3QFY2014 Results Preview - Angel Broking

Export sectors to aid earnings performance

During 3QFY2014, we expect an improvement in earnings growth for Sensex as well as our coverage companies as compared to the previous quarter, driven by sectors like IT & Pharma. For the Sensex companies, we expect earnings to grow by 12.3% yoy and 4.5% qoq and for our coverage companies we expect earnings growth to come in at 12.2% yoy and 9.7% qoq. Strong numbers by individual large caps like Tata Motors in the automobile space and Tata Steel in the metals space are also expected to aid earnings.

On the revenue front, we expect Sensex companies to report a growth of 14.9% yoy and 6.1% qoq. Similarly, our coverage companies are expected to post a 13.9% yoy and 5.4% qoq growth on the top-line front. We expect the performance of companies in the Oil and Gas and IT space along with Tata Motors in the automobile sector to contribute substantially to the overall revenue performance of our coverage companies.

The persistence of headwinds in cyclical sectors is expected to weigh on their margin performance during 3QFY2014 as well. As a result, we expect margin deterioration for both the Sensex as well as our coverage companies. For the Sensex companies, we expect a margin contraction of 92bp yoy and 46bp qoq and for our coverage universe we expect margins to contract by 65bp yoy and 28bp qoq.

Outlook and Valuation: We are anticipating markets to gain positively on the back of supportive global cues as well as our improving domestic economic outlook. Our external sector is more resilient now as the trade deficit has narrowed owing to the boost from export performance and moderation in import demand. We expect a revival in the economy as the investment cycle is boosted post elections owing to greater policy certainty. With these positives shaping up, we attribute a 16x multiple to our Sensex EPS and arrive at a target of 24,600 for the Sensex over the next one year.

We continue to maintain a positive bias for export-oriented sectors like IT and Pharmaceuticals, supported by the growth revival in advanced economies and the rupee depreciation on a yoy basis. We also maintain a positive view on select metal stocks, considering recent capacity additions and under-utilized capacity getting employed for exports aided by improving global fundamentals. We continue to prefer large private banks as these are likely to benefit from an imminent economic revival since they continue to remain structurally strong.

Source : Equity Bulls

Keywords