While macro data suggests a recovery, micro data do not
The Q4FY15 earnings season has been a wake-up call for analysts with corporate India posting its worst results in several years, a performance that is completely out of sync with what has been billed an an improving macroeconomic environment. With most companies turning out numbers way below estimates, analysts have had little choice but to downgrade earnings estimates for FY16. In November last year, the EPS forecast for the Sensex was Rs 1,903 but that number has now been cut sharply to just Rs 1,763, putting the earnings growth for this year at just 15%, and that too on a much smaller base.
Pointing out that over the past 12 months the gap between the positive top-down macro parameters and corporate earnings has widened, Barclays on Monday observed that GDP growth acceleration could be largely due to a reduction in global crude prices and, hence, does not necessarily reflect an improvement in the domestic economy.
The brokerage added that corporate stress is clearly visible in flattish IP and negative WPI.
Profits for a clutch of 1,991 companies (excluding banks and oil marketing companies) fell 24% year-on-year on the back of a 3.7% drop in revenues. While revenues have been muted due to weak demand and the lack of pricing power, softer prices of commodities have hurt the top lines of steel producers — the management at Tata Steel pointed out that the price of steel has fallen Rs 1,500 per tonne since March. Kotak Institutional Equities has trimmed its Ebitda estimates by 1-3% for FY16 and FY17. “Depressed steel prices, large exports by China and CIS continue to impact earnings,” the brokerage wrote.
While Larsen & Toubro reported a very weak set of numbers for Q4FY15, order inflows during the quarter were fairly robust; the management has guided for a 15% rise in new orders in FY16 and a sales growth of 15%. HSBC has nevertheless revised its target price downwards to Rs 1, 842 from Rs 1,900 earlier, reflecting revised earnings forecasts down 7% over FY16 and FY17.