Investor's Eye
[January 08, 2014] | | |
| Summary of Contents
SHAREKHAN SPECIAL Q3FY2014 Auto earnings preview -
Despite weak sales volumes in Q3FY2014, we expect a double-digit growth in the earnings of the automobile companies driven by an expansion of their margins. The margin improvement shall be aided by currency benefits (exports), cost control and price hikes. -
The demand outlook remains muted in the near term; however, margin expansion and expectations of a revival in the volume growth in FY2015 are likely to support valuations. -
We prefer Mahindra and Mahindra and Maruti Suzuki in the four-wheeler space; Bajaj Auto among the two-wheeler companies; and Apollo Tyres and Suprajit Engineering in the auto ancillary space. Q3FY2014 Pharma earnings preview -
The US business of our pharmaceutical universe is expected to see a growth of 28% YoY on the back of the approval of 18 new ANDAs in Q3FY2014; Sun Pharmaceutical Industries' Doxil and Lupin's Trizivir, Trilipix and Cymbalta would be the key contributors to the growth in the generic space. -
A weak rupee would also aid the growth in the export revenues and drive the financial performance of the companies focused on contract research and manufacturing services, like Divi's Laboratories, and Dishman Pharmaceuticals and Chemicals. -
The performance of the domestic business of the universe is likely to improve in Q3FY2014 (a growth of 15% vs a 13% growth in Q2FY2014). Overall, we expect stable margins with a strong growth of close to 30% in the earnings. -
Our preferred picks: Sun Pharmaceutical Industries, Lupin, Cadila Healthcare (which is also our top pick for year 2014) and Divi's Laboratories. Q3FY2014 Retail earnings preview -
Barring jewellery players (Titan Industries and Tribhovandas Bhimji Zaveri [TBZ]), we expect retailers to post a double-digit revenue growth for Q3FY2014, averaging at 18% YoY; the margin trend would be mixed with Jubilant FoodWorks and TBZ likely to witness a contraction in profitability; Kewal Kiran Clothing Ltd (KKCL), Raymond and Relaxo Footwear expected to report an improvement in margins. The earnings are likely to trail the operating performance, averaging at a 20% growth for the quarter. -
We believe that event-based developments, like the removal of curbs on gold, restoration of the gold lease model and foreign direct investment tie-up, are likely to emerge as key sentiment drivers for stock performance over the short to medium term. -
We continue with our bottom-up approach for selecting stocks from the retail sector as the consumer discretionary demand remains subdued. We prefer Raymond and KKCL. On the soft coverage front, we like Arvind Mills, Bata India and Titan Industries in that order. Q3FY2014 Telecom earnings preview -
Telecommunications service providers are expected to report a 3-7% sequential growth in revenues due to pricing discipline and a favourable season (the usage of their services is higher in festive/holiday season); the margins are likely to remain stable and the earnings growth is expected to be strong due to a low base in Q3FY2013. -
The auction of 2G spectrum coincides with the announcement of the Q3 results (the auction process is slated to begin from February 3, 2014). Hence, we believe that along with the financial results, the outcome of the spectrum auctions and other regulatory developments will continue to hog investors' attention. -
The risk/return profile of Bharti Airtel appears favourable (FY2015 EV/EBITDA at 6.5x FY2015). Hence, it is our preferred pick (recently we upgraded the stock from Hold to Buy) followed by Idea Cellular. On our soft coverage front, we remain confident that the financials of Tata Communications are improving. Hence, despite the stock's outperformance compared with the market (it has risen by 46% in three months) we continue to like it.
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Regards,
The Sharekhan Research Team | |
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