View from Research Desk on February 09, 2009

Q3FY09 Results Review ; The Great Indian Growth Trick

We expected 2.2% EBITDA growth from Emkay Universe*, the actual turned out to be a decline of 10.3%. We expected EBITDA margin decline of 247bps, the actual came to be a decline of 523bps. We expected PAT to decline by 2.2%, but actual was a decline of 15%.

One more trend noticed was that large caps were better positioned than the mid cap/ small caps. e.g Emkay Large Cap showed a decline of 3.9%, while Emkay Mid Cap and Emkay Small Cap showed a decline of 42.7% and 34.4% respectively.

Interest cost increased by 61.8% YoY for Emkay Universe as compared to 54.2% of BSE 500.

PAT for Emkay Universe Companies showed a decline of 15.0% YoY as against 20.4% of BSE 500*.

Overall the trend of reducing EBITDA margins (523bps) and rising interest cost (61.8%) continues even for this quarter indicating slowdown in corporate earnings.

Post Q3 results; we have revised earnings of 51 companies (10 upwards, 41 downwards). We have also changed recommendation for 27 companies (8 upwards, 19 downwards) and changed target prices of 50 companies (7 upwards, 43 downwards).

Emkay Universe is currently trading at 7.8X FY09E and 7.9X FY10E earnings which is at a discount of 30% and 25% to consensus Sensex PE.

(Further details about results are given in 9 AM with Emkay)

 

Global Cues

US mkts rallied hard on Friday on the expectations of a stimulus package to be cleared by lawmakers Monday. US mkts are building hopes that since the unemployment data is worst in many years & non farm pay rolls have hit the worst since 1974 the stimulus package has become imperative. This $ 780bn package will be put to preliminary vote on Monday & final voting will happen on Tuesday.

Asian mkts are trading mixed with marginal gains between 0.5 to 1%. SGX is trading 15 points up.

Commodities mkts are seeing a strong up move on the back of strong PMI data from China & the Chinese govt's announcement of intentions to extend the 4 trillion Yuan package. 

 

Our Markets:

Through out the last week we witnessed a lackluster mkt moving in narrow range. However the expectations from the Obama package for revival of demand in US mkts kept our mkts in a buoyant state. While we remain apprehensive of any major benefits coming out from this package (especially we do not think this package will have any direct impact on India), still we expect the undertone in our mkts to be positive. This & the next week, we will have parliament session & news reports of changes in policy matters on direct taxes etc & another stimulus package for large scale employment supporting industry will provide strength for our mkts. We may want to go along with the trend but the broad contours of economy do not suggest any trend reversal so we remain cautious. We believe current mkts to be trader's mkts.

For today we expect our mkts to start on flat note with a positive bias. Today GDP numbers for Q1 will be confirmed. The provisional figure was a growth of 7.92%. We do not expect a variation between actual number & provisional be more than 20-30 bps. The mkts may take cues from this during the session.