling to yet another low of 0.1% (lowest since Lehman crisis). Excluding financials, aggregate PAT contracted by 5.7%. Secondly, sales growth also fell to a three-year low with margins yet again falling 140 basis points on a year-on-year basis. Thirdly, slowdown seems to be broadening as 13 of the Sensex companies and 45% of the broader Bank of America Merrill Lynch (BofAML) coverage universe companies showed a decline in profits.
Margins fell to new lows?but likely bottoming
Aggregate Sensex Ebitda margins fell 145 basis points on a y-o-y basis. This is largely led by pharma, (-430 bps y-o-y), IT (-330 bps), auto (-210 bps) & utilities (-200 bps).
However, Ebitda margins have largely been stable over last three quarters in the 15%-16% band indicating a bottom for the Ebitda margins.
Autos, metals and telecom drag growth
Autos (Tata Motors, Hero Motors), Tata Steel, and Bharti were the key contributors to the slowdown in Sensex earnings. On the other hand, banks (ICICI Bank, HDFC Bank), Reliance Industries, ITC and TCS were the key contributors to growth.
Downgrades continue; FY14 EPS vulnerable
During the result season our bottom-up Sensex EPS (earnings per share) got downgraded by 1%-2% to R1,185 and R1,395 for FY13 & FY14, respectively. While we believe the FY13 EPS downgrade is largely over, it is the FY14 EPS which may see some more downgrades (top down view of around R1,350).
Bank of America Merrill Lynch