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Analyst Research Report Snapshot


Spark Capital: June-2013 Preview




Spark Capital Advisors(India) Private Limited


11 Jul 2013





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Our coverage universe of 124 stocks is expected to report ~5.2% yoy revenue growth, however revenue growth ex- O&G &BFSI should be lower at ~4.2% yoy with operating profits growth of 1.9% yoy (~40bps yoy contraction in margins). Currency led IT & Pharma sectors are expected to lead top line growth (15%+ yoy), while Auto, Capital Goods and Cement sectors are expected to report muted top line growth (< 5% yoy). What are our key monitorables apart from the headline performance? Automobiles – Flattish revenue trends for most OEMs driven by weak volumes, with M&M being the notable exception on the back of tractor volumes. Auto ancillary names to mirror the OEM weakness while battery makers are expected to record positive growth driven by the replacement market. Sequential margin expansion seen for Maruti, Amara Raja and Exide. Cement – Cement companies in our coverage universe expected to report muted volume growth of 2.5% y-o-y. Average realisations are expected to de-grow by 5% y-o-y on weak demand and lower utilisations. With higher cost inflation, we expect margins for all the companies to contract on a y-o-y basis. Cap Goods, Engineering and construction – Order inflow is expected to remain restrictive for most capital goods and construction companies as traction from infrastructure and industries remain muted. Margins and working capital situation are expected to be stretched due to delays in execution. Growth in consumer durables is expected to remain robust on the back of strong demand Financials – Incremental restructuring to continue to remain high, but expect pace to trend down from 4Q. Credit growth to remain muted, in line with seasonality. Treasury incomes to rise for banks with large AFS portfolios, due to fall in government bond yields during the quarter. Asset quality stresses to remain elevated for PSU banks. Consumption - Early onset of monsoon and disruption of one month sales in Maharashtra due to distributors protesting against charge of additional Local Body Tax (1% - 1.5%) should keep volume growth subdued. Inching up raw material costs and rupee depreciation to impact margins. Infrastructure/ Power – Gas based power plants to witness very low PLFs due to supply cut from Reliance’s KG D6 – negative for Torrent Power and Lanco Infratech; NHPC to witness a good quarter due to seasonality; un-remunerative PPA tariffs a negative, particularly for Adani Power; PTC India and Nava Bharat Ventures will likely benefit from a buoyant merchant market; ports and road developers will witness a flattish/ qoq dip in performance Oil & Gas – Expect 1Q Oil Under Recoveries of Rs. 273bn and 55% ($56/bbl) upstream subsidy share. Sustained high subsidies despite reduced crude prices to weigh on Upstream PSUs earnings. Fx loses and net under recoveries to entail huge loses for OMCs. Gas Utilities would continue to face weak volumes and higher costs Pharma – Implementation of the new pricing policy is expected to impact domestic businesses of all companies. Channel inventory reduction is likely to lead to muted domestic formulations growth for the quarter. The sharp qoq movement in USD:INR (59.4 vs. 54.5) will result in MTM losses for Aurobindo, Glenmark and Jubilant Life Sciences which have substantial dollar-denominated debt. IT – We expect US$ revenues growth to be in the range of 0.6% - 3.6% QoQ (mostly driven by volumes) for Tier 1 IT vendors. EBITDA margins could be flat or negative impacted by wage hikes and visa costs o...

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