Q3FY2009 earnings preview: Sharekhan Special dated January 09, 2009

 

Sharekhan Special [January 09, 2009] Sharekhan www.sharekhan.com

Summary of Contents SHAREKHAN SPECIAL Q3FY2009 earnings preview Key points The growth in the Sensex' earnings is estimated to plummet to just 0.5% in the third quarter of FY2009, after taking into account the proposed replacement of Satyam Computer Services by Sun Pharmaceuticals in the benchmark index. The Sensex' (ex-oil companies) earnings are expected to decline by 0.4% in the quarter compared with Q3FY2008—the weakest performance in the past many years.  The third quarter would witness a distinct slowdown in revenues on account of the crashing commodity prices and the broad-based slowdown in demand. The revenue growth is estimated at 6.9% for Q3FY2009. In addition to the pressure on the margins and the dwindling growth in the revenues, many companies would bear the brunt of inventory losses and foreign exchange (forex) related losses in Q3 that would further add to the pressure on their earnings. Consequently, we expect a contraction of 165 basis points in the earnings before interest, tax, depreciation and amortisation (EBITDA) margins in Q3 (Sensex ex-oil companies). This would result in a marginal growth of just 1.5% at the operating level on a cumulative basis. The quarterly earnings are likely to be dragged down by the declining earnings of sectors like cement, metals, automobiles and real estate. On the other hand, the expected 0.7% year-on-year (y-o-y) growth in the adjusted earnings of the Sensex (ex-oil companies) would mainly be achieved on the back of a relatively better performance in the banking & finance sector (earnings up 26.2%), pharmaceuticals (earnings higher by 39.3%; excluding one-time items) and power sector (a 21.3% rise in earnings).  Given the Satyam Computer Services debacle, it is advisable to invest in front-line companies led by proven and quality management, such as Bharti Airtel, HDFC and UltraTech Cement Company from the private sector, and Bharat Heavy Electricals Ltd (BHEL) and Bharat Electronics from the public sector.    Click here to read report:  Sharekhan Special