Mirroring the previous two quarters, the market is expecting to witness another quarter of weak earnings season, said BofA Merrill Lynch (BofA-ML). "Reinforcing our view that earnings recovery will be slow near term, headline Sensex profit growth is expected to be a mere 0.3% on a consolidated basis. Excluding financials, aggregate profit is expected to fall by 4.4%," BofA-ML said.
Aggregate EBITDA margins for Sensex companies are expected to show a 75 bps expansion on a YoY basis. However this is completely led by oil. Ex-energy EBITDA margin is expected to decline by 65 bps, led by autos (240 bps) and metals (125 bps), it said.
Among Sensex cos, banks (HDFC Bank, Axis Bank), telecom (Bharti) are expected to lead the growth. On the other hand, metals (Tata Steel), industrials (L&T), and autos are expected to drag down growth.
BofA-ML gave its opinion how the first quarter will pan out for key sectors. The same is as follows:
Metals:
''For SAIL, realizations are likely to go down by 3% QoQ however lower coking coal and staff cost will cover the negative impact price fall. For Tata Steel, steel realizations are likely to come down by 2.5% QoQ however Operational performance is likely to improve significantly QoQ as current quarter won’t have negative currency impact as well as high iron ore cost.''
Consumer:
''We expect growth momentum for staples companies to sustain in 1Q helped by promotions and lower inflation. Jubilant FoodWorks to maintain improving trajectory of the same store sales growth (+6.5% YoY) with better margins Asian Paints can report better profitability due to favorable raw material costs.''
Financial:
''We expect earnings to be flattish at the sector level due to lower treasury income, higher provisions, absence of mark to market writebacks and finally and more importantly weak topline (NII) growth due to weak loan growth. We estimate weak topline growth yoy for all the banks on the back of tepid loan growth. We expect slippage (new NPLs) run-rate to be largely mirroring 4Q15 trends for most govt. banks.''
Industrials & Infrastructure:
''We expect a robust quarter for most mid-cap Indian Engineering & Construction (E&C) players mainly led by margin expansion led by their cost rationalization efforts and operating leverage gains driving 18.5% YoY growth. We expect L&T to witness 6.5% YoY increase in its sales, while we expect BHEL's revenues would continue to decline by 5.3% YoY.''
IT Services:
''We expect the top four vendors to report a typical seasonal uptick, with sequential revenue growth of 1.8%-4.4% ($terms). HCLT is our preferred pick for upcoming results, where stabilization of EBIT% post the drop in the previous quarter could help the stock. We expect a 140-160bp qoq decline in EBIT% for TCS and Infosys on the full quarter impact of annual wage increases and visa costs, partially offset by the 2% depreciation of INR (vs. USD).''
Oil & Gas, Petrochemicals:
''We estimate 4Q FY15 subsidy on LPG and kerosene at Rs 92 billion. 4Q subsidy is down 77% YoY from Rs 392 billion in 4Q FY14 and 43% QoQ from Rs 160 billion in 3Q FY15. We expect ONGC's 4Q FY15 recurring profit to be up 21% YoY at Rs 59.1 billion, mainly driven by zero subsidy burden vis-à-vis Rs 162 billion in 4QFY14.''
Pharma:
''We expect the sector's growth momentum to remain moderate with sales growth of 13%, EBITDA growth of 10%, and profit-after tax growth of 11% (22% ex-Sun Pharma). We expect core operating margins to consolidate at 25% odd levels with EBITDA growth of 10%.''
Real Estate:
''We expect 1QFY16 results to remain a mixed bag from financial perspective and stronger compared to 4QFY15 from operational perspective. Prestige Management has guided for Rs56bn new sales bookings in FY16, averaging ~Rs 14 billion per qtr. For Unitech, We continue to foresee tepid QoQ operational performance by Unitech in 1QFY16 as lack of launches, high debt levels continue to weigh on operational and financial performance.''
Telecom:
''We expect Indian telcos' RPM in 1Q to be impacted by the full three month impact of the interconnect rate cut. In 1Q, we estimate Idea's total minutes will grow 20% yoy, led by steady net adds. For Bharti, we estimate voice RPM will decline 2% qoq, to Rs.0.36/min, due to lower IC, and minute growth to be 7% yoy.''
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