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Earnings Preview Q3FY20
* Our Q3FY20 estimates project aggregate growth (Ex-BFSI) of 6.5% YoY for topline (126 companies, current market cap of US$725bn), 10.3% for operating level, and 7.8% for net earnings.
* Our aggregate estimates (Ex-Energy and BFSI) show topline growth of 6.9%, 10.7% for operating level, and 7.8% for PAT, all YoY.
* The agrochemicals sector, followed by BFSI and telecom, are likely to emerge as the potential winners in the topline.
* BFSI and media are likely to lag the universe averages on PAT growth. We have projected PAT for BFSI at a higher negative number of -17.1%, after factoring a prudent front end of provisions for DHFL, in lieu of available recovery of Essar Steel. Adjusting for this anomaly, the PAT growth is likely to be about 25% YoY for bank under coverage. For media, concerns about advertising revenue will continue in Q3FY20E and Q4FY20E, given weak macroeconomic conditions, which will have more of an impact on print/radio media, as compared to broadcasters.
* The PAT for capital goods and engineering is the highest at 30.3% YoY, with our top picks guiding strong order inflows for FY20-21, driven by the government and PSU capex pipeline.
* Automobile sector is expected to be weak in Q3FY20 (-1%/-2% YoY in revenue/PAT on a low base), due to persistent weakness in retail sales, owing to weak consumer sentiments (except in October) and the planned BS-1V inventory correction, currently being undertaken by OEMs (primarily in the 2W/CV segment).
* Revenues for the telecom sector is likely to improve, driven by better realization, due to tariff hikes (full effect expected to be realized in Q4FY20). We expect a high EBIDTA of 47.5% YoY this quarter and topline growth of 14.8% YoY.
* The IT service estimates indicate topline growth of 7.3% YoY in the quarter. Revenue is expected to grow in most of the IT companies in Q3FY20, primarily due to conversion of deal wins in the past few quarters to revenues. Margin impact is estimated to be flat to positive, as we expect rupee depreciation (rupee depreciated by 1.2% for this quarter), improved utilization, and revenue growth momentum during the quarter to improve OPM sequentially.
* Our large cap universe ex-BFSI (market cap > ` 280bn) shows a revenue growth of 6.9% YoY and an operating profit growth of 9.0% YoY.
* Our mid/small cap universe ex-BFSI (market cap < ` 280bn) shows a topline growth of 5.5% YoY and operating profit growth of 15.4% YoY.
Quarterly Earnings – Macro Views
Quarterly Earnings – Sector Aggregates
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