Q3FY12 - WHAT TO EXPECT OR BEST, EXPECT NOTHING!
Last fiscal Q3FY11 held more promise and more than sustainability, it was about good growth. But this fiscal, Q3, especially after a not-so-good Q2 and interest regime and falling rupee, does not paint an overall good picture
Like in Q2, in Q3 too, raw material costs will remain a concern though the high levels of last fiscal have eased a bit, the worry about costs remains intact. Power and fuel costs have shot through the roof. And over and above anything else, interest costs and forex losses or MTM is what we need to keep watch on. A trim to the topline growth and surely a hair cut for the bottomline growth seems inevitable. Oct IIP numbers were horrific and we could see that reflecting, to come extent in the Q3 numbers too.
As the season is being flagged off by the IT sector, the depreciating rupee vis-à-vis the US dollar could do good for the companies, especially the likes of Infosys and TCS. But the focus of demand – US and Europe remains weak. US is showing slow signs of recovery but could take a while. Another indicator is that global MNCs like Accenture and Oracle declared good results, leading to restoration of investor faith. Keep an eye on the earning guidance and the hiring plans.
Q2 numbers were impacted by MTM or better recognised as forex loss and we could an action replay in Q3. Tata Motors, Mahindra & Mahindra, Bharti, Exide, SterliteInds, Dish TV, Essar Oil, Arvind, Jet, Sesa Goa, Subex, JSW Steel, Shree Renuka, PFC, JSW Energy; around 70 major companies reported forex losses. Companies like Reliance Communications, Indian Oil , BPCL, JSW Steel , Bhushan Steel, Lupin, Aban Offshore, IOC, Chambal, SAIL and NTPC have forex debt which is around 18 to 52% of the total debt. RCom leads at 52%. Keep a watch on the numbers of these companies.
Impact of interest cost will also be acutely felt. More than looking at companies which could be affected, which would run into realms of paper, it would be best to look at some zero debt or low debt companies, which in turn could be the surprise winners. Companies like Infosys, Crisil, Gillette, P&G Hygiene, Pfizer, AstraZeneca, NMDC, Nalco, Concor, Engineers India, Bajaj Finserve, Lakshmi Machine Works, Honeywell Automation, Tata Sponge, ChemfabAlkalies, Praj Industries, Lakshmi Automatic Loom are zero debt. And companies which have very low debt, where interest outgo per quarter is less than even Rs.50 lakh includes names like Aventis, PTC India, Zydus Wellness, TTK Prestige, Shanthi Gears, KSB Pumps, Foseco India, Castrol India, Kansai Nerolac, IFB Industries, Eicher Motors, BalmerLawrie, HUL, CMC, MRO-TEK, InfotechEntp, Oberoi Realty, Wyeth, Thermax.
In sector specifics, auto could be subdued while auto ancillaries could see their Q2 momentum winding down in Q3. Cement numbers could be flat as higher realization and higher dispatch could be offset by higher fuel and interest costs. Realty companies too could show poor numbers but sale of assets by many could boost keep the bottomlines from getting dunked in the red. Private banks could show good numbers, keeping up the robust performance reported by most in Q2. FMCG too are expected to show a set of good numbers as Oct and Nov were festive seasons. NBFCs will have a lackluster show as the volatility in the markets – stock as well as forex was at its peak in Q3. Hospitality might do well as Q3 flags off the beginning of its season. Tyre companies which were amongst the worst hit in Q2 due to soaring rubber prices, could see some improvement as prices have eased since then. Metal stocks could get beaten down due to lower realisations and higher raw material prices. Mining sector continues to remain clogged and Q3 is not expected to be any stronger. Capital goods companies are expected to remain muted – though order intakes have been pretty robust and one only hopes that execution has also kept pace. In commodity specifically, watch out for results of rice companies. Textile firms could show some pressure.
Bottomline – Q3 will be weaker than Q2 and thus depending on the numbers to lift up the market sentiment might not be a prudent move!