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Sensex companies’ sales likely to hit an 18-month high; tech, pharma & metals to lead Q3 show – The Economic Times

MUMBAI: Finally, the corporate earnings cycle seems to be turning with leading brokerages holding out hope. They expect sales growth of 30 Sensex companies to touch a six-quarter high of 15.2% for the December quarter (Q3 FY14), while profits are slated to grow at 21.9% on a consolidated basis. Sectors such as technology, pharmaceuticals and metals are likely to drive earnings growth, say leading brokerages such as Merrill Lynch, Kotak Securities, Motilal Oswal and others. Sensex companies reported a robust 14.3% year-on-year growth in the September quarter (Q2 FY14) after posting 2% loss in each of the previous two quarters. However, there are some disconcerting fears that profit growth is restricted to just 5 Sensex companies, which contribute 69% to earnings profit growth for the December quarter. “The Sensex sales growth for the December quarter (Q3 FY14) is expected to touch a six quarter high of 15.2%, and profits are expected to show a strong growth of 21.9% on a consolidated basis. However, there’s huge concentration of profit growth with only five companies contributing 69% to earnings growth,” said Jyotivardhan Jaipuria, head of research at BofA-ML . Investment experts say that within Sensex’s December quarter (Q3 FY14) earnings, Tata Steel is expected to report profits from losses earlier; Bharti Airtel’s profits are expected to jump 299%; Tata Motors profits are seen rising by 89% on the back of JLR performance, TCS’ profits are expected to jump 48% due to a rise in discretionary spending, and Sun Pharma’s profits are seen growing 44% on the back of strong exports. The fall of the rupee – 14.25% depreciation – against the dollar is also likely to boost the profit of export-oriented companies in third quarter of this fiscal. “We expect sectors with exposure to overseas earnings such as technology, healthcare and metals to outperform domestic-oriented companies due to 15% depreciation of the rupee against the dollar,” said Rajat Rajgarhia, managing director and head of research at Motilal Oswal Securities. However, analysts have a word of caution: they believe that some Sensex companies, reeling under economic slowdown, could drag the index’s profits down. BHEL may report a 56% drop in profits, State Bank’s bottomline could fall by 33%, Sesa Sterlite profits may drop by 21%, Tata Power by 10%, and Coal India by 8%. Sensex’s operating margins for Q3FY14 are seen at 17%, a 135 basis point gain over last year. The metal sector is expected to report 340 basis point expansion in operating margins and autos by about 280 basis points. “Operating margins for sectors such as auto, technology, metals and oil are expected to report improved margins, whereas power and real estate are expected to deteriorate,” said Dipen Shah, head of research at Kotak Securities. Analysts say technology, consumer, private banks and media could clock their highest-ever sector profit after tax (PAT) in the December quarter. While cement is expected to post its lowest-ever December profit after tax quarter since 2006, and capital goods, its lowest-ever since 2008.
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