View
232
Download
0
Category
Preview:
Citation preview
8/2/2019 Sectoral Outlook
1/55
8/2/2019 Sectoral Outlook
2/55
1
4QFY2012 Results Preview||||| April 4, 2012
Refer to important Disclosures at the end of the report
Note: Stock prices as on March 30, 2012
Table of Contents
StrategyStrategyStrategyStrategyStrategy 2-92-92-92-92-9
4QFY2012 Sectoral Outlook4QFY2012 Sectoral Outlook4QFY2012 Sectoral Outlook4QFY2012 Sectoral Outlook4QFY2012 Sectoral Outlook
Automobile 11
Banking 14
Capital Goods 19
Cement 21
FMCG 23
Infrastructure 25
Information Technology 28
Metals 31
Oil & Gas 34
Pharmaceutical 37
Power 40
Real Estate 42
Telecom 44
Stock WStock WStock WStock WStock Watchatchatchatchatch 4747474747
8/2/2019 Sectoral Outlook
3/55
Refer to important Disclosures at the end of the report 2
4QFY2012 Results Preview||||| April 4, 2012
Strategy
Macro fundamentals improving... both on the global and domestic fronts
Global crisis threats, which have plagued world markets since
2007 (first the subprime crisis and then European sovereign
debt crisis), have finally begun to recede, as evidenced by the
improving global economic environment. With improving
sentiment and substantial liquidity support in the U.S. and
European economies, we expect emerging markets such as India
to once again develop into bright prospects for capital inflows.
Indian markets have already witnessed net inflows of
~`45,000cr in the first three months of CY2012 compared to
net outflow of ~`4,000cr in CY2011. Further, domestically,
with repo rate cuts on the anvil (likely to begin in the next
few months), macro fundamentals are expected to improve
going into FY2013.
During 4QFY2012E, earnings growth of our coverage universe
(ex. SBI on account of one-off provisioning in 4QFY2011)
is expected to remain moderate at around 4.3% yoy,
as successive quarters of margin compression and high interest
continue to weigh down on profitability. Similarly, we expect
Sensex 4QFY2012E earnings to remain sudued and grow at
meager 5.8% yoy (ex. SBI). Sensex earnings growth for FY2012E
is expected to be modest at 9% yoy. However, cooling inflation
and interest rates are expected to underpin healthier growth
over FY2012-14E. We expect Sensex companies to deliver EPSgrowth of 13.4% yoy in FY2013E and 14.3% yoy in FY2014E,
translating into a reasonable 13.9% CAGR over FY2012-14E.
Earnings growth is expected to be broad-based with significant
contributions from rate-sensitive financials and auto stocks,
followed by metal, IT and oil and gas stocks. We assign a conservative
multiple of 14.5x to FY2014E earnings, resulting into a
12-month Sensex target of 20,700, which implies an upside of ~19%
from current levels.
Global crisis threats receding
Global economic markets have been experiencing turbulenttimes over the past 3-4 years and have witnessed an elongated
downturn on account of multiple financial crisis. The series of
crisis started with the subprime crisis in the U.S. and was followed
by fears of a double-dip recession in the U.S. and ongoing
European sovereign debt crisis. The magnitude of these crisis
prompted central banks all around the world to undertake a
series of quantitative easing (QE) measures. Notably, QE1 and
QE2 by the Fed from November 2008 to June 2011and then
the LTRO programs by the ECB over the last three months have
led to stimulating effects, as reflected in the overall improving
global economic outlook.Economic situation in the U.S. has improved significantly over
the past six months (credited to the soft monetary policy adopted
by the Fed), as suggested by the series of better-than-estimated
economic data and as reflected in the strong performance of
U.S. equity markets (at their four-year high). The initial jobless
claims (as of March 23, 2012) have declined sharply to 359K
from 390K registered on January 6, 2012, and from the
all-time high of 659K registered three years back (March 27,
2009). In fact, the current initial jobless claims reading is the
lowest since April 2008 and is lower by ~13% than the average
levels of 400K over the last 10 years.
Consumer confidence levels in the U.S. (71.6 in February 2012
and 70.2 in March 2012) are at their highest levels since March
2008 (barring the 72 reading recorded in February 2011),
indicating the renewed optimism about the future state ofeconomic affairs among consumers. The monthly nonfarm
payroll data, which denotes the number of jobs added or lost
in the economy (excluding government and farming-related
jobs) over the preceding month, has been in the positive territory
for the past consecutive 17 months (addition of 2,812K jobs).
Since July 2011, nonfarm payroll data has registered higher
levels compared to the forecasts for every month; this, along
with consistently lower-than-estimated jobless claims, reflects
the positive effect of the stimulation created by the Fed's
accommodative monetary policy. The Fed is expected to remain
committed to ongoing liquidity creation measures (as indicatedby a recent speech by Fed's chairperson, Ben Bernanke) to further
fuel consumer demand and business investment.
Source: Bloomberg, Angel Research
Exhibit 2: Higher-than-estimated jobs created in last 8 months
85
67.5
60
95
125
155
140
210
96
85
202
112
157
223
284
227
0
50
100
150
200
250
300
Jul -11 Aug -11 Sep -11 Oct-11 Nov-11 Dec -11 Jan -12 Feb -12
('000)
Survey Latest
Source: Bloomberg, Angel Research
Exhibit 1: Jobless claims lowest since April 2008
0
150
300
450
600
750
Jan-0
2
Dec-0
2
Nov-0
3
Oc
t-04
Sep-0
5
Aug-0
6
Jul-07
Jun-0
8
May-0
9
Apr-
10
Mar-
11
Fe
b-1
2
(`000)
8/2/2019 Sectoral Outlook
4/55
3
4QFY2012 Results Preview||||| April 4, 2012
Refer to important Disclosures at the end of the report
Capital inflows likely to be healthy
Dual concerns (global and domestic) remained an overhang
on Indian stock markets in CY2011, which led to reduced capital
inflows into Indian markets. However, with improving sentiment
and substantial liquidity support in the U.S. and European
economies, Indian markets have witnessed a sharp increase incapital inflow in the last three months. From January-March
2012, Indian markets received net FII inflows worth ~`45,000cr
as compared to net outflow of ~`4,000cr in CY2011. We expect
FII inflows to further pick up from these levels, primarily on
account of the following four reasons:
1) U.S. markets are trading at their four-year highs; and liquidity
creation through the LTRO programs, in our view, is likely to
make emerging markets such as India once again bright
prospects for capital inflows.
2) Improvement in domestic macro fundamentals is expectedto gather pace post the commencement of monetary easing,
which is expected to begin over the next couple of months.
Strategy
Source: Bloomberg, Angel Research; Note: 10-year govt. bond yields
Exhibit 3: Bond yields* off their peak levels
CountryCountryCountryCountryCountry CurrentCurrentCurrentCurrentCurrent PPPPPeakeakeakeakeak DiffDiffDiffDiffDiff CurrentCurrentCurrentCurrentCurrent PPPPPeakeakeakeakeak DiffDiffDiffDiffDiff
yieldyieldyieldyieldyield yieldyieldyieldyieldyield spreadspreadspreadspreadspread spreadspreadspreadspreadspread
Germany 1.9 3.5 1.6 - - -
Italy 5.2 7.3 2.1 3.3 5.5 2.3
Spain 5.4 6.7 1.3 3.5 4.7 1.2
Greece 19.9 37.1 17.2 18.0 35.3 17.3
Source: Bloomberg, Angel Research
Exhibit 4: Capital inflows have picked up in CY2012
(15,000)(10,000)
(5,000)
-
5,000
10,000
15,000
20,000
25,000
30,000
Jan-1
1
Fe
b-1
1
Mar-
11
Apr-
11
May-1
1
Jun-1
1
Jul-11
Aug-1
1
Sep-1
1
Oc
t-11
Nov-1
1
Dec-1
1
Jan-1
2
Fe
b-1
2
Mar-
12
( cr)`
Source: Markit, Angel Research
Exhibit 5: Manufacturing PMI index - India
57.9 57.9 58.0 57.5
55.3
53.652.6
50.4
52.051.0
54.2
57.556.6
45.0
50.0
55.0
60.0
Fe
b-1
1
Mar-
11
Apr-
11
May-1
1
Jun-1
1
Jul-11
Aug-1
1
Sep-1
1
Oc
t-11
Nov-1
1
Dec-1
1
Jan-1
2
Fe
b-1
2
Source: Markit, Angel Research
Exhibit 6: Services PMI index - India60.2
58.8 59.2
55.056.1
58.2
53.8
49.849.1
53.254.2
58.0
56.5
46.0
50.0
54.0
58.0
62.0
Fe
b-1
1
Mar-
11
Apr-
11
May-1
1
Jun-1
1
Jul-11
Aug-1
1
Sep-1
1
Oct-11
Nov-1
1
Dec-1
1
Jan-1
2
Fe
b-1
2
The recent rounds of LTRO by the ECB, motivated by the success
of QEs in the U.S., infused funds worth ~EUR1trn into the
capital-starved European banks. Euro reforms coupled with
liquidity creation are expected to encourage economic growth
in European countries. The recent success of Greek debt swap
(up to 70% hair cut), successful introduction of austerity measures
and decline in bond yields from their peaks suggest that the
worst of Eurozone crisis is behind us.
3) The slowdown in China on account of slowing consumption
and weakening export growth is expected to reduce competition
for foreign capital inflows.4) As global crisis threats recede further, global investors would
once again look to diversify their portfolios and look at emerging
markets like India for enhanced returns.
Domestic economic outlook hinged on interest rate reversal
Back home, the domestic economy has also been able to reduce
the magnitude of headwinds over the last couple of months.
Improved order book for some of the infra companies (road
and ports), increased cement dispatches and rising vehicle sales
(partly attributed to pre-budget surge) point towards an
improving economic outlook. Strong PMI data over the last fourmonths (both manufacturing and services) indicates continued
expansionary activities. The rate of growth in new businesses is
the fastest since April 2011, while confidence levels were at
their eight-month high in the latest February readings, signaling
continued improvement in demand. Going ahead, however,
we feel further improvement in domestic fundamentals is also
hinged on interest rate reversal, which we expect would begin
in the next few months.
8/2/2019 Sectoral Outlook
5/55
Refer to important Disclosures at the end of the report 4
4QFY2012 Results Preview||||| April 4, 2012
Sensex EPS expected to post a 13.9% CAGR over
FY2012-14E
We expect Sensex EPS to grow by 13.4% to `1,253 in FY2013Eand by 14.3% to `1,433 in FY2014E, implying a 13.9% CAGR
over FY2012-14E.
Meanwhile, Sensex EPS for FY2012E is expected to post modest
9.0% growth with significant contribution from BFSI stocks,
followed by stocks from IT, auto and oil and gas sectors. Of the
total growth in Sensex EPS in FY2012E over FY2011, BFSI stocks
are expected to contribute 47.6%, while IT, auto and oil and
gas companies are expected to contribute 23.1%, 16.6% and
16.2%, respectively. Without these contributions, Sensex EPS
growth would have been negative in FY2012E. BFSI companiesare estimated to post strong yoy profit growth on account of
healthy NIM expansions. While earnings of IT companies (mainly
Infosys and TCS) are expected to grow on account of sharp INR
depreciation and strong business growth, the auto sector's
contribution to overall growth is expected to be on account of
strong show by Tata Motors despite significant earnings decline
expected in Maruti Suzuki.
