No Recovery in Metals Yet – Analysts

Consensus estimates for Q1 results by Analysts on the street expect Metals to lead sharp earnings drop in SENSEX companies.

EPS for Sensex companies is set to decline for the 3rd consecutive quarter with forecast net profit expected to drop by 18.3%. Sales and EBITDA also decline for consecutive quarters. 10 of the 30 companies in the Sensex are expected to show drop in profits.

But the good news is that this steep fall in net profit and sales is led by metals stocks (TISCO, Hindalco & Sterlite). Ex-metals estimated PAT growth is at +4.4% with EBIDTA growing 7.9%. Second good news is that earnings downgrades are behind us and we are starting to see some upgrades.

Cement and autos will should strong performance in the results season and may see a rally Analysts recommend profit booking in cement stocks in the rally. Telecom will continue to show strong growth. Infosys could cut earnings guidance which may disappoint the market.

Banks (34%+) and Cement (23%) lead the pack with strong profit expectations while the long tail comprises Real estate (-87%), Metals (-39%) and Auto’s (-8.7%). More sectors will see earnings fall (10) than rise (6), reflecting broad-based pressures rather than concentrated ones.

12 months ago, Sensex companies were generating sales growth of 35%yoy – this has slipped consistently but will now likely touch a pace of 2.8% and flat to negative qoq. Revised FY10 expectations, +1.7% growth, would also suggest a nadir with back ended growth in the current year.

We don’t recommend selling anything now, unless valuations look too far stretched. Wait for a separate post covering the front line blue chips and their performance expectations.