4QFY2013 Results Preview - Pressure on earnings to continue - Angel Broking

For 4QFY2013, we expect Sensex as well as our coverage companies to report a similar 4.7% yoy decline in earnings. But on a sequential basis, the earnings performance for Sensex as well as our coverage companies is likely to improve by 6.1% and 8.0% qoq respectively.

The decline in earnings can largely be attributed to continued slippage in margins on a yoy basis. We expect Sensex companies to report a margin contraction of 173bp yoy. Similarly, for our coverage companies, we expect margin compression of 163bp yoy during the quarter. On a sequential basis though, margins are expected to improve considerably as compared to the past few quarters, ie by 289bp qoq for Sensex companies and 219bp qoq for our coverage companies.

Revenue performance is also expected to remain subdued, reflecting the slower-than-expected pick-up in economic activity. For the quarter, we expect revenue growth for Sensex companies to come in at 6.1% yoy as compared to 7.3% yoy for our coverage universe. The revenue performance is likely to be largely driven by companies in the oil and gas, IT and BFSI space.

Modest Sensex EPS growth in FY2013

We expect the Sensex EPS to post modest 5.8% growth in FY2013 with significant contribution from BFSI stocks, followed by stocks from IT and FMCG sectors. Sensex BFSI companies are estimated to post robust earnings 25.2% yoy growth, aided by strong performance of HDFC Bank and ICICI Bank. IT companies' earnings are expected to grow by a healthy 17.8% yoy, primarily aided by sharp INR depreciation and modest business growth. FMCG sector's contribution to overall growth is expected to be on account of strong earnings growth of 22.4% yoy, aided by healthy operational performance.

Outlook and Valuation

We expect Sensex EPS to grow by 14.9% to Rs. 1,366 in FY2014 and by a stronger 15.5% to Rs. 1,578 in FY2015, implying a CAGR of 15.2% over FY2013-15. We arrive at our 12 month Sensex target of 22,000, with a conservative target multiple of 14x FY2015E earnings (as against the 5-year average of 16x and 15-year average of 14.4x). Our target implies an upside of 16.8% from the present levels and is likely to be back-ended.

Source : Equity Bulls

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