On the other hand, metals, telecom, power and real estate
stocks are expected to drag Sensex EPS growth. Metal stocks
are estimated to pull down Sensex EPS growth by 17.3%, mainlyon account of a 46.7% yoy earnings decline expected in
Tata Steel due to higher input cost as well as global demand
slowdown affecting overseas operations. Telecom companies
are also expected to drag down Sensex EPS growth by 7.1% on
the back of higher amortization expenses due to 3G services
rollout as well as impact of INR depreciation on interest costs of
foreign borrowings.
Inflation environment should aid monetary easing
commencement
In February 2012, inflation levels moderated substantially to6.95% (down ~250bp) compared to the preceding three months
and are in-line with the RBI's year-end inflation projections. Food
inflation for February 2012 climbed back to 6.1% yoy from
negative 0.5% yoy for January 2012; however, the sharp yoy
jump can be attributed to the low base effect (decline of 5.8%
mom in food inflation in February 2011). Also, for February
2012, annualized mom food inflation levels stood at 5.6%, lower
than the six-month annualized figure of 7.1%. Manufacturing
inflation in February eased further to 5.7% yoy (lowest levels in
over a year) from 6.5% yoy levels in January 2012. Annualized
mom growth in the manufacturing index stood at 4.2% and
even the six-month annualized figure was at low 4.6% levels.
More importantly, core inflation, which the RBI tracks closely
for its monetary policy decisions, eased further to 5.5% levels.
Strategy
Source: EAIndustry, Angel Research
Exhibit 7: WPI levels have moderated significantly
0.0
4.0
8.0
12.0
16.0
20.0
Feb -11 Apr-11 Jun-11 Aug-11 Oct-11 Dec -11 Feb -12
WPI Primary Articles Fuel & Power
(%)
Source: Angel Research
Exhibit 8: Sectoral contribution to Sensex EPS growth in FY12E
(17.3)(7.1) (1.8) (0.3)
16.67.5
47.611.1
23.1
16.2 4.4100.0
(26.5)
(6.5)
13.5
33.5
53.5
73.5
93.5
113.5
133.5
Metals
Telecom
Power
Rea
lE
state
Auto
Engg
.
Finance
FMCG I
T
Oil
&Gas
Pharma
Total
In FY2013E, when Sensex EPS is expected to grow by 13.4%,
the BFSI sector again would be the largest contributor to its
growth with 38.2% of the overall increase. Other sectors, which
are also expected to contribute reasonably well, are auto and
IT. Ex. BFSI stocks' contribution, Sensex EPS growth would have
The marked decline in manufacturing inflation levels over the
past three months (~240bp) has been visible post the dip in
primary inflation, as a large part of pass-through of primary
inflation is, in our view, already done with. Going ahead,
sustained lower food inflation levels are likely to lead to lower
wage inflation, which in turn are likely to translate into furthereasing of manufacturing inflation levels.
Hence, in our view, the overall inflation environment should
aid monetary easing commencement; and we expect the RBI to
begin with more decisive signaling through repo rate cuts in
the next few months.
The consequent reduction in interest rates should end the spell
of margin compression, which has afflicted corporate earnings
in the past several quarters. We are factoring in ~100bp
reduction in interest rates over FY2013 (inflation levels expected
to be lower by 150bp) and expect the reduction in interestservicing costs to have a pronounced positive effect on FY2013
earnings, especially for capital-intensive sectors, which have
been battered by elevated interest burden for quite a while now.
8/2/2019 Sectoral Outlook
6/55
5
4QFY2012 Results Preview||||| April 4, 2012
Refer to important Disclosures at the end of the report
Strategy
been much lower at 6.4%. The BFSI sector's growth is expected
to be primarily on account of strong performances by all
companies, owing to stable margins and improving asset quality,implying lower provisioning and, therefore, higher profits.
Auto and IT companies are expected to contribute 13.6% and
13.4%, respectively, to total Sensex EPS growth in FY2013E.
The auto sector's contribution to overall growth is expected to
be on account of strong show by Maruti Suzuki, which had
been grappled with production troubles in FY2012E. Growth
in the profits of IT companies is expected due to decent business
growth as CY2012 IT budget is expected to be flat to marginally
positive. Even among them, Wipro is expected to fare much
better, as it is expected to reap benefits of restructuring exercise
done in FY2012, depicting the low base effect. Metals andFMCG companies are also expected to contribute to Sensex
EPS growth by 9.5% and 7.7%, respectively. Notably, none of
the sectors is expected to contribute negatively to Sensex EPS
growth in FY2013E.
Source: Angel Research
Exhibit 9: Sectoral contribution to Sensex EPS growth in FY13E
13.61.0
38.27.7
13.5
9.53.9 2.0 3.2
0.46.9 100.0
-
20.0
40.0
60.0
80.0
100.0
Au
to
Engg
.
Fin
ance
FMCG I
T
Me
tals
Oil
&G
as
Ph
arma
Power
Rea
lE
sta
te
Tele
com
Tota
l
In FY2014E, we expect Sensex EPS to grow by 14.3%, with BFSI
stocks continuing to dominate Sensex EPS growth, contributing
34.9%. Other sectors that are expected to contribute significantly
to EPS growth are metal and oil and gas. Metal companies are
expected to contribute a higher 14.4% of the increase in EPS onthe back of strong performance by Tata Steel and JSPL.
Both these companies would start getting additional profits in
FY2014E from their new capacities coming on stream around
that time. Oil and gas companies are expected to contribute
12.8% to Sensex EPS growth due to 11% earnings growth
expected in index heavyweight, Reliance Industries. Again, none
of the sectors is expected to report a decline in earnings.
Source: Angel Research
Exhibit 10: Sectoral contribution to Sensex EPS growth in FY14E
9.8 2.9
34.9
6.3
10.9
14.4
12.8 1.3 1.5 1.53.7 100.0
-
20.0
40.0
60.0
80.0
100.0
Au
to
Engg
.
Fin
ance
FMCG IT
Me
tals
Oil
&G
as
Ph
arma
Power
Rea
lE
sta
te
Tele
com
Tota
l
Expect Sensex to reach 20,700 by March 2013
We remain optimistic on the long-term prospects of the Indiangrowth story due to benefits of demographic dividend,
a primarily domestic consumption-driven economy, its relative
better positioning globally, reasonable earnings growth
trajectory and attractive valuations vis--vis India's structurally
positive outlook. Global crisis threats, which have plagued world
markets since 2007 (first the subprime crisis and then European
sovereign debt crisis), have finally begin to recede, as evidenced
by the improving global economic environment. With improving
sentiment (driven by accommodative monetary policies) and
substantial liquidity support in the U.S. and European economies,
we expect emerging markets such as India to once again develop
into bright prospects for capital inflows. Further, domestically,
with repo rate cuts on the anvil (likely to begin in the next few
months), macro fundamentals are expected to improve going
into FY2013.
Rate-sensitive sectors, which have been facing the brunt of high
interest servicing costs for quite some time now, are expected to
take the driver's seat from the defensives and drive the earnings
growth over FY2012-14E. Within rate-sensitive sectors,
we continue to like financials, infra and auto, which are likely
to benefit the most from the expected reduction in interest rates.Within export-oriented sectors, we continue to like stocks in the
pharma space. We maintain our 12-month Sensex target of
20,700, assigning a conservative multiple of 14.5x (vs. 5-year
range of 13.8-19.1x and average of 16.9x and 10-year range
of 10.8-17.9x and average of 14.3x) FY2014E earnings.
Our target implies an upside of ~19% from current levels, which
is likely to be back-ended.
8/2/2019 Sectoral Outlook
7/55
Refer to important Disclosures at the end of the report 6
4QFY2012 Results Preview||||| April 4, 2012
Sensex 4QFY2012E earnings to grow 10.9% yoy
Sensex companies are expected to report healthy top-line growth
of 15.5% yoy during the quarter. Operating margins are
expected to contract by 285bp on a yoy basis to 18.3%
(ex. Financials). However, on a sequential basis, margin
compression, which has affected profitability in the last few
quarters, is expected to moderate, with a minimal expected dip
of 25bp. Net profit margin is expected to come in at 11.8% (ex.
SBI), up by 100bp on a qoq basis. Overall, we expect Sensex
4QFY2012E earnings to grow by 13.6% yoy, aided mainly by
SBI (one-off provisioning item in 4QFY2011), despite being
dragged by an earnings decline of 14.8% yoy expected in oil
and gas stocks on account of margin contraction of 652bp yoy.Ex. SBI, Sensex earnings growth is expected to be much lower
at 5.8% yoy. Ex. SBI and oil and gas stocks, Sensex earnings
growth is expected to be 10.9% yoy.
Sensex net profit growth of 13.6% in 4QFY2012E is
primarily aided by strong bottom-line numbers expected
from BFSI, IT and auto companies. Ex. BFSI, auto and
IT companies' contribution, Sensex' yoy net profit growth is
expected to be in the negative territory. Sensex' top-line
growth is likely to be dominated by auto and oil and gas
stocks, accounting for combined top-line growth of ~57%.
Sensex IT companies are expected to report strong 27.0%
yoy sales growth on account of modest volume growth
emanating from decent budget flush from clients and yoy
INR depreciation. Profitability of companies such as Infosys,
TCS and Wipro is expected to rebound by healthy 27.1%,
24.0% and 10.6% yoy, respectively, aided mainly by yoy
INR depreciation.
Sensex pharmaceutical companies are expected to buck the
trend of margin compression, with a strong 896bp yoy OPM
expansion on the back of 11.4% yoy top-line growth, partlyaided by the yoy depreciation of the INR vs. USD.
Bottom-line growth is expected to be strong at 60.9% yoy.
We expect Sensex BFSI companies ex. SBI (as SBI had
one-off item in 4QFY2011 pertaining to provisioning
expenses) to post healthy 19.6% yoy bottom-line growth on
the back of stable to improving margins and healthy
performance of private banks.
