Q1FY2010 earnings preview : The adjusted earnings of the companies in the Sensex are estimated to decline by 9.7%

Q1FY2010 earnings preview

• The adjusted earnings of the companies in the Sensex are estimated to decline by 9.7% during the first quarter of FY2010. Meanwhile, the Sensex' earnings (ex-oil companies) are estimated to drop by 4.9% year on year (yoy), implying a better performance compared with the 8.8% decline seen in Q4FY2009. However, the reported earnings performance is likely to be better due to a favourable swing in currency movement during the quarter and extraordinary items.
• The expected 4.9% year-on-year (y-o-y) earnings decline in the Sensex (ex-oil companies) would mainly be achieved on the back of a relatively better performance in the capital goods sector (a 29.5% y-o-y earnings growth) and the banking & finance sector (earnings up 17.6% yoy). On the other hand, sectors such as real estate, metals and pharmaceuticals are likely to act as a major drag on the Sensex' earnings. Excluding real estate and metals, the Sensex' earnings would in fact remain flat yoy.
• Within sectors, the stocks that will comprehensively outperform their peers in terms of better Q1FY2010 results are Bharat Heavy Electricals, Axis Bank, Mahindra and Mahindra, Shree Cement, Godrej Consumer Products and Balrampur Chini. On the other hand, ICICI Bank, Tata Motors, Tata Tea, Indian Hotels Company, India Cements, Sun Pharmaceutical Industries and Glenmark Pharmaceuticals are likely to be the underperformers.
• The sales growth for the Sensex companies (ex-oil and banks) is anticipated to decline by 2.5% yoy during the quarter owing to weaker corporate and individual demand coupled with lower realisations. Importantly, in line with the continued easing of the cost pressures, the earnings before interest, tax, depreciation and amortisation (EBITDA) margins are likely to remain largely flat yoy on a cumulative basis. Consequently, the bottom line of the Sensex companies (ex-oil and banks) is estimated to report a decline of 8.2%, indicating a performance better than the ~18% drop recorded during the previous quarter.