SBI, DLF estimated to be at the other end, as analysts perceive divergence in net performance.
The results season is likely to see a huge divergence in net profit growth reported by Sensex companies over the next few days. Seven of the Sensex 30 companies could report a decline in profit. Of the rest, 10 companies could show profits growing in excess of 20 per cent, twice the rate for the overall Sensex basket.
Leading the losers are likely to be State Bank of India (the worst performer, with a 46 per cent decline in profits) and DLF. The best performer, with growth in excess of 60 per cent, is likely to be Sterlite Industries.
| LIKELY GAINERS AND LOSERS NET PROFIT GROWTH ESTIMATES FOR Q1 FY12 | |
| Gainers | % |
| Sterlite Industries | 62 |
| ONGC | 36 |
| HDFC Bank | 32 |
| ICICI Bank | 25 |
| Bajaj Auto | 24 |
| Losers |
% |
India’s largest bank’s decline in earnings will be accompanied by an expected increase in the provisioning outlay (for bad loans). In its earnings preview, Motilal Oswal Securities (MOSL) says there would be higher provisioning requirement for sub-standard and doubtful assets of Rs 1,000 crore and Rs 500 crore for restructured loans. In addition, the bank is also likely to provide Rs 550 crore on account of a higher provision coverage ratio. Due to this, its other provisions could jump three-fold, to the tune of Rs 4,600 crore in the first quarter of 2011-12.
Among other Sensex constituents, DLF, the real estate giant, could also disappoint. It is expected to report a mere eight per cent growth in revenue but broking houses differ on the likely extent of decline in profits. While MOSL expects the company to report a 27 per cent decline, Prabhudas Lilladher estimates this could be as high as 50 per cent, due to a steeper fall in margins. The key reasons for weaker profits are high interest costs and higher expenditure, on the back of a jump in construction costs.
The list of companies likely to lag also include telecom majors Bharti Airtel and Reliance Communications (RCom). India’s largest listed mobile telephony players, they are expected to post an earnings decline of 16 and 27 per cent, respectively. However, revenues for the June quarter are expected to jump 37 per cent for Bharti and seven per cent for RCom, on the back of higher minutes of usage, a stable pricing environment and increase in data usage. However, net profits will be impacted, as the companies meet the amortisation and interest costs for investment in third-generation (3G) licences and equipment.
Among star performers, Sterlite Industries, the non-ferrous metals major, leads the earnings growth pack. In revenue terms, too, the company could report the highest growth, at 58-60 per cent. However, this is more on account of contribution from its power business (Sterlite Energy). The company recently synchronised two units of 600 Mw, which will add to revenue. However, the boost to profits will be higher, given superior margins in the power business. Aiding its financials are likely higher LME (London Metal Exchange) prices, as well as volumes in all three segments, namely, copper, aluminium and zinc.
Second in the gainer list is Oil and Natural Gas Corporation. Thanks to the expected improvement in gross realisation at $120.1 per barrel, compared to $80.8 per barrel last year, it is expected to clock 36 per cent growth in first quarter net profit. In fact, analysts expect its operating profit margins to improve by 250-300 basis points. This is in addition to the benefits of a jump in production from the Rajasthan fields, plus a rise in gas prices (under the administered pricing mechanism).
The next two outperformers are from banking. While HDFC Bank is expected to record a 36 per cent growth in net profit, ICICI Bank is expected to register 25 per cent growth. Both could report 18-20 per cent growth in net income during the quarter. ICICI is expected to benefit on account of lower provisioning requirement. Analysts expect the proportion (to total assets) of gross non-performing assets to come down to 4.4 per cent in the quarter, compared to 5.1 per cent last year. The bank’s other provisioning was Rs 798 crore in the first quarter last year, compared to Rs 500 crore this time, which will add to profitability.
The strong two-wheeler industry growth (19.2 per cent in volumes) in the June quarter could help Bajaj Auto, expected to report 24 per cent growth in profit in the June quarter. Analysts estimate 16 per cent volume growth and seven per cent growth in realisation, leading to 23-24 per cent growth in revenue and profit for the company.