While oil and gas stocks are expected to contribute a sizeable
23% to the top-line growth of the Sensex, operating margins
are expected to decline rather steeply by 652bp. ONGC isexpected to face higher subsidy burden in 4QY2012E, which
Source: Blommberg, Company, Angel Research
Exhibit 12: Sensex one-year forward P/E
6.0
9.0
12.0
15.0
18.0
21.0
24.0
27.0
S en sex 1 y ear forward P/ E 15 y ear Avg 5 y ear Avg
Mar-
97
Dec-9
7
Sep-9
8
Jun-9
9
Mar-
00
Dec-0
0
Sep-0
1
Jun-9
9
Mar-
03
Dec-0
3
Sep-0
4
Jnl-05
Mar-
06
Dec-0
6
Sep-0
7
Jun-0
8
Mar-
09
Dec-0
9
Sep-1
0
Jul-11
Mar-
12
Source: Bloomberg, Company, Angel Research
Exhibit 13: Earnings yield vs. bond yield
3.0
5.0
7.0
9.0
11.0
13.0
Earni ngs Yie ld 1 0Yr G- Se c Yie ld
Mar-
00
Sep-0
0
Mar-
01
Sep-0
1
Mar-
02
Sep-0
2
Mar-
03
Sep-0
3
Mar-
04
Sep-0
4
Mar-
05
Sep-0
5
Mar-
06
Sep-0
6
Mar-
07
Sep-0
7
Mar-
08
Sep-0
8
Mar-
09
Sep-0
9
Mar-
10
Sep-1
0
Mar-
11
Sep-1
1
Mar-
12
Source: Angel Research
Exhibit 11: Sensex EPS estimates
1,014
1,105
1,253
1,433
300
500
700
900
1,100
1,300
1,500
FY2011 FY2012E FY2013E FY2014E
(`)
9.0%growt
h 13.4% growth
14.3% gr
owth
Strategy
8/2/2019 Sectoral Outlook
8/55
7
4QFY2012 Results Preview||||| April 4, 2012
Refer to important Disclosures at the end of the report
Strategy
is expected to result in a 5.6% and 5.0% decline in the top
line and bottom line, respectively. Although GAIL is expected
to report 20.3% yoy top-line growth on account of highergas prices, its bottom-line growth is expected to come
in at 1.9% on account of 260bp margin compression.
For RIL, we expect healthy 16.5% yoy top-line growth on the
back of rise in prices of petrochemical products. However,
due to margin compression, the bottom line is expected to
decline by 22.3% yoy.
Sensex' auto companies are also expected to contribute
significant 34% to Sensex' top-line growth. Strong revenue
growth is mainly on account of healthy volume growth, price
increases and favorable currency impact primarily on the
JLR front. Operating margins are expected to remain stable
on account of easing raw-material prices. Overall,
for Sensex auto companies, we expect revenue growth of
31% yoy and net profit growth of 27.1% yoy.
We expect Sensex FMCG companies to post decent 15.7%
yoy growth in sales, aided by modest volume growth coupled
with price hikes taken by companies. Margins are expected
to improve by ~255bp yoy. Bottom-line growth for Sensex
FMCG companies is expected to be healthy at 23.3% yoy.
From the capital goods pack, BHEL is expected to witness
14.0% yoy top-line growth. PAT margin is estimated to
fall by 60bp yoy, resulting in decent bottom-line growthof 9.2% yoy.
Sensex metal companies are expected to witness overall
muted sales growth of 1.9% yoy due to modest top-line
performance of steel companies on account of flat yoy
realization and the expected decline in the top-line of
nonferrous metal companies owing to lower LME prices.
Margins are expected to decline by 470bp yoy due to higher
input costs. Overall, we expect flat profit growth for Sensex
metal companies. For Coal India, we expect a sharp 5.9%
yoy decline in net profit mainly on account of higher staff
costs provisions.
The telecom sector is expected to witness strong sales growth
of 20.4% yoy mainly on account of strong growth in Africa
business and decent Indian subscriber growth. Operating
profit of the sector is expected to grow by modest 10.9%
yoy, impacted by increased operational charges. Net profit,
however, is expected to decline by 22.2% yoy on account of
higher amortization expenses due to 3G services rollout as
well as impact of INR depreciation on interest costs of foreign
borrowings.
Net Sales (Net Sales (Net Sales (Net Sales (Net Sales (````` cr)cr)cr)cr)cr) Adj. Net PAdj. Net PAdj. Net PAdj. Net PAdj. Net Profit (rofit (rofit (rofit (rofit (````` cr)cr)cr)cr)cr)
CompanyCompanyCompanyCompanyCompany WWWWWeightage (%)eightage (%)eightage (%)eightage (%)eightage (%) 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg
Finance 24.6 27,418 22,774 20.4 7,986 3,730 114.1
IT 16.1 32,662 25,710 27.0 6,784 5,574 21.7
Oil & Gas 14.5 109,896 96,964 13.3 7,626 8,950 (14.8)
FMCG 11.5 12,421 10,736 15.7 2,179 1,767 23.3
Auto 9.9 80,782 61,663 31.0 6,232 4,904 27.1
Engineering 6.4 39,898 33,765 18.2 4,916 4,484 9.6
Metals 6.1 55,443 54,432 1.9 5,564 5,557 0.1
Telecom 3.1 18,973 15,756 20.4 1,090 1,401 (22.2)
Power 3.0 18,645 20,505 (9.1) 3,281 3,409 (3.8)
Pharma 2.7 3,431 3,079 11.4 1,057 657 60.9
Mining 1.5 17,672 15,089 17.1 3,958 4,207 (5.9)
Real Estate 0.6 2,382 2,683 (11.2) 446 345 29.4
SensexSensexSensexSensexSensex 100.0100.0100.0100.0100.0 419,622419,622419,622419,622419,622 363,155363,155363,155363,155363,155 15.515.515.515.515.5 51,11951,11951,11951,11951,119 44,98444,98444,98444,98444,984 13.613.613.613.613.6
Sensex #Sensex #Sensex #Sensex #Sensex # 16.016.016.016.016.0 16.816.816.816.816.8
Exhibit 14: Sensex earnings summary
Source: Company, Angel Research; Note: #On free-float adjusted basis
8/2/2019 Sectoral Outlook
9/55
Refer to important Disclosures at the end of the report 8
4QFY2012 Results Preview||||| April 4, 2012
Net Sales (Net Sales (Net Sales (Net Sales (Net Sales (````` cr)cr)cr)cr)cr) Adj. Net PAdj. Net PAdj. Net PAdj. Net PAdj. Net Profit (rofit (rofit (rofit (rofit (````` cr)cr)cr)cr)cr)
CompanyCompanyCompanyCompanyCompany 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg
Auto & Auto Ancillary 100,578 76,546 31.4 7,431 6,157 20.7
Capital Goods 31,719 28,595 10.9 3,558 3,447 3.2Cement 14,519 12,264 18.4 1,682 1,702 (1.2)
Construction 33,797 30,748 9.9 2,455 2,523 (2.7)
Financials 69,804 61,777 13.0 19,485 13,856 40.6
FMCG 25,008 21,343 16.8 3,471 2,752 25.7
IT 44,842 35,612 25.9 8,344 6,867 21.5
Metals & Mining 99,566 97,279 2.4 14,545 16,878 (13.8)
Oil & Gas 113,333 100,619 12.6 9,889 11,408 (13.3)
Pharmaceutical 18,075 13,686 32.1 3,975 2,242 77.3
Power 17,863 16,675 7.1 2,916 2,975 (2.0)
Real Estate 3,160 3,270 (3.4) 698 573 21.9
Telecom 29,098 24,920 16.8 1,433 1,832 (21.7)
Angel UniverseAngel UniverseAngel UniverseAngel UniverseAngel Universe 601,363601,363601,363601,363601,363 523,332523,332523,332523,332523,332 14.914.914.914.914.9 79,88379,88379,88379,88379,883 73,21073,21073,21073,21073,210 9.19.19.19.19.1
Exhibit 15: Angel universe estimates summary
Source: Company, Angel Research; Note: Only for coverage stocks for which quarterly results are estimated
Earnings growth of our coverage to moderate in 4QFY12E
Earnings growth trajectory of our coverage universe is expected
to moderate in 4QFY2012 as well, as higher input costs andinterest rates continue to affect margins and the overall
profitability of corporates. For our coverage universe as a whole
(ex. SBI due to one-off provisioning expenses in 4QFY2011),
we expect yoy top-line growth to remain reasonable at close to
15% levels. However, the compression in OPM and higher
interest costs are likely to restrict operating profit and net profit
growth to just ~4.3% yoy each.
For our financials coverage universe, private banks are
expected to continue to outperform public sector banks and
drive earnings growth in the sector. Overall, we expect large
private banks to post 18.5% yoy growth in net interest
income, while PSU banks are expected to register 19.4%yoy growth (9.8% yoy ex. SBI). While large private banks are
expected to report healthy 20.7% yoy growth on the net profit
front, PSU banks are likely to post relatively lower 13.4% yoy
growth (ex. SBI) due to higher provisioning expenses.
For 4QFY2012E, we expect our FMCG coverage universe
to register healthy ~16.8% yoy top-line growth, backed by
modest volume growth and price hikes. OPMs are expected
to expand by 152bp on the back of superior product mix and
cut in A&P costs, which would result in healthy 26.4% yoy growth
in operating profit and 25.7% yoy growth in net profit.
IT companies are expected to report healthy top-line growthof 25.9% yoy on account of INR depreciation vs. the USD
and modest volume growth, considering moderate demand
for IT solutions. Operating margins are expected to remain
flat due to increased employee cost on a yoy basis,
as pent-up demand in 1HFY2012 forced companies to hike
salaries. Overall, IT companies under our coverage are
expected to report earnings growth of ~22% yoy.
For our automobile coverage universe, we expect strong revenuegrowth of 31.4% yoy, driven by volume growth and pricing action.
A large portion of this jump is expected to be on account of
Tata Motors, which continues to record strong performance on
the JLR front. Operating margins are likely to remain flat, led by
stable commodity prices. Overall, we expect earnings of our
our automobile coverage universe to grow by 20.7% yoy.
Pharma companies under our coverage universe are expected
to register steep ~77.3% yoy earnings growth (ex. Ranbaxy
29.2% yoy), mainly on account of strong top-line growth of
32.1% yoy coupled with significant improvement in margins by
around 876bp.
In the metals pack, we expect the top line of steel companies
under our coverage to report modest performance on
account of flat realizations on a yoy basis. Further, due to
relatively higher raw-material costs, margins of steel
companies are likely to contract by 295-708bp yoy.
For nonferrous metal companies, we expect margin
compression (165-1,558bp yoy) on account of declining LME
prices and higher coal cost.
Moreover, sectors like capital goods, construction and cement
are likely to continue facing the brunt of higher interest costs
in 4QFY2012E as well. For our capital goods universe,
we expect moderate 3.2% yoy bottom-line growth; while forinfra and cement companies, we expect a 2.7% and 1.2%
yoy decline in net profit, respectively. However, with interest
rates projected to have a downward trajectory over
FY2012-14E, we expect these sectors to report improved
performance going ahead.
