During the earnings season, we have witnessed a sharp downgrade in FY16 Sensex earnings growth from 23% to 18%. We expect further downgrades to FY16 consensus Sensex EPS (earnings per share) to under12%.
Earnings remain weak: The bad news is that profit growth for Sensex companies continues to be anaemic, growing by a mere 0.9% during the quarter on consolidated basis. The good news is that after sharp disappointments in the previous three quarters, earnings were slightly ahead of our expectations of 0.3% for the Sensex companies.
Secondly, Ebitda (earnings before interest taxes depreciation and amortisation) margins also surprised positively and expanded 120 bps on a year-on-year basis.
However, our wider universe continued to disappoint and contracted 9% on a y-o-y basis, clearly showing the stress in earnings. Nearly 45% of companies missed analysts estimates versus 30% companies surprising analysts estimates.
Margins surprise: After three quarters of disappointment in margins, Ebitda margins finally surprised positively and expanded 120 bps on a y-o-y basis (vs our estimate of 75 basis points). However, this is completely led by oil. Ex-energy, Ebitda has actually declined 30 bps (65 bps estimated).
Metals, utilities, Sun Pharma drag growth: Among Sensex companies, banks (HDFC Bank, Axis Bank), telecommunications (Bharti) and Cipla lead the growth. On the other hand, metals, utilities, Sun Pharma and select automobiles companies drag down growth.