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Slowdown Across The Board – Goldman

October 9, 2008

Goldman Sachs – GS covers 105 stocks across 15 sectors in India. The research house expects slowdown across the board.

A modest deceleration in sales growth for stocks under GS coverage from 32% in 1Q FY09 to 28% this quarter. EBIT margins to compress from 22.5% in 2Q FY08 to 21.0% in 2Q FY09E (expect FY09E to be the second consecutive year when EBIT margins contract). These factors, combined with higher interest costs, are likely to result in a sharper slowdown to net income. As a result, expect net income to grow by 8% this quarter, versus 21% growth in 1Q FY09.

Sector specfic, expect metals, financials and cement to see a decline in net income this quarter. Utilities, oil & gas, healthcare, real estate and agriculture will see slower growth than last quarter. One-year forward multiples for GS coverage group have compressed sharply since markets peaked in January 2008. This does not mean that GS coverage group is oversold, since static multiples cannot adequately capture a slowing growth dynamic.

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