Strategy
8/2/2019 Sectoral Outlook
10/55
9
4QFY2012 Results Preview||||| April 4, 2012
Refer to important Disclosures at the end of the report
Strategy
Net Sales (Net Sales (Net Sales (Net Sales (Net Sales (````` cr)cr)cr)cr)cr) Adj.Adj.Adj.Adj.Adj.Net PNet PNet PNet PNet Profit (rofit (rofit (rofit (rofit (````` cr)cr)cr)cr)cr) WWWWWeightageeightageeightageeightageeightage % Contribution% Contribution% Contribution% Contribution% Contribution
CompanyCompanyCompanyCompanyCompany 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg 4QFY2012E4QFY2012E4QFY2012E4QFY2012E4QFY2012E 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg (%)(%)(%)(%)(%) to Sensex growthto Sensex growthto Sensex growthto Sensex growthto Sensex growth#####
Bajaj Auto 4,721 4,052 16.5 815 676 20.7 1.7 1.9
Bharti Airtel 18,973 15,756 20.4 1,090 1,401 (22.2) 3.1 (2.9)
BHEL 20,954 18,380 14.0 3,054 2,798 9.2 1.5 2.4
Cipla 1,690 1,615 4.6 282 214 31.8 1.1 1.2
Coal India 17,672 15,089 17.1 3,958 4,207 (5.9) 1.5 (0.7)
DLF 2,382 2,683 (11.2) 446 345 29.4 0.6 0.7
Gail India 10,697 8,894 20.3 798 783 1.9 1.3 0.2
HDFC 1,867 1,655 12.8 1,267 1,142 11.0 6.8 3.4
HDFC Bank 4,727 4,095 15.4 1,451 1,115 30.2 6.7 7.2
Hero Honda 5,984 5,351 11.8 658 502 31.1 1.4 2.1
Hindalco 6,680 6,761 (1.2) 516 708 (27.1) 1.2 (3.6)
HUL 5,737 4,899 17.1 640 486 31.7 3.0 2.1
ICICI Bank 4,875 4,150 17.5 1,719 1,452 18.3 7.0 7.2
Infosys 9,100 7,250 25.5 2,310 1,818 27.1 9.6 11.3
ITC 6,684 5,836 14.5 1,539 1,281 20.1 8.5 4.9
Jindal Steel & Power 4,414 3,848 14.7 994 1,002 (0.7) 1.6 (0.1)
L&T 18,945 15,384 23.1 1,862 1,686 10.4 4.9 4.3
M&M 8,046 6,682 20.4 611 607 0.7 2.2 0.1
Maruti Suzuki 11,843 9,864 20.1 503 660 (23.8) 1.3 (2.1)
NTPC 16,468 15,519 6.1 2,711 2,782 (2.5) 1.8 (0.4)
ONGC 14,530 15,396 (5.6) 2,652 2,791 (5.0) 3.9 (0.9)
RIL 84,669 72,674 16.5 4,177 5,376 (22.3) 9.2 (17.8)
SBI 15,948 12,874 23.9 3,549 21 NA 4.1 42.7
Sterlite 10,912 10,000 9.1 1,311 1,951 (32.8) 1.2 (7.8)
Sun Pharma 1,741 1,463 19.0 775 443 75.0 1.6 3.6
Tata Motors 50,188 35,715 40.5 3,645 2,460 48.2 3.3 20.7
Tata Power 2,177 4,986 (56.3) 570 627 (9.1) 1.2 (1.1)
Tata Steel 33,437 33,823 (1.1) 2,743 1,896 44.7 2.2 16.0
TCS 13,438 10,158 32.3 2,952 2,381 24.0 4.7 4.6
Wipro 10,125 8,302 21.9 1,522 1,375 10.6 1.9 1.0
TTTTTotalotalotalotalotal 419,622419,622419,622419,622419,622 363,155363,155363,155363,155363,155 15.515.515.515.515.5 51,11951,11951,11951,11951,119 44,98444,98444,98444,98444,984 13.613.613.613.613.6 100.0100.0100.0100.0100.0 100.0100.0100.0100.0100.0
SensexSensexSensexSensexSensex##### 16.016.016.016.016.0 16.816.816.816.816.8
Exhibit 16: Earnings estimates for Sensex companies
Source: Angel Research; Note: #based on free-float weightages
8/2/2019 Sectoral Outlook
11/55
Refer to important Disclosures at the end of the report 10
4QFY2012 Results Preview||||| April 4, 2012
4QFY2012 Sectoral Outlook
8/2/2019 Sectoral Outlook
12/55
11
4QFY2012 Results Preview||||| April 4, 2012
Refer to important Disclosures at the end of the report
Automobile
Strong demand for LCVs driving CV sales
The CV segment sustained its strong growth momentum,
registering 18.6% yoy growth YTD in FY2012, led by impressive
26.9% yoy growth in the LCV segment. Demand for LCVs
continued to be driven by growth in the agriculture sector,
preference for low payload vehicles and structural factors suchas proliferation of the hub and spoke model and new launches.
The M&HCV segment, however, witnessed 9.2% yoy growth as
slowdown in industrial activity and higher financing rates
impacted demand. Going ahead, we expect the LCV segment
to sustain its strong performance and post a CAGR of 16-18%
over the next two years.
During 4QFY2012, TTMT is likely to report robust ~41% yoy
growth in net sales, led by strong volume growth on the domestic
and JLR (driven byEvoque) fronts, along with favorable currency
movement (primarily at JLR). As a result, adjusted net profit is
likely to report impressive ~38% yoy growth. We expect AL topost strong ~19% yoy growth in volumes; however, higher
contribution of Dost in total volumes is likely to impact net
For 4QFY2012, we expect our auto universe to witness robust
revenue growth of ~30% yoy (~13% qoq), led by healthy volume
growth of ~10% yoy (~3% qoq) coupled with price increases
and favorable currency movement (primarily on the JLR front).
We expect EBITDA margin of our universe to marginally expand
by 40bp yoy (flat qoq) to ~13%, led by stable raw-material
prices and better product mix. As a result, adjusted net profit
(excluding forex loss) is likely to register strong ~25% yoy (~10%
qoq) growth. Amongst automobile companies, Tata Motors
(TTMT) is expected to report a robust set of results, benefitting
from sustained volume momentum at Jaguar Land Rover (JLR)
in recent months. However, Maruti Suzuki (MSIL) and Ashok
Leyland (AL) are expected to report poor performance mainly
on account of margin pressures.
The domestic automotive industry witnessed healthy volume
growth YTD in FY2012, registering 12.5% yoy growth despite
dual concerns of economic slowdown and high interest rates.
Volume growth, however, remained mixed and has been driven
by strong 26.9% yoy growth in the light commercial vehicle
(LCV) segment and healthy 14.8% and 12.8% yoy growth in
the two-wheeler (2W) and utility vehicle (UV) segments,
respectively. The passenger car (PC) segment, on the other hand,
remained the most affected and reported flat growth during
the period. During 4QFY2012, while TTMT and MSIL reported
better-than-expected volume performance, TVS Motor (TVSL)and Mahindra and Mahindra (MM, mainly on the tractors front)
reported lower-than-expected volume growth. Going ahead,
in FY2013, we expect interest rates to ease, leading to revival
in demand in the passenger vehicle (PV) and commercial vehicle
(CV) segments; however, volume growth in the 2W and tractor
segments is likely to be muted, led by high base effect and
slowdown in rural demand. In the long run though, volume
outlook across all the segments is expected to be positive, aided
by rising income levels, easy availability of finance, new product
launches and improved outlook for exports.
Union Budget 2012-13 - Marginally negative
Union Budget 2012-13 was marginally negative for the
automobile sector, as general excise duty was raised by 2%
across all product categories. Additionally, excise duty has been
rationalized to ad-valorem from ad-valorem and fixed rate for
large PV and CV chassis. Following the budget announcements,
most of the companies have announced price hikes to pass on
the burden. Hence, we do not expect any significant impact of
the budget announcement on earnings; however, due to
increased cost of ownership for consumers, there could be delay
in demand recovery for four-wheelers (4W) in our view. Further,absence of any additional excise duty on diesel vehicles is a big
positive for MM and MSIL.
Auto index outperforms the Sensex
The BSE Auto Index gained 24.5% in 4QFY2012 as against
12.6% gains recorded by the Sensex, thereby posting a strongoutperformance of 11.8% during the quarter. The
outperformance was led by index heavyweights, TTMT and MSIL;
however, MM, BJAUT and HMCL underperformed the index on
concerns relating to demand slowdown in the tractors and 2W
segments. While TTMT benefitted from strong JLR volume growth
and blockbuster 3QFY2012 results, MSIL's performance was
boosted by restoration of operations at Manesar plant and
availability of additional diesel engines from Fiat. Further, higher
discounts and fears of increase in excise duty in Union Budget
2012-13 led to pre-buying by customers, thereby supporting
overall volume growth. Further, Apollo Tyres (APTY) and Exide
Industries (EXID) also posted sharp gains during the quarter,
led by a decline in raw-material (natural rubber and lead) prices.
Source: Bloomberg, Angel Research
Exhibit 1: 4QFY2012 - Stock price performance
34.7
33.2
5.3
27.7
42.4
41.7
7.9
2.0
46.6
54.5
10.38.7
(19.1)
3.2
17.9
17.3(16.6)
(22.4)
22.2
30.1
(30.0) (20.0) (10.0) 0.0 10.0 20.0 30.0 40.0 50.0 60.0
Apollo Tyres
Ashok Leyland
Bajaj Auto
Bharat Forge
Cummins India
Exide Industries
Hero MotoCorp
M&M
Maruti Suzuki
Tata Motors
Relative to Auto index (%) Absolute
8/2/2019 Sectoral Outlook
13/55
Refer to important Disclosures at the end of the report 12
4QFY2012 Results Preview||||| April 4, 2012
Automobile
Pre-budget buying and high discounts boost PV sales
The PV industry, which witnessed challenging times during
9MFY2012 owing to multiple headwinds in the form of higher
interest rates, persistent inflation, fuel price hikes and labor issues
at MSIL, registered better-than-expected growth in 4QFY2012.
The better-than-expected performance recorded by the PV
industry in 4QFY2012 in spite of various adverse economic
factors can be attributed to pre-budget buying by consumers inanticipation of excise duty hike in the Union Budget, higher
discounts offered by OEMs and restoration of supply by market
leader, MSIL. However, market conditions have remained
challenging for the industry in FY2012, which has resulted in
modest volume growth of 3% yoy YTD in FY2012. Noticeably,
volumes in the domestic PC segment (~75% of PV sales)
registered flat growth during the period. Further, significant price
differential between petrol and diesel prices in recent times
(currently at ~`24 against five-year historical average of ~`14)
led to a shift in consumer demand in favor of diesel cars. As a
result, diesel car volumes have grown by 35% yoy YTD in
FY2012, while petrol car volumes have declined by 15% yoy.
Going ahead, with the likely easing of interest rates, we believe
the worst is over for the industry and expect the domestic PC
segment to report 13-15% yoy volume growth in FY2013, driven
by increased diesel engine capacity by manufacturers and pickup
in demand for petrol cars.
During 4QFY2012, we expect MSIL to report strong ~20% yoy
(impressive ~55% qoq) growth in its top line, led by ~5% yoy
growth in volumes and ~14% yoy growth in net average realization.
However, the bottom line is expected to witness a decline of ~24%yoy, as EBITDA margin is likely to dip by ~300bp yoy to 7% due to
adverse currency impact on direct as well as indirect imports.
average realization and overall profitability. This coupled with
higher interest outgo (higher working capital requirement) is
likely to impact the bottom line, which is expected to decline by
~15% yoy during the quarter.
