Tata Motors to weigh on earningsperformance. We expect our coverage automobile universe excluding. Tata Motors to report a strong 16.4% yoy earnings growth. Tata Motor's performance is expected to weigh on the sector due to weak standalone performance and high base effect at JaguarLand Rover (JLR). We expect Maruti Suzuki and Mahindra and Mahindra to be the core growth drivers of our coverage universe in 3QFY2013. Maruti Suzuki is expected to register an strongbottom-line growth on account of the low base of last year and sharp revival in volumes post the Manesar strike while Mahindra and Mahindra is likely to witness a strong bottom-line growth driven by growth in volumes and improvement in realization.
Banking
Private Banks to outperform PSU peers We expect private banks to continue outperforming their PSU peers on the earnings front. Amongst our coverage private banks, we expect larger ones to report a strong performance with an earnings growth of 22.5% yoy, while small private banks can be expected to report healthy 16.1% yoy growth in earnings. Dragged by relatively higher asset quality pressures, PSU banks are likely to report a muted earnings performance. Large PSU banks are expected to report a marginal earnings growth of 1.5% yoy, while bottom-line performance of mid-sized PSU banks is expected to be moderate at 4.6% yoy.
Cement
Higher realizations to drive top-line performance We expect our cement universe to report a 13.8% yoy improvement in revenues driven by higher realization. Owing to margin pressures on account of higher costs towards raw materials, freight and power, earnings growth is expected to be modest at 8.2% yoy.
FMCG
Mixed earnings performance. We expect our coverage FMCG companies to report a mixed earnings performance. The major FMCG players HUL and ITC (the only FMCG companies in the Sensex) are expected to report subdued earnings during the quarter resulting in an overall moderate earnings growth of 11.0% yoy. On the revenue front almost all FMCG companies in our coverage are expected to clock double-digit growth. Overall, for our coverage FMCG companies we expect a healthy 15.8% yoy growth in revenues. Operating margins are expected to contract by 106bp yoy for our coverage companies mainly due to increase in raw material costs.
Infrastructure
Pain at the earnings level continues. The infrastructure sector continues to face challenges such as high interest rates, inflationary cost pressures and slowdown in order inflow. We expect slowdown in execution during 3QFY2013 to result in a moderate top-line performance for our coverage infrastructure companies. We expect our coverage infrastructure companies to report a 14.1% yoy growth in earnings. However, excluding the performance of L&T, earnings for our coverage infrastructure companies are likely to decelerate to 1.6% yoy. L&T, the only infrastructure company in the Sensex, is expected to report a robust 21.6% yoy growth in earnings since we expect its strong order book to result in healthy revenue performance.
Capital goods
Challenging environment to weigh on earnings growth. We expect our coverage capital goods companies to report a moderate cumulative top-line growth of 7.4% yoy. On the bottom-line front however we expect most of the capital goods companies in our coverage universe to post a de-growth resulting in a 1.6% yoy decline in overall earnings growth mainly due to margin pressure.
IT
Mixed earnings performance. We expect our coverage IT companies to report a mixed performance during the quarter. Overall, we expect a moderate7.9% yoy earnings growth for our coverage IT companies and we expect Sensex IT companies to report a lower 5.9% yoy growth in earnings. On a sequential basis, both coverage and Sensex IT companies are expected to report a decline in earnings. This can be mainly attributed to the impact of INR appreciation as well as moderate volume growth owing to holiday season at the client sites particularly for the major IT players.
Metals and mining
Tata Steel to drive earnings growth. Our coverage metal companies are expected to post a moderate bottom-line growth (14.4% yoy) aided by exceptional earnings growth for Tata Steel mainly due to a low base effect. ExcludingTata Steel however, earnings of our coverage metals companies are likely to contract by 5.6% yoy. Coal India, the only mining company in the Sensex is likely to report a decline in earnings as margins are expected to contract mainly due to higher staff costs and lower e-auction realization.
Oil and gas
Mixed earnings performance. Our coverage oil and gas companies are expected to post a mixed performance on the earnings front. Amongst our coverage oil & gas companies, Cairn India is expected to report a robust bottom-line performance (52.3% yoy) aided by strong revenue growth led by higher volumes.
Pharmaceuticals
Flat performance but positive outlook continues. We expect our coverage pharmaceutical companies to report a 1.6% yoy decline in bottom-line as revenue growth is likely to be muted (2.0% yoy) and margins are expected to decline (by 314bp yoy). Excluding the negative earnings performance of major players like Ranbaxy and Dr. Reddy's however, earnings growth for our coverage pharma companies remains healthy at 17.3% yoy.
Power and Telecom
Negative headwinds persist. The power sector continues to face headwinds such as fuel shortage, delay in land acquisition and environmental clearances among others while for the telecom sector policy uncertainty persists regarding one-time spectrum fee, exact payout towards spectrum renewals, spectrum re-farming and
excess charge as pan India reserve price remains undiscovered. Amongst our coverage companies, we expect power companies to report earnings growth of 22.7% yoy mainly on account of a low base effect while telecom companies are expected to post a contraction of 7.3% yoy in earnings.
Disclaimer
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisers to determine the merits and risks of such an investment.
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