Stocks
Diesel reforms and lower LPG subsidies expected to lead to improvement in equities of oil and gas companies

In the second part of this quarterly earnings preview, we take a look at the earning prospects from oil & gas, real estate, retail, technology, telecom and utilities sectors.

Oil & Gas

Brent average crude price for 4QFY13 was higher q-o-q at $113 per barrel (bbl) (averaged around $110/bbl for 9MFY13), mainly due to supply cuts by Opec (around 1 mmbbl/d) and returning positive sentiments on the demand front. Reuters Singapore GRM jumped 37% q-o-q to an average $8.7/bbl in 4QFY13 versus $6.5/bbl in 3QFY13. This was primarily driven by higher auto fuel cracks and maintenance shutdowns in the US.

 

In 4QFY13, polymer spreads over naphtha and integrated polyester spreads are up q-o-q by 4$-11% range. Similarly, y-o-y, PE spreads are up 29% and PP spreads 41%. Domestic price premium to polymer reduced during the quarter probably due to higher imports.

 

Motilal Oswal Securities (MOSL) estimates 4QFY13E under-recovery at Rs372 billion, down 5% quarter-on-quarter, primarily led by diesel reforms and lower LPG subsidies (lower international prices at $946 per mt, down 4% q-o-q).

 

On the back of ongoing reforms, the brokerage continues positive stance on ONGC and OIL among upstream companies. BPCL is the top pick among OMCs for its E&P upside potential. RIL’s new refining/petrochem projects are likely to add to earnings from end-FY15E/FY16E, but medium-term outlook on core business remains weak, with RoE reaching sub-13%. It is neutral on GAIL/GSPL due to headwinds on incremental gas. On the other hand, MOSL maintains a Buy on Petronet LNG as domestic gas scarcity augurs well for the company.

 

Real Estate

Easing of operational constraints and better liquidity outlook (led by interest rate down cycle and developers' focus on cash management) should improve the cash flow position/ leverage levels of developers, according to MOSL. Concerns like high promoters' pledging, potential default/delay in debt servicing, various non-core overhangs (Unitech’s telecom issues, etc) have impacted select stocks that have steadily declined in 4QFY13. It prefers (1) Prestige, Jaypee Infratech and IndiaBulls, followed by (2) Phoenix, DLF and Oberoi. Unitech offers potential (based on blue sky scenario).

 

Retail

MOSL expects the retail segment to post 13.5% year-on-year growth in sales. EBITDA is likely to increase by 12% y-o-y. PAT should grow 13% y-o-y, led by Titan Industries and Jubilant Foodworks. “We expect subdued profitability for traditional retailers, though we believe footfalls have not deteriorated sequentially,” it added.

 

Technology

The brokerage expects organic growth rate of 1.2%-3.1% across the top-tier IT companies, including Cognizant. While Infosys is expected to grow its US dollar revenues by 3.6% q-o-q and Cognizant by 3.3%, each will have some contribution from acquisitions (around 1pp for both companies). Organically, HCL Tech and TCS are expected to grow faster, at 3% q-o-q. Wipro, which had guided for 0.5-3% q-o-q growth in US dollar revenues, is expected to grow at 1.2%. Among Tier-II, 4Q is a seasonally strong one for NIIT Technologies and Persistent Systems, both of which should grow 4%+, while growth at Tech Mahindra and Mphasis will be driven from acquisitions.

 

Telecom

Motilal Oswal Securities expects average wireless traffic for the top-four operators to grow by around 3% q-o-q, led by seasonal strength, despite fewer days in the quarter. Wireless RPM is likely to increase by around 1% q-o-q on a blended basis, led by lower discounting.

EBITDA margin to improve q-o-q for Bharti/Idea: It expects EBITDA margin to expand by 50-70bp for Bharti/Idea, led by operating leverage and cost control. Its estimates imply 4/7% q-o-q growth in domestic wireless EBITDA for Bharti/Idea, implying strong operating performance.

 

Wireless subscriber additions have been in the negative territory for seven consecutive months due to (1) industry-wide measures undertaken to rationalize channel commissions and control “rotational churn”, (2) “clean-up” of dormant subscriber base by some operators, (3) implementation of stringent subscriber verification and acquisition process mandated by the government, effective from November 2012, and (4) exit of certain operators from specific circles.

 

Utilities

The brokerage expects utility companies in this segment to report aggregate 4QFY13 revenue growth of 6.7% y-o-y and PAT growth of 5.7% y-o-y. Muted PAT growth is due to a decline in IPPs’ PAT (except JSW Energy); however, CPSUs led by NTPC (higher capacity addition), PGCIL (better capitalization) would show a PAT growth of 11.7% and 14.3% y-o-y respectively. Among IPPs, JSW Energy is expected to report strong PAT growth (115% y-o-y) led by favourable macros.

User

COMMENTS

kartikesh jaiswal

4 years ago

please confirm this year april 2013 higesht nav please confirm

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