Moderation seen in 2W sales
The 2W segment, which had so far remained insulated from
the slowdown in economic activity and fuel price hikes, finallysuccumbed to the pressures and witnessed moderation in
demand during 4QFY2012. Retail volumes remained weak
during the quarter, leading to an increase in dealer inventory
levels to 30-40 days from normal levels of 20-25 days. Going
ahead, for FY2013E, we expect the industry's volume growth to
remain sluggish, registering around ~10% growth. However,
on a YTD basis, the 2W segment has reported healthy 16.2%
yoy growth, as sales continue to be benefitted by inadequate
public transport system, rising income levels (particularly in rural
areas) and strong replacement demand in urban markets.
Domestic volumes grew by 14.8% yoy, while exports registered
strong 26.9% yoy growth YTD in FY2012.
On the volume front, there was a slowdown in growth across
2W majors, with BJAUT and HMCL reporting modest growth of
9.9% and 8.2% yoy, respectively. TVSL, however, reported flat
growth as volumes were impacted due to increased competitive
pressures and slowdown in demand. We expect 2W companies
in our coverage universe to report strong 20-32% yoy growth
in 4QFY2012 earnings, led by healthy volume growth and
improved margins on the back of increased average net
realization and easing of commodity cost pressures.
Source: Company; Angel Research; Note: Volumes for March 2012 are estimated
Exhibit 2: TTMT and AL Quarterly volumes
SegmentSegmentSegmentSegmentSegment 4QFY20124QFY20124QFY20124QFY20124QFY2012 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg FY2012FY2012FY2012FY2012FY2012 FY2011FY2011FY2011FY2011FY2011 % chg% chg% chg% chg% chg
TTMTTTMTTTMTTTMTTTMT 274,336274,336274,336274,336274,336 236,329236,329236,329236,329236,329 16.116.116.116.116.1 900,919900,919900,919900,919900,919 803,316803,316803,316803,316803,316 12.212.212.212.212.2
M&HCV 64,674 62,020 4.3 222,105 211,636 4.9
LCV 103,521 83,503 24.0 360,150 285,347 26.2
TTTTTotal CVotal CVotal CVotal CVotal CV 168,195168,195168,195168,195168,195 145,523145,523145,523145,523145,523 15.615.615.615.615.6 582,255582,255582,255582,255582,255 496,983496,983496,983496,983496,983 17.217.217.217.217.2
Utility vehicles 19,599 14,057 39.4 55,974 43,070 30.0
PC 86,542 76,749 12.8 262,690 263,263 (0.2)
TTTTTotal PVotal PVotal PVotal PVotal PV 106,141106,141106,141106,141106,141 90,80690,80690,80690,80690,806 16.916.916.916.916.9 318,664318,664318,664318,664318,664 306,333306,333306,333306,333306,333 4.04.04.04.04.0
Exports (incl. above) 18,248 15,384 18.6 63,273 58,042 9.0ALALALALAL 35,35335,35335,35335,35335,353 29,68029,68029,68029,68029,680 19.119.119.119.119.1 101,473101,473101,473101,473101,473 94,10694,10694,10694,10694,106 7.87.87.87.87.8
Exhibit 4: BJAUT, HMCL and TVSL Quarterly volumes
SegmentSegmentSegmentSegmentSegment 4QFY20124QFY20124QFY20124QFY20124QFY2012 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg FY2012FY2012FY2012FY2012FY2012 FY2011FY2011FY2011FY2011FY2011 % chg% chg% chg% chg% chg
BJABJABJABJABJAUTUTUTUTUT 1,041,6521,041,6521,041,6521,041,6521,041,652 948,195948,195948,195948,195948,195 9.99.99.99.99.9 4,374,0454,374,0454,374,0454,374,0454,374,045 3,823,9293,823,9293,823,9293,823,9293,823,929 14.414.414.414.414.4
Motorcycles 913,900 836,668 9.2 3,851,057 3,387,018 13.7
Three-wheelers 127,752 111,527 14.5 522,988 436,884 19.7
Exports (incl. above) 364,723 275,843 32.2 1,597,133 1,203,718 32.7
HMCLHMCLHMCLHMCLHMCL 1,573,7371,573,7371,573,7371,573,7371,573,737 1,454,4311,454,4311,454,4311,454,4311,454,431 8.28.28.28.28.2 6,236,9156,236,9156,236,9156,236,9156,236,915 5,402,4435,402,4435,402,4435,402,4435,402,443 15.415.415.415.415.4
TVSLTVSLTVSLTVSLTVSL 526,075526,075526,075526,075526,075 533,772533,772533,772533,772533,772 (1.4)(1.4)(1.4)(1.4)(1.4) 2,198,1532,198,1532,198,1532,198,1532,198,153 2,046,7372,046,7372,046,7372,046,7372,046,737 7.47.47.47.47.4
Motorcycles 194,127 218,825 (11.3) 845,174 836,821 1.0
Scooters 118,162 123,726 (4.5) 530,367 466,264 13.7
Mopeds 205,319 179,155 14.6 781,888 703,723 11.1
Three-wheelers 8,467 12,066 (29.8) 40,724 39,929 2.0
Exports (incl. above) 57,070 70,513 (19.1) 287,210 234,850 22.3
Source: Company; Angel Research; Note: Volumes for March 2012 are estimated
Exhibit 3: MSIL and MM Quarterly volumes
SegmentSegmentSegmentSegmentSegment 4QFY20124QFY20124QFY20124QFY20124QFY2012 4QFY20114QFY20114QFY20114QFY20114QFY2011 % chg% chg% chg% chg% chg FY2012FY2012FY2012FY2012FY2012 FY2011FY2011FY2011FY2011FY2011 % chg% chg% chg% chg% chg
MSILMSILMSILMSILMSIL 359,382359,382359,382359,382359,382 343,350343,350343,350343,350343,350 4.74.74.74.74.7 1,132,7431,132,7431,132,7431,132,7431,132,743 1,271,0151,271,0151,271,0151,271,0151,271,015 (10.9)(10.9)(10.9)(10.9)(10.9)Domestic 321,200 312,399 2.8 1,006,092 1,132,749 (11.2)
Exports 38,182 30,951 23.4 126,651 138,266 (8.4)
MMMMMMMMMM 182,175182,175182,175182,175182,175 167,006167,006167,006167,006167,006 9.19.19.19.19.1 714,492714,492714,492714,492714,492 590,719590,719590,719590,719590,719 21.021.021.021.021.0
Automotive - domestic 122,830 102,056 20.4 451,227 358,023 26.0
Automotive - exports 8,975 5,562 61.4 29,518 19,042 55.0
Tractor - domestic 46,791 56,293 (16.9) 220,310 201,786 9.2
Tractor - exports 3,579 3,095 15.6 13,437 11,868 13.2
Source: Company; Angel Research; Note: Volumes for March 2012 are estimated
8/2/2019 Sectoral Outlook
14/55
13
4QFY2012 Results Preview||||| April 4, 2012
Refer to important Disclosures at the end of the report
Automobile
Analyst - YAnalyst - YAnalyst - YAnalyst - YAnalyst - Yaresh Karesh Karesh Karesh Karesh Kothariothariothariothariothari
Auto ancillaries to track the auto sector
While OE demand continues to remain sluggish on account of
macro concerns such as rising interest rates and slowdown inindustrial activity, replacement sales have also seen moderate
offtake due to weakness in overall economic activity, thereby
negatively affecting ancillary manufacturers. We, however,
expect the demand environment to improve in the OE as well
as replacement segment in FY2013, aided by the likely easing
of interest rates. During 4QFY2012, we expect auto ancillary
companies to report moderate net profit growth on account of
modest domestic auto sales and operating margin pressures.
We expect a sequential expansion in the operating margins of
Bosch and FAG Bearings, mainly due to stronger INR comparedto 3QFY2012, as imports form a substantial portion of raw-
material costs for both the companies.
Motherson Sumi is expected to witness yet another challenging
quarter, as its operating margin is likely to remain under pressure
owing to ramping up of new plants in Brazil and Hungary and
due to consolidation of low-margin Peguform operations.
However, the standalone performance will benefit from normal
production at its major client, MSIL.
We expect EXID to continue to report improved performance
sequentially, as revenue growth will be driven by increased 4Wbattery volumes and uptick in inverter batteries. We expect qoq
expansion in the company's operating margin on the back of
softening lead prices (down ~20% yoy) and better product mix.
As a result, PAT is expected to jump by ~25% sequentially.
Led by healthy PV and CV sales, APTY is likely to register astrong ~19% yoy increase in its top line. EBITDA margin is
estimated to improve by 50bp qoq to 10.4%, as natural rubber
prices have declined by ~6% qoq.
We expect Bharat Forge to report strong top-line growth of ~22%
yoy, driven by healthy growth in the CV sector and aided further
by its diversified business model (one-third of revenue from
non-auto business); operating margin of the company is
expected to improve with easing commodity prices, leading to
~17% yoy growth in net profit.
Outlook
We believe long-term structural growth drivers of the Indian
automobile industry such as GDP growth (leading to increasing
affluence of rural and urban consumers), favorable
demographics, low penetration levels, entry of global players
and easy availability of finance are intact, which should support
a 13-14% CAGR in auto volumes over FY2012-14E. As such,
we prefer stocks that have strong fundamentals, high exposure
to rural and exports markets and command superior pricing
power. Against the backdrop of likely easing of interest rates,
we expect demand revival in the 4W segment. Hence, we remainHence, we remainHence, we remainHence, we remainHence, we remainpositive on ALpositive on ALpositive on ALpositive on ALpositive on AL, MM and TTMT, MM and TTMT, MM and TTMT, MM and TTMT, MM and TTMT.....
Exhibit 5: Quarterly estimates Automobile (((((````` cr)
Source: Company, Angel Research; Note: Price as on March 30, 2012, * Consolidated numbers; ^ OPM adjusted for royalty payments
CompanyCompanyCompanyCompanyCompany CMPCMPCMPCMPCMP Net SalesNet SalesNet SalesNet SalesNet Sales OPM (%)OPM (%)OPM (%)OPM (%)OPM (%) Net PNet PNet PNet PNet Profitrofitrofitrofitrofit EPS (EPS (EPS (EPS (EPS (`````))))) EPS (EPS (EPS (EPS (EPS (`````))))) P/E (x)P/E (x)P/E (x)P/E (x)P/E (x) TTTTTaaaaargrgrgrgrgeeeeettttt Reco.Reco.Reco.Reco.Reco.
