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India Quarterly Results – Winners and Losers ?

October 5, 2007

India Inc had a robust 1Q, Citigroup expects Sensex ex-oil profits to rise by 21% in 2QFY08 (14.5% for Citi India universe ex-oil). Forex gains (a key driver of positive surprises last quarter) will likely be less of a factor this time, as the rupee appreciated by a modest 2% during the Sep-07 quarter.

Telecom (+114%), Media (+109%), Brokerages (91%), Hotels (54%), Capital Goods (47%), and Cement (50%) should lead in profit growth. Key laggards seen as Autos, Pharma, Textiles, Metals, and Sugar. IT Services companies are expected to report (18%) profit growth lagging behind the market average.

Autos: The sector’s performance will likely remain weak overall, with high interest rates continuing to have a negative impact on two-wheelers and fourwheelers alike. Sales for the sector are expected to remain flat on a yoy basis, while profits should decline. Likely best performers: Amtek Auto and Amtek India.

Banks: The sector has potential upside from bond portfolio appreciation and a facilitative trading environment. Expect strong performances from brokerages and possible earning dip for a few public sector banks to due to a high base effect. Likely star performers: Kotak Bank and IL & FS.

Capital Goods: Strong forecast earnings growth of 47% led by expected top-line growth of 35%, and margin expansion. Likely top performers: Thermax, Punj Lloyd, Jindal Saw, L&T and BHEL.

Cement: Higher cement prices should drive margin improvements. Profits likely up by almost 50% on a topline growth of 27%. Likely top performers: ACC and UltraTech.

Consumer: Expect a weak quarter with profit growth seen at only around 10%, Expected top performers: Britannia, and Marico. Likely laggards: TataTea, Colgate and Shoppers’ Stop.

IT Services: Expect strong volume growth should continue in a seasonally strong quarter. EBITDA margins seen down yoy, but likely to improve sequentially for most companies with visa costs and wage hikes being taken care off in 1Q. Likely top performers: Mphasis BFL
and NIIT . Laggard: Sasken Communications.

Oil&Gas: Assuming oil-bond issuance to the tune of Rs240bn for this fiscal, with Rs121bn for the first half, to be booked in this quarter. Rupee appreciation is likely to have a significant
positive impact on gas distributors. Likely top performers: Aban, Gujarat Gas and GAIL.

Pharma: Impact of currency appreciation on exports and margins should lead to a weak quarter with revenue growth in single-digits at 8%, and negative profit growth (-11%). Base effect should have a positive impact on Matrix and a negative impact on Dr. Reddy’s.

Telecom: Expect another strong quarter with profit growth well above 100% yoy. Forex gains in this quarter are likely but to a lesser than the previous quarter. Likely top performers: Idea Cellular and Reliance Communications.

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