Q4FY12 - MARKET WAITS FOR THE TRIGGER

By Ruma Dubey

Q3FY12 was not half as bad as expected. Maybe the rule 46A in AS-11 wherein a company was allowed to transfer its MTM loss/gain to the balance sheet or adjust it against the P&L account helped. Thus major hits to the bottomline, to large extent were thus averted.

But we are now looking at Q4FY12 and FY12.  And how does it look? Rating agency CRISIL put out a report and it has given a ‘tepid” outlook for Q4FY12. It expects India Inc to show a decline of 200-250 bps in EBITDA margins while it has projected revenue growth at around 15% v/s 25.5% in Q4FY11. This drop, it has blamed on slowdown in demand and in investment and uncertain global environment.

In Q3 itself we had seen raw material costs, which were a big concern in H1FY12, showing signs of cooling off. Thus in Q4 there is no major threat from raw material costs but whatever little hike in costs, many companies have not been able to pass it on to the consumers. Power and fuel costs is something we need to watch out in Q4 as we have been seen pressure in Q3 itself. Interest cost remains a big blip and hopefully, once the rate hike cycle is reversed, from H2FY13, we will see these costs also tapering off. But in Q4FY12 and FY12 the effect of the high interest cost is sure to be felt on the bottomlines.

One sector, which surprisingly is expected to do well, is cement. Constant price hikes and demand has kept the production and sales offtake pretty buoyant through the fiscal, especially in second half. IT companies are also expected to put up a reasonable show as volumes from offshore activities have picked up and more importantly, YoY, the numbers will look good on account of rupee depreciation. Keep an eye on the earning guidance and the hiring plans. Earnings of telecom companies are also expected to get a boost as realisations have gone up due to price hikes but once again, high outgo in terms of interest and other operating costs, could keep a leash on the bottomlines. The FMCG sector is also expected to clock in a good performance as through the four quarters it has managed to show volume growth and has managed to do that despite price hikes. The pharma sector is also expected to be majorly in the green as earnings of most during all the past three quarters have been good.

For sectors like cotton, textiles the outlook does not look too good as volumes have been tepid to lackluster and to top it off, they have been trying to survive the high costs of labour. This is an issue with tea companies too where wage costs have become an important component of the costs, affecting the profit margins. The auto sector did manage to hold its steed together but the duress was very much visible, yet the sector is expected to put in a good performance for FY12.

Tyre companies which were amongst the worst hit in H2FY12 due to soaring rubber prices, but as was seen in Q3, in Q4 too, it 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 Q4 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. Ditto for the infrastructure sector. Power is one sector which could see its lights going out as it suffered from all ills – high raw material costs, high interest outgo, stretched working capital cycles. Realty will remain subdued but hopefully we could see some turnaround from H2FY13 in this much beaten down sector. In Q3FY12, the profit growth of private banks was 35% while the public sector banks managed only 21%.IndusInd Bank, Indian Overseas Bank and State Bank of Travancore witnessed the strongest growth numbers at 74%, 127% and 158%.

A few companies which will end FY12 on a much higher note based on its 9MFY12 numbers – Navin Fluorine, Nitin Fire, Fluidomat, Indian Hume Pipe, Atlas Cycles, IDFC, Bayer Crop, Indag Rubber, Balkrishna Industries, Carborundum Universal, RPP Infra, Polyplex Corp, Hatsun Agro, Amara Raja, Wheels India, Bharat Forge, Hikal, Apollo Tyres, Yes Bank, Praj Industries are just some of the companies which could report blockbuster numbers in FY12.