(((((`````))))) 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E chg bpchg bpchg bpchg bpchg bp 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E (((((`````)))))
AL 30 4,298 12.3 10.8 (252) 253 (15.3) 0.9 (15.3) 2.1 2.6 3.1 14.4 11.8 9.8 37 Buy
BJAUT 1,678 4,721 16.5 20.6 9 815 20.7 28.2 20.7 105.3 115.9 125.9 15.9 14.5 13.3 1,888 Accumulate
HMCL^ 2,055 5,984 11.8 12.5 36 658 31.1 32.9 31.1 120.0 135.0 141.4 17.1 15.2 14.5 2,177 Accumulate
MSIL 1,349 11,843 20.1 7.0 (300) 503 (23.8) 17.4 (23.8) 50.3 85.4 100.7 26.8 15.8 13.4 1,510 Accumulate
MM 697 8,046 20.4 11.4 (131) 611 0.7 10.4 0.7 41.8 44.6 48.7 16.7 15.6 14.3 802 Buy
TTMT* 276 50,188 40.5 14.2 170 3,645 48.2 11.5 48.8 35.1 38.7 42.9 7.9 7.1 6.4 318 Buy
TVSL 41 1,733 8.0 6.4 83 55 31.0 1.1 31.0 4.9 5.0 5.6 8.3 8.2 7.3 56 Buy
Exhibit 6: Quarterly estimates Auto Ancillary (((((````` cr)
Source: Company, Angel Research; Note: Price as on March 30, 2012, * Consolidated numbers; # December year ending; & Full year EPS is consolidated
CompanyCompanyCompanyCompanyCompany CMPCMPCMPCMPCMP Net SalesNet SalesNet SalesNet SalesNet Sales OPM (%)OPM (%)OPM (%)OPM (%)OPM (%) Net PNet PNet PNet PNet Profitrofitrofitrofitrofit EPS (EPS (EPS (EPS (EPS (`````))))) EPS (EPS (EPS (EPS (EPS (`````))))) P/E (x)P/E (x)P/E (x)P/E (x)P/E (x) TTTTTaaaaargrgrgrgrgeeeeettttt Reco.Reco.Reco.Reco.Reco.
(((((`````))))) 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E chg bpchg bpchg bpchg bpchg bp 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E (((((`````)))))
Apollo Tyres* 79 3,241 18.7 10.4 (137) 140 (27.1) 2.8 (27.1) 7.9 10.5 12.5 10.0 7.5 6.3 94 Buy
Bharat Forge& 321 967 21.5 25.0 76 118 17.4 5.1 17.4 17.9 22.3 26.6 17.9 14.4 12.1 372 Buy
Bosch# 8,251 2,245 8.3 18.5 (35) 301 9.9 96.0 9.9 357.5 394.5 439.3 23.1 20.9 18.8 8,787 Accumulate
Exide Industries 149 1,325 8.0 14.5 (425) 130 (20.4) 1.5 (20.4) 5.8 7.5 8.9 25.7 19.7 16.7 - Neutral
FAG Bearings#
1,676 35314.9
19.0(147)
443.2
26.63.2
105.9 121.0 137.8 15.8 13.9 12.2 - NeutralMotherson Sumi* 186 5,686 145.3 7.5 (353) 158 13.6 4.1 13.6 7.5 13.3 18.0 24.7 14.0 10.3 216 Buy
8/2/2019 Sectoral Outlook
15/55
Refer to important Disclosures at the end of the report 14
4QFY2012 Results Preview||||| April 4, 2012
Banking
Banking stocks after underperforming the Sensex for three
consecutive quarters (1QFY2012-3QFY2012) were able to
outperform the Sensex handsomely by 15.8% (absolute returns
of 28.4%) in 4QFY2012 on account of lower valuations and
improving economic outlook. The rally in banking stocks was
led by mid cap PSU banks, within which Dena Bank gave the
highest sequential returns of 84.3%, followed by UCO Bank and
Syndicate Bank, which gave returns of 73.8% and 62.4%,
respectively. Inflation levels moderated significantly in 4QFY2012
(~250bp), leading to increased anticipation of rate cuts, which
fueled the rally in banking stocks. Throughout 4QFY2012, the
RBI continued with open market operations (OMOs) and, along
with cumulative 125bp cut in cash reserve ratio (CRR), infused
liquidity worth ~`2lakh cr in the financial system, which allowed
banks to manage the tight liquidity situation (owing to slowingdeposit growth and dollar sales by the RBI). Considering the
significant moderation in inflation levels over 4QFY2012, we
expect the RBI to commence with repo rate cuts in the next few
months, which, in our view, should help banking stocks in
maintaining their positive performance in FY2013 as well.
Deposit growth decelerates in 4QFY2012
Credit growth for the banking sector has been on a declining
trend since the beginning of FY2011. Credit growth as of March9, 2012, stood weak at 16.3% yoy, which can primarily be
attributed to the slowing economy along with a high base effect
(23.2% yoy growth as of March 11, 2011). Interest rates have
remained elevated for quite some time now (base rate for SBI
at 10% since August 2011), leading to continued tapering off
in the credit appetite of the economy. Incremental credit in
FY2012 YTD is lower by 10.3% yoy compared to FY2011 YTD;
deposit accretion, which had picked up post successive deposit
rate hikes, decelerated quite sharply during 4QFY2012 to 13.9%
yoy (as of March 9, 2012) compared to 16.9% yoy as of
December 30, 2011. Incremental FY2012 YTD deposits as ofMarch 9, 2012, are only marginally higher by 0.2% yoy
compared to FY2011 YTD.
Source: RBI, Angel Research; Note: #Between March 26, 2010 andMarch11, 2011, * Between March 25, 2011 and March 09, 2012
Exhibit 2: Deposits growth decelerates
611,278
647,544
548,021
648,667
400,000
500,000
600,000
700,000
C re di t o ff ta ke ( ` c r) D ep os it m ob il is at io n ( ` c r)
F Y2011# F Y2012*
( cr)`
Slowing deposit growth coupled with the RBI's intervention in
the forex market to support the depreciating rupee has led to
liquidity pressures exacerbating since the starting of CY2012
(avg. borrowings of ~`1.4lakh cr compared to ~`88,000cr in
3QFY2012). While the RBI has infused ~`2lakh cr in the system
through CRR cuts and OMOs, liquidity pressure has remained
intact (`1.25lakh cr as of March 30, 2012) and is expected toease only post the commencement of FY2013.
Source: RBI, Angel Research
Exhibit 3:Average LAF borrowings higher in 4QFY2012
(250)
(200)
(150)
(100)
(50)
-
50
Apr-
11
May-1
1
Jun-11
Jul-11
Aug-11
Sep-1
1
Oct-11
Nov-1
1
Dec-11
Jan-12
Fe
b-1
2
Mar-
12
('000 cr)
Exhibit 1: 4QFY2012 stock performance
(%)(%)(%)(%)(%) Returns (qoq)Returns (qoq)Returns (qoq)Returns (qoq)Returns (qoq) Returns (yoy)Returns (yoy)Returns (yoy)Returns (yoy)Returns (yoy)
Dena Bank 84.3 (13.4)
UCO Bank 73.8 (26.0)
Syndicate Bank 62.4 (9.5)
Allahabad Bank 61.9 (19.0)United Bank 55.4 (32.0)
Yes Bank 54.4 19.1
Central Bank 53.3 (28.2)
Andhra Bank 49.0 (20.9)
Bank of Maharashtra 42.5 (8.2)
Axis Bank 41.8 (18.4)
Union Bank of India 38.8 (32.1)
Bank of India 36.2 (23.7)
Jammu & Kashmir Bank 36.0 5.1
IDBI Bank 34.3 (26.5)
Indian Bank 31.9 4.8
Canara Bank 30.5 (24.0)
ICICI Bank 30.0 (20.2)
State Bank of India 29.5 (24.2)
Vijaya Bank 29.3 (26.4)
Oriental Bank of Commerce 28.7 (35.1)
Indian Overseas Bank 28.6 (34.4)
BankexBankexBankexBankexBankex 28.428.428.428.428.4 (11.6)(11.6)(11.6)(11.6)(11.6)
Federal Bank 26.6 1.9
South Indian Bank 22.9 8.1
HDFC Bank 21.8 10.8
Corp Bank 21.4 (33.2)
Bank of Baroda 19.7 (17.5)
LIC Housing Finance 19.0 16.5
Punjab National Bank 18.5 (23.7)SensexSensexSensexSensexSensex 12.612.612.612.612.6 (10.5)(10.5)(10.5)(10.5)(10.5)
HDFC 3.3 (4.0)
Source: Bloomberg, Angel Research
8/2/2019 Sectoral Outlook
16/55
15
4QFY2012 Results Preview||||| April 4, 2012
Refer to important Disclosures at the end of the report
Banking
Margins expected to remain stable in 4QFY2012
Deposit and lending rates for most banks remained stable over
4QFY2012. Consequently, we do not expect any major
sequential variance in the margins of banks during 4QFY2012.
The cumulative release of ~`80,000cr through CRR cuts during
4QFY2012 is expected to aid in improved NIMs for the banking
sector. However, a sharp rise in short-term borrowing rates on
account of ongoing liquidity crisis (avg. 3M CD at 10.3% compared
to 9.4% in 3QFY2012) is likely to weigh down the impact, especiallyfor mid-size PSU banks that rely heavily on bulk deposit for their
liability funding (leading to possible margin contraction in a few
cases). Moreover, volatility in asset quality, poses a corresponding
risk to our margin estimates and could lead to divergence in NIMs
from our estimates.
Private Banks to continue outperforming PSUs at net
profit level
Overall, we expect large private banks to post 18.5% yoy growth
in net interest income, while PSU banks are expected to register
19.4% yoy growth (9.8% yoy excl. SBI). Both Private and PSU
banks are expected to report healthy performances on the pre-provisioning profit front with growth of 21.0% yoy and 28.6%
yoy (23.3% yoy excl. SBI), respectively. High growth at PPP level
in PSU banks (excl. SBI) is also attributable to low base effect in
4QFY2011 due to pension expenses.While large private banks
are expected to report healthy 20.7% yoy growth on the net
profit front, PSU banks are likely to post relatively lower 13.4%
yoy growth (excl. SBI) due to higher provisioning expenses.
Asset quality remains the major overhang
Asset quality pressures for Public sector banks were expected to
marginally abate post the switchover to system based NPA
recognition as higher recoveries and upgrades (technical aswell as cash) were expected to keep NPA levels under control.
However, continued chunky NPAs from the corporate sector
(aviation, telecom, mining, textiles, etc.) as well as from
agriculture led to higher than estimated fresh slippages from
these segments during 3QFY2012, leading to upsurge in NPA
levels as a whole for public sector banks.
Private Banks, on the contrary which have sharply improved
their asset quality over the past two years saw their provisioning
costs decline further during 4QFY2012. Consequently, while
PSU banks saw a 12.1% qoq and 12.7% qoq increase in their
gross and net NPA levels, private banks only witnessed a 1.3%qoq and 4.1% qoq rise in their gross and net NPA levels,
respectively.
