Investor's Eye
[October 01, 2013] | | |
| Summary of Contents
SECTOR UPDATE Automobiles A mixed bag Key points Companies reported mixed performance
The automotive players reported a mixed performance in September 2013. Hero MotoCorp and Maruti Suzuki (Maruti) reported a strong double-digit growth on a year-on-year (Y-o-Y) basis. TVS Motor Company (TVS Motor) also reported a strong double-digit growth in volumes though on a low base of the corresponding month of the last year. On the other hand, Tata Motors, Mahindra & Mahindra (M&M)'s automotive division and Eicher Motors reported a double-digit decline in volumes on a Y-o-Y basis. Macro-economic environment remains challenging; CV most impacted
The macro-economic environment continues to remain subdued, thereby putting pressure on the automotive volumes. A lower economic growth and an increase in the fuel prices (particularly diesel prices) continue to impact the demand. Also, the firm interest rate environment has maintained pressure on the volumes. The sales of the commercial vehicles (CVs) like medium and heavy commercial vehicle (MHCV) and light commercial vehicle (LCV), which are closely linked to the economic growth, have bore the maximum brunt with the sales declining by 21% and 8% year on year (YoY) in the year-till-date (YTD) period. Festive season and higher rural incomes to boost demand in H2FY2014; two-wheelers likely to benefit the most
A good monsoon has increased the kharif sowing area, which is likely to boost the rural incomes. Amongst the automotive companies, the two-wheeler players derive significantly higher chunk of sales (about 40 to 50%) from the rural areas. A higher crop output and increased realisations due to increased minimum support prices would boost farm incomes leading to an increase in the demand for the two-wheelers.
Also, the festive season is expected to further boost the volumes for the automotive companies. We expect the volumes to revive for both the two-wheeler and the passenger vehicle companies going forward. The CV companies are likely to witness continued pressure on the volumes due to a lower economic growth and continued increase in the diesel prices, which impact the profitability of fleet operators resulting in lower demand.
SHAREKHAN SPECIAL
Q2FY2014 IT earnings preview
Rupee's weakness aiding growth in a seasonally strong quarter Key points -
A seasonally strong quarter further aided by rupee's depreciation: In the September 2013 quarter, which is seasonally strong, the performance of all four leading information technology (IT) services companies is expected to be aided by both a better demand environment and currency gains. Unlike in the past several quarters, which saw vast polarisation of performance of the top four IT companies, for the upcoming September 2013 quarter we expect a strong sequential growth of 2.5-5.0% in the revenues of these companies. On a constant-currency basis, the growth will be higher at 3.3-6.0% (we expect a cross-currency impact of 75-110 basis points on their reported revenues). Specifically, Tata Consultancy Services (TCS) will continue to lead the pack with a quarter-on-quarter (Q-o-Q) top line growth of 5%, followed by HCL Technologies (HCL Tech; 3.3%), Infosys (3%) and Wipro (2.5%). Among the mid-cap companies under our coverage, we expect a strong top line growth from Persistent Systems Ltd (PSL) and CMC. We expect a soft performance from NIIT Technologies (NIIT Tech). -
Windfall gains on margins driven by rupee's weakness: The rupee has on an average depreciated by close to 11.3% in the last three months and by 15% in the last two quarters. Most of the IT companies will see currency benefits flowing to their margins, but the quantum of the impact will be vendor specific (around 130-260 basis points quarter on quarter [QoQ]). In the quarter HCL Tech had its annual wage hikes, Wipro had two months' wage hikes and Infosys had a wage hike for its technical employees as well as for its global sales force with effect from Q1FY2014. We expect TCS to report the highest margin gains to the tune of 263 basis points QoQ among the tier-1 IT companies. It will be imperative to gauge the company's strategy pertaining to re-investment of the currency gains in the coming quarters. A strong margin performance coupled with a decent top line growth will translate into an impressive net income growth of 12.7-18.0% QoQ. -
Management to maintain positive demand commentary: On the back of the recovery in the USA and some pockets of the euro zone, we expect positive demand commentary from the managements of the IT companies to continue in this quarter as well. Though discretionary spending remains soft (as indicated by the Oracle and Accenture numbers), but there have been signs of improvement in the overall IT spending. The improving demand environment will be reflected in the increased revenue guidance from Infosys (9-11% vs 6-10% earlier) whereas TCS and HCL Tech will maintain optimism on the demand environment. Further, we also expect Nasscom to revise its industry growth estimate upward after the announcement of the September quarter's report card from 12-14% currently. -
Valuation: In the last three months with a 23% return the CNX IT Index has smartly outperformed the broader market indices, which have remained flat. The outperformance in the IT counters was led by the rupee's depreciation and a recovery in the operating environment following an improvement in the USA and the euro zone. Further, delay in the impending US immigration bill following its rejection in the US Senate has boosted sentiment for the Indian IT incumbents. Going forward, pertinent signs of improvement in the demand environment and currency tail winds will lead to upward revisions in the consensus earnings estimates for the IT companies. We maintain our positive stance on the IT sector and remain positive on TCS and HCL Tech among the large-caps and on CMC and PSL in the mid-cap space.
Click here to read report: Investor's Eye | | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. | | | |
Regards,
The Sharekhan Research Team | |
This e-mail message may contain information, which is confidential, proprietary, legally privileged or subject to copyright. It is intended for use only by the individual or entity to which it is addressed. If you are not the intended recipient or it appears that this mail has been forwarded to you without proper authority, you are not authorized to access, read, disclose, copy, use or otherwise deal with it and any such actions are prohibited and may be unlawful. The recipient acknowledges that Sharekhan Limited or its subsidiaries, (collectively "Sharekhan "), are unable to exercise control or ensure or guarantee the integrity of/over the contents of the information contained in e-mail transmissions and further acknowledges that any views expressed in this message are those of the individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of Sharekhan . Sharekhan does not accept liability for any errors, omissions, viruses or computer problems experienced as a result of this email. Before opening any attachments please check them for viruses and defects. If you have received this e-mail in error, please notify us immediately at mail to: mailadmin@sharekhan.com and delete this mail from your records. This e-mail message may contain information, which is confidential, proprietary, legally privileged or subject to copyright. It is intended for use only by the individual or entity to which it is addressed. If you are not the intended recipient or it appears that this mail has been forwarded to you without proper authority, you are not authorized to access, read, disclose, copy, use or otherwise deal with it and any such actions are prohibited and may be unlawful. The recipient acknowledges that Sharekhan Limited or its subsidiaries, (collectively "Sharekhan "), are unable to exercise control or ensure or guarantee the integrity of/over the contents of the information contained in e-mail transmissions and further acknowledges that any views expressed in this message are those of the individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of Sharekhan . Sharekhan does not accept liability for any errors, omissions, viruses or computer problems experienced as a result of this email. Before opening any attachments please check them for viruses and defects. If you have received this e-mail in error, please notify us immediately at mail to: mailadmin@sharekhan.com and delete this mail from your records.
No comments:
Post a Comment