Show-stealers and spoilers in Q2

Last Updated: Wed, Oct 09, 2013 03:29 hrs
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The September quarter is expected to be weak for India Inc, despite Sensex companies estimated to report 10 per cent growth in aggregate net profit, the highest in three quarters. Yet, there are many companies where investors could focus. Apart from index heavyweights, the markets will be looking at the performance of other large companies that make a difference, with some enjoying a dominant position in their respective industries. We look at some of these (market value of over Rs 10,000 crore) which are estimated to report strong growth or a sharp decline in profits for the quarter. Here are the top five likely show-stealers and spoilers.

Led by five per cent growth in volumes, Britannia's revenues are expected to grow 13 per cent to Rs 1,590 crore in the September quarter. Given its relatively lower exposure to the dollar (less than 20 per cent raw material), it will be less hit by rupee depreciation. The company's Ebitda (operating earnings) margin is likely to expand by 270 basis points to 7 per cent, aided by efforts to rationalise costs across operations. Motilal Oswal Securities' analysts believe there is a strong possibility of an earnings upgrade due to sustained margin expansion. Product premiumisation leading to a favourable revenue mix should ensure margin gains.

HCL Technologies
The company's revenue growth is pegged at 30.4 per cent year-on-year (14.3 per cent sequentially) to Rs 7,940 crore. Strong momentum in infrastructure management services is seen driving revenue growth for the company in the quarter. Benefits of rupee depreciation are likely to be offset by the impact of pay rises, in turn seen restricting the Ebitda margin expansion to 160 basis points (to 24.9 per cent) sequentially. The management outlook on growth in the US and software services segment will be watched closely. Also, the number of large deals bagged will be an important indication of medium-term growth.

Idea Cellular
The company is expected to post strong results, backed by 20 per cent year-on-year growth in revenues, led by higher traffic, growing subscribers and better revenue per subscriber, both in the voice and data segments. In the September quarter, data usage per subscriber is expected to increase from 473 MB to 484 MB. In July and August, it added 1.1 million subscribers. For the September quarter, the company is expected to report average revenue per user (Arpu) of Rs 164, compared to Rs 156 in the year-ago quarter. Analysts are expecting the revenue per minute to improve on account of rate increases and reduction in promotional offers. The Street believes these will lead to 76 per cent growth in earnings for the quarter.

Tech Mahindra
The firm is expected to post 32.1 per cent year-on-year (13.4 per cent sequentially) revenue growth to Rs 4,654 crore. Full quarter contribution from the Complex IT acquisition is estimated to add $3 million to revenue. The Ebitda margin is estimated to expand by about 240 basis points sequentially to 23.5 per cent due to rupee depreciation. Fall in revenue from its largest client, BT, is likely to continue. The performance of the non-BT business and its outlook will be keenly watched. Also, large deal wins at Satyam, inorganic strategy and spending budget indications from telecom and manufacturing clients are other key monitorables. Since the stock trades at 10.6 times FY14 estimated earnings, a 20 per cent discount to HCL Technologies, analysts believe there could be further gains.

United Spirits
It is expected to post 10 per cent revenue growth to Rs 2,440 crore, with volume growth of 5 per cent - its highest in the past two quarters and a boost from the premium segment. The Ebitda margin is expected to soften by 43 basis points to 11.6 per cent, due to higher employee and advertising costs. The company repaid loans worth Rs 1,600 crore in May, leading to a likely reduction of interest costs by 20 per cent to Rs 150 crore. The handsome net profit growth will also be a function of a low base in the September 2012 quarter, wherein net profit had fallen 75 per cent. The new management's strategy for growth, debt reduction plans will be watched.

Ambuja Cements
A decline in volumes and realisation per tonne are expected to have implications on the financial performance of Ambuja Cements. Volumes are estimated to be down 7-9 per cent and realisations by another 8-10 per cent to Rs 4,186 a tonne, leading to pressure on margins and lower operating profits. The operating profit per tonne is expected to drop 35 per cent to Rs 780, compared to last year's Rs 1,217. The combined impact of lower sales and operating profits is expected to impact profits, estimated to fall 32 per cent to Rs 229 crore. Peers ACC, UltraTech and Shree Cement are also expected to report a decline in profits, given the weak macro environment and strong monsoon (impacting demand) this year. Investors would be looking forward to hearing about progress of land acquisition for mining and capex with respect to its Rajasthan-based 4.5 million tonnes per annum cement plant, as well as outlook on pricing and demand, reportedly still weak.

Canara Bank
The bank is among key lenders likely to witness the highest margin hit (year-on-year) on the back of a sharp rise in wholesale rates. Further, rising government security yields could lead to a net investment loss of Rs 320 crore, estimate analysts. The bank's asset quality is seen deteriorating, with the slippage ratio rising to 4.8 per cent from three per cent in the September 2012 quarter, largely due to state electricity board accounts. Given its high exposure to infrastructure loans, the asset quality woes are unlikely to abate soon. All these, along with higher provisioning, are estimated to result in a 40 per cent year-on-year fall in net profit to Rs 397 crore.

JSW Steel
After the merger of JSW Ispat, JSW Steel is expected to report strong growth of 27 per cent in volumes. However, realisation per tonne is seen dropping to around Rs 37,800, compared to Rs 40,800 a tonne in the year-ago quarter, which is why revenue growth is pegged lower at about 20 per cent and operating profit margins are seen under pressure in the September quarter. The biggest hit could come on account of foreign debt, at around $3 billion. Analysts are expecting the company to report a mark-to-market loss of Rs 530-570 crore in this quarter. Among other things, Motilal Oswal Securities recommends keeping an eye on production expectations for FY14 and FY15, as availability of iron ore remains critical in Karnataka.

Ranbaxy Laboratories
Strong growth in its core business, particularly in the US, is seen driving revenues higher by 10-11 per cent y-o-y in the September quarter. However, this might not translate into a proportionate increase in profitability. Motilal Oswal Securities in its result preview report noted that core Ebitda is likely to grow just four per cent y-o-y, mainly due to deteriorating profitability in the base business and higher research and development and remediation costs related to the US regulator. The brokerage expects Ranbaxy's core Ebitda to decline by 220 basis points year-on-year to 10.1 per cent.

Shree Cement
Despite a marginal growth in volumes, analysts are not confident if Shree Cement will be able to report a growth in profits. A majority expect the company to report a steep decline in net profits, pointing to lower realisation, which they estimate is down nine to 10 per cent in the September quarter. Operating profit per tonne, thus, is expected to decline to Rs 884, compared to Rs 1,185 in the year ago period. That apart, while the company is expected to see higher volumes in the merchant power business at 325 million units, realisations are expected to be in the region of Rs 3.5-3.8 per unit, compared to Rs 3.97 per unit last year. Updates on capacity addition and capex plans will be crucial, apart from management's views on forward agreement for merchant power sales.

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