Exhibit 4: 3QFY2012 and 4QFY2012 Lending and deposit rates
Source: Company, Angel Research; Note: *1-3 Yr Maturity bucket
AvgAvgAvgAvgAvg. Base rates (%). Base rates (%). Base rates (%). Base rates (%). Base rates (%) BPLR rates (%)BPLR rates (%)BPLR rates (%)BPLR rates (%)BPLR rates (%) FD rates* (%)FD rates* (%)FD rates* (%)FD rates* (%)FD rates* (%)
BankBankBankBankBank 3QFY123QFY123QFY123QFY123QFY12 4QFY124QFY124QFY124QFY124QFY12 BP changeBP changeBP changeBP changeBP change 3QFY123QFY123QFY123QFY123QFY12 4QFY124QFY124QFY124QFY124QFY12 BP changeBP changeBP changeBP changeBP change 3QFY123QFY123QFY123QFY123QFY12 4QFY124QFY124QFY124QFY124QFY12 BP changeBP changeBP changeBP changeBP changeFEDBK 10.52 10.74 22 17.75 17.75 - 9.50 9.75 25
J&KBK 10.31 10.50 19 15.00 15.00 - 9.50 9.50 -
YESBK 10.43 10.50 7 20.00 20.00 - 9.60 9.60 -
ALLBK 10.75 10.75 - 15.00 15.00 - 9.50 9.50 -
ANDHBK 10.75 10.75 - 15.00 15.00 - 9.40 9.40 -
AXSB 10.00 10.00 - 17.75 17.75 - 9.25 9.25 -
BOB 10.75 10.75 - 15.00 15.00 - 9.35 9.35 -
BOI 10.75 10.75 - 15.00 15.00 - 9.25 9.25 -
CANBK 10.75 10.75 - 15.00 15.00 - 9.25 9.25 -
CENTBK 10.75 10.75 - 15.00 15.00 - 9.40 9.30 (10)
CRPBK 10.65 10.65 - 15.00 15.00 - 9.65 9.65 -
HDFCBK 10.00 10.00 - 18.50 18.50 - 9.25 9.25 -
ICICIBK 10.00 10.00 - 18.75 18.75 - 9.25 9.25 -IDBI 10.75 10.75 - 15.25 15.25 - 9.50 9.50 -
INDBK 10.75 10.75 - 15.00 15.00 - 9.50 9.50 -
IOB 10.75 10.75 - 15.50 15.50 - 9.50 9.50 -
OBC 10.75 10.75 - 15.00 15.00 - 9.75 9.75 -
PNB 10.75 10.75 - 14.25 14.25 - 9.40 9.30 (10)
SBI 10.00 10.00 - 14.75 14.75 - 9.25 9.25 -
SIB 10.50 10.50 - 19.00 19.00 - 9.75 9.75 -
SYNBK 10.75 10.75 - 15.00 15.00 - 9.35 9.35 -
UCOBK 10.75 10.75 - 15.00 15.00 - 9.50 9.50 -
UTDBK 10.60 10.60 - 14.85 14.85 - 9.25 9.25 -
VIJAYA 10.65 10.65 - 15.00 15.00 - 9.35 9.35 -
DENABK 10.70 10.70 - 15.75 15.75 - 9.60 9.60 -
BOM 10.70 10.67 (3) 15.00 15.00 - 9.35 9.35 -UNBK 10.75 10.65 (10) 15.50 15.50 - 9.25 9.25 -
8/2/2019 Sectoral Outlook
17/55
Refer to important Disclosures at the end of the report 16
4QFY2012 Results Preview||||| April 4, 2012
Banking
ReferredReferredReferredReferredReferred ApprovedApprovedApprovedApprovedApproved
No. of casesNo. of casesNo. of casesNo. of casesNo. of cases Add. (Add. (Add. (Add. (Add. (````` cr)cr)cr)cr)cr) No. of casesNo. of casesNo. of casesNo. of casesNo. of cases Add. (Add. (Add. (Add. (Add. (````` cr)cr)cr)cr)cr)
FY10 31 20,175 31 17,763
FY11 49 22,614 27 6,615
1QFY12 18 4,595 10 8,141
2QFY12 18 21,095 7 2,095
3QFY12 23 19,187 17 21,364
9MFY12 59 44,877 34 31,600
Cummulative 364 183,481 276 142,514
Exhibit 9: CDR Snapshot
Source: CDR Cell, Angel Research
IndustryIndustryIndustryIndustryIndustry No.No.No.No.No. AggAggAggAggAgg. Debt (. Debt (. Debt (. Debt (. Debt (````` cr)cr)cr)cr)cr) Debt in %Debt in %Debt in %Debt in %Debt in %Iron & Steel 30 38,186 26.8
Infrastructure 12 17,080 12.0
Textiles 57 11,370 8.0
Telecom 9 9,199 6.5
Fertilizers 8 8,454 5.9
NBFC 6 6,592 4.6
Sugar 24 6,562 4.6
Cements 9 6,112 4.3
Petrochemicals 3 5,493 3.9
Refineries 1 4,874 3.4
Power 7 3,836 2.7Other (Jewel., Liq., edible oil etc.) 5 3,498 2.5
Pharmaceuticals 9 3,349 2.4
Chemicals 15 2,898 2.0
Electronics 3 2,521 1.8
Metals (Non-ferrous Metals) 5 2,171 1.5
Paper/Packaging 16 2,147 1.5
Others 57 8,172 5.7
TTTTTotalotalotalotalotal 276276276276276 142,514142,514142,514142,514142,514 100.0100.0100.0100.0100.0
Exhibit 10: Industry wise exposure to CDR
Source: CDR Cell, Angel Research
Source: Company, Angel Research
Exhibit 8: Net NPA trend (%) for the banking industry
1.16
1.09 1.08 1.07
1.00 0.98
1.04
1.28
1.36
0.90
1.00
1.10
1.20
1.30
1.40
1.50
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
Source: Company, Angel Research
Exhibit 7: Gross NPA trend (%) for the banking industry
2.46
2.362.43
2.472.40
2.27
2.43
2.73
2.86
2.10
2.30
2.50
2.70
2.90
3.10
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
Source: Company, Angel Research
Exhibit 5: Gross NPA trends (%) Private vs. PSU
3.19 3.12 3.20 3.06
2.892.65
2.55
2.45 2.412.53 2.56
2.64 2.58 2.59 2.612.71
2.96
3.29
1.50
1.80
2.10
2.40
2.70
3.00
3.30
3.60
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
Pvt Banks PSU Banks
Source: Company, Angel Research
Exhibit 6: Net NPA trends (%) Private vs. PSU
1.39
1.151.05
0.900.78
0.62 0.62 0.59 0.60
1.22 1.26 1.27
1.21 1.18 1.261.28
1.531.69
0.30
0.50
0.70
0.90
1.10
1.30
1.50
1.70
3QFY10
4QFY10
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
Pvt Banks PSU Banks
Almost all banks resorted to higher restructuring during
3QFY2012 with loans to SEBs and GTL being the primarycontributors. Within PSU banks, BOM (up 55.0% qoq) and
Central bank (up 50.5% qoq) witnessed highest sequential rises
in their restructured books. Banks with exposure to GTL also had
to take NPV hits in their P&L (ranging from 10%-20% of the total
loan advances) during 3QFY2012, denting their bottom-line.
Approvals of cases wor th `20,000cr during 3QFY2012
(~`45,000cr during 9MFY2012) and pending approvals of
`24,000cr under the CDR mechanism along with bank-specific
exposures, in our view, are expected to further fatten the already-
heavy restructured books over the next few quarters. Also, with
sectors such as infra, real estate, metals and aviation continuingto face macro headwinds, asset-quality concerns, in our view,
are expected to linger.
8/2/2019 Sectoral Outlook
18/55
17
4QFY2012 Results Preview||||| April 4, 2012
Refer to important Disclosures at the end of the report
Bond yields remain volatile during the quarter
The 10-year G-sec bond yields maintained their downward
trajectory and touched an eight-month low in the first fortnight ofJanuary 2012 (8.19% as on January 9, 2012), as liquidity infusion
through RBI's OMOs, moderating inflation and expectations of
rate cuts eased bond market sentiments. Bond yields, however,
rose upwards in the first fortnight of March 2012 on account of
uptick in global crude oil prices and expectations of the
government exceeding its annual fiscal deficit target for FY2012,
before rising further post Union Budget 2012-13, as the
government's higher-than-expected market borrowings plan
dampened bond market sentiments.
The 10-year G-sec yields ended the quarter at 8.54% (8.57%
as of December 30, 2011) and hence we do not expect materialMTM losses/gains for the banking sector. However, considering
the intra-quarter volatility witnessed, several banks could report
trading gains on their investment book in 4QFY2012 results.
Banking
Source: Bloomberg, Angel Research
Exhibit 11: Corporate and G-Sec bond yields
9.5
4
9.5
8
9.5
2
9.4
2
8.4
3
8.4
4
8.5
3
8.5
7
9.8
5
9.6
5
9.5
7
9.4
7
8.4
1
8.6
4
8.6
1
8.5
9
7.50
8.00
8.50
9.00
9.50
10.00
AAA 1 -yr AAA 3-yr AAA 5 -yr AAA 10-yr Gsec 1-yr Gsec 5-yr Gsec 7-yr Gsec 10-yr
D ec. 30, 2011 M ar. 29, 2012
Source: Bloomberg, Angel Research
Exhibit 12: 10-year G-sec yields movement
8.0
8.2
8.3
8.5
8.6
8.8
30
-Dec-11
6-Jan-1
2
13
-Jan-1
2
20
-Jan-1
2
27
-Jan-1
2
3-Fe
b-1
2
10
-Fe
b-1
2
17
-Fe
b-1
2
24
-Fe
b-1
2
2-Mar-
12
9-Mar-
12
16
-Mar-
12
23
-Mar-
12
30
-Mar-
12
Capital Infusion in PSU banks
The government, in light of capital constraints being faced by
the banking sector and the upcoming Basel-3 norms, earmarked
a healthy allocation of ~`16,000cr for capital infusion in public
sector banks in Union Budget 2012-13. In terms of the ongoing
round of capital infusion by the government, State Bank of India
is the biggest beneficiary with capital infusion of `7,900cr,
followed by IDBI Bank and Punjab National Bank with capital
infusion worth `5,293cr and `2,875cr, respectively.
Outlook and Valuation
Asset quality, in our view, continues to be the key monitorable
and a major concern on the banking sector's fundamentals.
However, considering the impending repo rate cuts, which are
expected to begin in the next few months, and stable margin
outlook going ahead, we remain positive on the banking sector.
Inflation levels for FY2012 are lower by 100-150bp compared
to FY2011, which is a key positive, and we believe the current
inflation environment (apart from fuel-related concerns) should
aid the commencement of the monetary easing cycle. Margins
of the banking sector are also expected to hold on to current
levels due to capital constraints in PSU Banks (owing to Basel 3
norms). Moreover, recoveries from technical NPAs and RBI's
prudent countercyclical norms, in our view, are an additional
buffer which should aid in absorbing higher provisioning costs.
Further, with the improvement in domestic macro fundamentals
expected to gather pace in 2HFY2013 on account of lower
interest burden, we expect asset-quality headwinds to begin
receding, albeit gradually.
Within private banks, our top picks remain Axis Bank and Yes
Bank, where we expect significant re-rating upsides. We expect
these banks to continue posting healthy operating performance
going forward. At current valuations, we view them as being
substantially undervalued compared to Sensex/HDFC Bank/
peers. We also like ICICI Bank on account of its conservative
stance adopted for its balance sheet growth over the last threeyears, which has resulted in significant improvement in the bank's
ROAs.
