Wide sectoral variations; good time for cement, automobiles and media.
Mid-cap and small-cap companies are expected to post only single-digit growth in sales and profits in the second-quarter ended September 30.
The corporate sector as a whole (301 companies studied, excluding oil marketing companies and refineries), is expected to post net sales growth of around 5 per cent and a marginal 0.8 per cent decline in net profit. Nevertheless, mid-cap and small-cap companies are expected to show a 224-basis point improvement in operating margins as against a 50-basis point rise in margins for the entire corporate sector. (Click here for "THE QUARTER AT A GLANCE" table)
This preview of mid-cap and small-cap companies and the corporate sector as a whole is based on research reports from Angel Broking, Centrum Broking, Citigroup Research, Edelweiss Research, First Global Research, IDFC-SSKI Research, ICICI Securities, Motilal Oswal Securities, Morgan Stanley Research and Religare Research. They have analysed 301 companies, of which 226 are from the mid-cap and small-cap universe. The growth rate has been calculated by taking the average for each company studied here and then aggregating these to arrive at the final figure.
Of the 226 companies, the net sales of 45 are expected to grow 10-20 per cent each, while 48 companies are expected to show single-digit growth in net sales. Almost a third, or 75 companies, are expected to post a decline in net sales. Of these, 51 are expected to show a double-digit decline.
Among sectors, information technology, education, power, oil and gas, sugar, cement, tyre, construction, retail, textiles, FMCG, pharma, logistics and banking are expected to drive the revenue growth of small- and mid-cap companies. The sectors likely to post a decline in net sales are automobiles, steel, logistic, hotel, shipping, real estate, refineries and fertilisers. The sales growth rate is expected to be moderate in case of IT, capital goods, media and finance.
| SECTORAL VIEW | |||||
| Top 5 by sales growth |
Estimated sales
| Top 5 by net profit growth |
Estimated net profit
| ||
| Sep ‘09 | % chg* | Sep ‘09 | % chg* | ||
| Power | 6,799.93 | 52.14 | Sugar | 248.53 | 508.60 |
| Sugar | 2,658.83 | 27.12 | Automobiles | 127.04 | 191.70 |
| Cement | 4,993.14 | 23.64 | Cement | 885.06 | 51.30 |
| Construction | 11,440.62 | 17.28 | Pharma | 946.85 | 30.00 |
| Retail | 4,089.72 | 15.53 | FMCG | 529.83 | 25.60 |
| Top 5 by sales decline |
Estimated sales
| Top 5 by net profit decline |
Estimated net profit
| ||
| Sep ‘09 | % chg* | Sep ‘09 | % chg* | ||
| Fertilisers | 6,092.79 | -53.54 | Shipping | 427.60 | -67.20 |
| Realty | 1,630.95 | -20.43 | Fertiliser | 296.43 | -64.70 |
| Shipping | 3,728.30 | -16.80 | Realty | 453.81 | -34.50 |
| Steel | 10,595.43 | -5.84 | IT | 886.38 | -7.40 |
| Auto Ancc | 5,342.93 | -0.52 | Steel | 777.17 | -7.20 |
| Note: Estimated growth in sales and profits are based on analysts reports; Figures in Rs crore; *Y-o-Y % change | |||||
The good news is that operating margins of mid-cap and small-cap firms are expected to rise by 224 basis points on account of over 100-1,000 basis points rise in operating margins in media, finance, refineries, cement, bank, real estate, automobiles, logistics, fertilisers, textiles and FMCG. However, these margins are expected to decline by over 100-700 basis points in sectors such as auto ancillaries, capital goods, oil and gas, power, telecom, hotel and shipping.
The profit is expected to be driven by sectors such as tyre, sugar, automobiles, IT, education, cement, oil and gas, logistics, pharma, FMCG, finance, retail, banking, power and construction. The net profit is expected to decline in case of auto ancillaries, steel, IT, logistics, real estate, telecom, hotels, fertilisers and shipping. The net profit of 42 companies is expected to grow over 50 per cent each while 66 are expected to post a 10-50 per cent rise. As many as eight companies are expected to turn around while 74 are projected to post more than 10 per cent decline in net profit.
The net interest income (interest earned minus interest outgo) of 15 mid-cap and small-cap banks is expected to grow over 10 per cent, driven by Allahabad Bank, Andhra Bank, Central Bank, Corporation Bank and IDBI Bank. The operating margins on net interest income of these 15 banks are expected to rise by 490 basis points. The other 11 are expected show a robust growth in margins. The net profit growth is expected to be over 15 per cent, driven by Allahabad Bank, Central Bank and YES Bank.
The cement sector is set for its best performance in recent times, with nine mid-cap and small-cap companies posting over 50 per cent rise in net profit on the back of a net sales growth of over 23 per cent. The operating margins are likely to improve by over 600 basis points on firm cement prices and higher realisations. Birla Corporation, Dalmia Cement, JK Cement, Madras Cement, Prism Cement and Shree Cement are expected to show strong results, while India Cement, Mangalam Cement and Orient Paper are projected to report subdued sales but strong growth in net profit. The price realisation on sale of cement would rise by over 20 per cent on a significant price increase in the key markets of North, East and Central India. The companies are expected to benefit from the decline in prices of pet coke and domestic open market coal. However, higher depreciation and tax provisioning will restrict the net profit growth.
Entertainment and print media is expected to come out of the woods in this quarter on account of an increase in advertisement rates by around 20 per cent, fresh advertisement by FMCG companies and no fresh capital expenditure during the second quarter. The 17 companies in this segment may report flat sales but the operating profit will increase by 193 per cent, with Deccan Chronicle, HT Media and Jagran Prakashan posting strong results on the back of decline in newsprint prices and hike in advertisement rates.
Occupancies for multiplexes have improved from the abysmally low levels in the first quarter. However, occupancies have been affected to some extent by swine flu and the fact that September is a weak month due to religious festivals and fewer releases by producers. The advertising market has started showing early pick-up signs after a sharp decline in the period between November 2008 and March 2009. Economic revival and the beginning of the festive season have resulted in higher ad spends by badly battered segments such as auto, financial services and real estate.
The mid-cap and small-cap pharma companies are expected to post double-digit growth in sales and profit on the back of strong results from Aurobindo Pharmaceuticals, Biocon, Cadila Healthcare, IPCA Labs and Lupin Pharmaceuticals. The sales of Aurobindo Pharma are expected to grow by 23 per cent on the back of strong growth in formulation exports to regulated markets, backed by the Pfizer deal. The net profit of the company is expected to increase over 50 per cent on a milestone income of Rs 40 crore.
With recession easing in markets such as Latin America and Russia, pharma analysts expect the emerging markets to contribute significantly to sales as contract research gets back on the high-speed lane. The turnaround in the economy and improvement in commodity prices should put the CRAMS companies back on the growth track. Analysts indicate that Jubilant Organosys’ second-quarter performance will be a key indicator of the pace of this sector’s growth.
Sugar companies are expected to put up a strong show with net sales expected to rise by over 27 per cent and net profit by over 500 per cent, mainly driven by Renuka Sugar. The operating margins are expected to rise 390 basis points on the back of a firm trend in sugar prices. Bajaj Hindusthan, Balrampur Chini and Dhampur Sugar are expected to show a decline in net sales while Renuka Sugar and Triveni Engineering are expected to show strong sales growth.
The operating margin for Bajaj Hindusthan is expected to rise over 435 basis points on the back of improved sugar realisations and reduction in overheads. Shree Renuka Sugars expects to post 80-plus per cent growth in sales on account of higher sugar and distillery volumes, coupled with improved sugar prices.
