3QFY2013 earnings to show early signs of recovery - Angel Broking

Earnings to recover

For 3QFY2013, we expect Sensex companies to report an earnings growth of 11.0% yoy as compared to 5.8% yoy in 2QFY2013. Our overall coverage companies (152 companies) are expected to report earnings growth of 10.0% yoy as compared to 8.8% yoy in 2QFY2013. On a sequential basis, the earnings performance for Sensex as well as our coverage companies is likely to improve by 3.9% qoq and 3.7% qoq respectively. The growth in earnings is likely to be driven by oil and gas, BFSI and metals sector stocks.

Slowdown in revenue continues

The revenue performance is expected to remain subdued, largely echoing the slower pace of economic growth and is likely to decelerate slightly as compared to the previous quarter. We expect top-line growth for Sensex companies to come in at 10.3% yoy as compared to 11.7% yoy growth as in 2QFY2013. For our coverage universe, we expect a 10.4% yoy growth in revenue as compared to 12.1% yoy growth in 2QFY2013. The growth on the revenue front is expected to be propelled by automobile, metals and oil & gas sector stocks.

Margin pressure moderating sequentially

On a yoy basis, for Sensex companies a margin contraction of 110bp yoy is expected due to the decline in past quarters and similarly for our coverage companies we expect a contraction of 109bp yoy. But on a sequential basis margins are expected to decline only marginally by 6bp qoq for Sensex companies and 15bp qoq for our coverage companies.

Outlook and Valuation

We expect the Sensex EPS to report a 7.9% growth to `1,213 in FY2013E. In FY2014E, we expect a more robust 14.2% growth to `1,385. We arrive at our 12 month Sensex target of 22,100, with a target multiple of 16x FY2014E earnings based on the five-year average one-year forward P/E ratio. The target implies an upside of 13.8% from the present levels. Going forward, we believe that there are possibilities for further upsides arising out of improvement in the outlook for earnings growth and rollover to FY2015 earnings.

Source : Equity Bulls

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