Source: Company, Angel Research
Exhibit 13: Capital Infusion in PSU banks
BankBankBankBankBank Tier 1 RatioTier 1 RatioTier 1 RatioTier 1 RatioTier 1 Ratio GOIGOIGOIGOIGOI LICLICLICLICLIC TTTTTotalotalotalotalotal
(9MFY2012)(9MFY2012)(9MFY2012)(9MFY2012)(9MFY2012) ((((( ````` cr)cr)cr)cr)cr) ((((( ````` cr)cr)cr)cr)cr) ((((( ````` cr)cr)cr)cr)cr)
St. Bank of India 7.6 7,900 - 7,900
IDBI Bank 7.5 4,630 663 5,293
Punjab National Bank 7.9 1,285 1,590 2,875
Bank of India 7.7 1,045 1,037 2,083
Indian Overseas Bank 6.7 1,675 303 1,978
Bank of Baroda 9.3 - 1,613 1,613
Allahabad Bank 8.9 1,003 459 1,462
Union Bank 8.0 355 650 1,005
Central Bank 7.8 659 341 1,000
Bank of Maharashtra 7.1 860 135 995
Punjab and Sind Bank 8.0 895 96 991
Syndicate Bank 8.4 539 327 866
UCO Bank 7.8 500 259 759
United Bank 8.4 173 132 305
Dena Bank 8.5 - 151 151
Vijaya Bank 9.0 - 147 147
8/2/2019 Sectoral Outlook
19/55
Refer to important Disclosures at the end of the report 18
4QFY2012 Results Preview||||| April 4, 2012
Banking
Analyst - VAnalyst - VAnalyst - VAnalyst - VAnalyst - Vaibhav Agrawaaibhav Agrawaaibhav Agrawaaibhav Agrawaaibhav Agrawal/l/l/l/l/VVVVVarun Varun Varun Varun Varun Varmarmarmarmarmaaaaa
Exhibit 16: Quarterly estimates (((((````` cr)cr )cr)cr )cr)CompanyCompanyCompanyCompanyCompany CMPCMPCMPCMPCMP Operating Income Net POperating Income Net POperating Income Net POperating Income Net POperating Income Net Profit EPS (rofit EPS (rofit EPS (rofit EPS (rofit EPS (`````) Adj B) Adj B) Adj B) Adj B) Adj BVPS (VPS (VPS (VPS (VPS (`````))))) P/E (x) P/ABP/E (x) P/ABP/E (x) P/ABP/E (x) P/ABP/E (x) P/ABV (x)V (x)V (x)V (x)V (x) TTTTTargetargetargetargetarget Reco.Reco.Reco.Reco.Reco.
(((((`````))))) 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg 4QFY12E4QFY12E4QFY12E4QFY12E4QFY12E % chg% chg% chg% chg% chg FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E FY12EFY12EFY12EFY12EFY12E FY13EFY13EFY13EFY13EFY13E FY14EFY14EFY14EFY14EFY14E (((((````)))))
AXSB 1,146 3,838 21.8 1,159 13.6 100.5 113.9 136.4 538.8 615.2 721.1 11.4 10.1 8.4 2.1 1.9 1.6 1,550 BuyFEDBK 426 694 17.9 227 32.2 44.8 49.5 57.2 333.8 372.9 417.9 9.5 8.6 7.4 1.3 1.1 1.0 - Neutral
HDFCBK 520 4,727 15.4 1,451 30.2 22.1 28.4 35.6 125.4 147.2 174.6 23.6 18.3 14.6 4.1 3.5 3.0 567 Accum.
ICICIBK 887 4,875 17.5 1,719 18.3 54.5 65.3 78.3 509.0 546.0 590.3 16.3 13.6 11.3 1.7 1.6 1.5 1,135 Buy
SIB 25 350 24.1 111 35.5 3.5 3.7 3.9 17.8 20.7 23.8 7.1 6.7 6.2 1.4 1.2 1.0 - Neutral
YESBK 367 684 27.9 267 31.5 28.0 34.4 42.2 133.8 163.0 198.8 13.1 10.7 8.7 2.7 2.3 1.8 477 Buy
ALLBK 186 1,857 14.6 565 119.3 42.7 37.4 40.9 193.9 225.2 256.9 4.4 5.0 4.6 1.0 0.8 0.7 205 Accum.
ANDHBK 119 1,282 10.5 328 5.0 23.8 23.6 27.0 129.2 144.6 166.6 5.0 5.1 4.4 0.9 0.8 0.7 - Neutral
BOB 794 3,761 9.1 1,297 0.2 121.8 131.4 153.3 628.4 738.9 857.3 6.5 6.0 5.2 1.3 1.1 0.9 943 Buy
BOI 361 3,066 -2.1 704 42.6 44.4 50.0 65.4 295.9 344.5 392.0 8.1 7.2 5.5 1.2 1.0 0.9 392 Accum.
BOM 55 821 12.1 110 59.2 8.4 10.7 13.5 67.7 72.1 82.6 6.5 5.1 4.1 0.8 0.8 0.7 62 Accum.
CANBK 474 2,880 24.1 981 9.1 77.5 85.7 95.4 450.8 515.6 590.9 6.1 5.5 5.0 1.1 0.9 0.8 532 Accum.
CENTBK 100 1,623 -16.8 127 (4.0) 9.4 13.1 19.9 100.0 104.2 115.6 10.7 7.6 5.0 1.0 1.0 0.9 92 Reduce
CRPBK 425 1,372 9.6 416 20.4 106.0 108.3 111.5 544.1 618.6 700.2 4.0 3.9 3.8 0.8 0.7 0.6 508 Buy
DENABK 90 738 13.2 209 32.8 22.7 23.2 25.6 123.0 141.1 162.6 4.0 3.9 3.5 0.7 0.6 0.6 114 Buy
IDBI 105 1,786 0.1 389 (24.7) 16.8 15.5 21.5 126.4 132.1 147.2 6.2 6.7 4.9 0.8 0.8 0.7 - Neutral
INDBK 240 1,554 12.4 525 19.5 44.0 45.5 48.8 218.5 253.5 291.3 5.5 5.3 4.9 1.1 0.9 0.8 - Neutral
IOB 94 1,706 6.6 252 (41.9) 12.5 15.9 21.1 138.8 143.7 160.1 7.5 5.9 4.5 0.7 0.7 0.6 104 Accum.
J&KBK 917 591 10.4 207 49.3 165.4 178.0 195.8 843.9 980.0 1,129.9 5.5 5.2 4.7 1.1 0.9 0.8 - Neutral
OBC 252 1,531 16.6 418 25.3 44.4 50.8 60.9 374.7 411.5 456.0 5.7 5.0 4.1 0.7 0.6 0.6 296 Buy
PNB 926 4,772 14.3 1,321 10.0 150.9 156.3 178.7 733.4 883.2 1,034.1 6.1 5.9 5.2 1.3 1.0 0.9 1,138 Buy
SBI 2,095 15,948 23.9 3,549 NA 176.5 220.9 269.8 1,055.0 1,318.1 1,584.5 11.9 9.5 7.8 2.0 1.6 1.3 2,593 Buy
SYNBK 111 1,651 16.6 329 13.8 23.3 23.2 27.5 134.1 149.3 170.4 4.8 4.8 4.0 0.8 0.7 0.7 128 Buy
UCOBK 79 1,370 20.6 342 51.2 16.2 17.8 18.8 77.8 90.1 101.4 4.9 4.4 4.2 1.0 0.9 0.8 - Neutral
UNBK 235 2,454 5.9 600 0.4 30.6 40.7 49.5 225.1 260.9 304.3 7.7 5.8 4.7 1.0 0.9 0.8 274 Buy
UTDBK 72 886 11.6 206 44.0 17.5 18.4 21.7 107.7 117.6 134.2 4.1 3.9 3.3 0.7 0.6 0.5 87 Buy
VIJAYA 58 630 1.5 129 138.5 8.8 9.5 11.5 67.5 71.9 78.0 6.6 6.1 5.1 0.9 0.8 0.7 55 Reduce
HDFC 674 1,867 12.8 1,267 11.0 27.6 31.2 37.2 128.4 158.3 178.6 24.4 21.6 18.1 5.2 4.3 3.8 - NeutralLICHF 263 489 (5.7) 279 (11.2) 18.6 25.3 31.9 113.5 133.8 159.4 14.1 10.4 8.2 2.3 2.0 1.7 295 Accum.
Source: Company, Angel Research; Note: Price as on March 30, 2012
Coming to PSU banks, valuations for the entire pack revived
sharply during the quarter. This led to a few specific cases
(Andhra Bank, UCO Bank, Central Bank and Vijaya Bank),wherein we believe valuations exceeded fundamentals. Hence,
we recommend Neutral or Reduce on these stocks, while being
Source:C-line, Angel Research, Note:* For PSU banks , excl. SBI and IDBI
Exhibit 14: PSU banks price band (P/ABV)*
-
0.20
0.40
0.60
0.80
1.00
1.201.40
1.60
1.80
Apr-
01
Apr-
02
Apr-
03
Apr-
04
Apr-
05
Apr-
06
Apr-
07
Apr-
08
Apr-
09
Apr-
10
Apr-
11
Apr-
12
Source:C-line, Angel Research
Exhibit 15: Large Pvt. banks price band (P/ABV)
-
0.50
1.00
1.50
2.00
2.50
Apr-
01
Apr-
02
Apr-
03
Apr-
04
Apr-
05
Apr-
06
Apr-
07
Apr-
08
Apr-
09
Apr-
10
Apr-
11
Apr-
12
positive on banks such as Dena Bank, United Bank, Bank of
Maharashtra and Syndicate Bank, which we believe have a
superior earnings quality outlook compared to peers. Withinlarge-cap PSU banks, we continue to prefer SBI and BOB due
to their structurally strong fundamentals vis--vis peers.
8/2/2019 Sectoral Outlook
20/55
19
4QFY2012 Results Preview||||| April 4, 2012
Refer to important Disclosures at the end of the report
Capital Goods
We expect companies in our capital goods (CG) universe to
post average top-line growth of 10.9%. However, on the
bottom-line front, the picture is mixed, with most companies inour coverage universe posting a decline mainly on account
of margin pressure and, in some cases, due to higher
interest cost.
ABB India (CMP/TP: `842/`503) (Rating: Sell)
For 1QCY2012, we expect ABB India (ABB) to post decent
top-line growth of 14.5% yoy to `2,053cr, driven by the
company's balanced performance across all segments. EBITDA
margin is likely witness marginal improvement of 23bp yoy to
5.9%. Also, on a qoq basis, we expect the company's margin to
improve by 100bp.Aided by modest revenue growth, ABB'sAided by modest revenue growth, ABB'sAided by modest revenue growth, ABB'sAided by modest revenue growth, ABB'sAided by modest revenue growth, ABB'sbottom line is expected to jump by 15.7% tobottom line is expected to jump by 15.7% tobottom line is expected to jump by 15.7% tobottom line is expected to jump by 15.7% tobottom line is expected to jump by 15.7% to `````68.9cr68.9cr68.9cr68.9cr68.9cr. W. W. W. W. Weeeee
maintain our Sell recommendation on the stock with a targetmaintain our Sell recommendation on the stock with a targetmaintain our Sell recommendation on the stock with a targetmaintain our Sell recommendation on the stock with a targetmaintain our Sell recommendation on the stock with a target
price ofprice ofprice ofprice ofprice of `````503.503.503.503.503.
Recommended