Q4FY11 Preview - Elara Capital

Consumption holds up; margins don't

Q4 EBITDA growth driven by global cyclicals

The EBITDA growth within our coverage will be led by IT services, oil and gas, and infrastructure. For the fourth consecutive quarter, there has been a margin contraction in most of our coverage sectors except oil and gas and infrastructure. Within our coverage universe, 27.1% has been the YoY topline growth, again led by global cyclicals like IT services, oil and gas, cement and commodities (metals). EBITDA margins across our coverage have contracted by 198bps YoY. Margin contraction in agro/energy commodity exposed FMCG coverage, for example (ex of ITC which is a near monopoly in its key markets) is expected to be 46bps YoY.

FY12 consensus estimates still holding up; expect sharp cuts

While we were expecting cuts in the consensus EPS estimates since the beginning of the year, meaningful cuts have not come about in the Nifty EPS estimates (Exhibit below). Since the beginning of December last year, consensus Nifty FY12 EPS has been cut by 2.4%. FY12 estimates still bake in around 19% bottom-line growth which could have some steady downside in the months ahead.

Metals: Steel will feel the pinch of cost pressures on coking prices

Cement: High prices, volumes not enough to prevent YoY margin de-growth

FMCG: Intact volume; pressure on margins

IT: Strong growth continues; margin prognosis good for select names HCL Tech remain top pick

Oil and gas: Under recoveries of INR311bn will dog the sector

Infra: Traditionally strong Q4 comes into play

Media: Cricket viewership takes away big chunk of ad revenue for coverage spectrum

Pharma: One-offs taken out; quarter will reflect only core business

Paints: Volume growth to come off in a strong quarter; margins up on input cost pressures

Midcaps: High growth across coverage universe to drive topline

Source : Equity Bulls

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