Demand remains subdued and supply-side bottlenecks, especially power shortages, remains a constraint, says Nomura Economics Research
Nomura Economics Research has observed the following trends in inflation, growth recovery and government spending based on activity, survey and fiscal data that have been released in the last week:
International business revenues were +15%, with constant currency growth of 3%, and this was disappointing, according to Nomura Equity Research
Fast moving consumer goods major Marico Industries has announced disappointing second quarter results and the key numbers from Q2FY13 have been analysed by Nomura Equity Research in its Quick Note. Net sales grew 19% y-o-y (year-on-year) and were largely in line with Nomura’s expectations. Domestic consumer business revenues were + 19% y-o-y. International business revenues were + 15%, with constant currency growth of 3%, and this was disappointing.
Overall volume growth was 14% with organic volume growth of 9% (excluding the recently acquired Paras brands). Volume growth for Parachute was 9%, value-added hair oils were 20%, and Saffola was 6%. These percentage figures have been computed by Nomura.
Kaya Business reported revenue growth of 38% in constant currency terms, which was 25%. SSSG (same store sales growth) was 10%.
Gross margins expanded 634 basis points. This was largely in line with Nomura expectations. EBITDA at Rs1.5 billion was 9% below Nomura estimates. EBITDA margins at 13% expanded 150bps y-o-y primarily due to higher gross margins. Nomura was expecting EBITDA margins of 14%. This was a key negative surprise. Net profit at Rs889 billion was 22% below Nomura estimates and 17% below street expectations.
Apart from the above figures, Nomura has obtained feedback from a conference call with Marico management. The key observations are:
Given the slowdown in volumes and valuations at around 25 times FY14F, Nomura believes that the Marico Industries stock is fairly valued at current levels.
Flat volumes, muted guidance and weak hiring were uninspiring in Wipro’s second quarter performance, according to Nomura Equity Research
Wipro’s second quarter results lacked growth diversification and did not provide any convincing indication of lag reduction versus its peers. This is despite a continued uptrend in sales investments (up 25% y-o-y—year-on-year). The lack of diversification was evident, according to an analysis by Nomura Equity Research.
Any hopes of a near-term rebound in revenue growth might be premature. The stock appears fairly valued at around13 times FY14F. These are the observations of Nomura on overall future performance:
Nomura says that Wipro’s 2Q results were in line, with US dollar revenue growth of 1.7% (versus estimates of 1.8% q-o-q quarter-on-quarter). Net profit was at Rs16.1 billion (versus estimate of Rs16.7 billion). Margins surprised positively, down 30 basis points q-o-q to 20.7% (versus estimates of 20.1%) led by blended pricing improvement of 1.2% q-o-q. However, flat volumes, muted guidance (1.2-3.2% q-o-q) and weak hiring (1.5% q-o-q) were uninspiring.
According to Nomura, growth diversification is not yet visible. The lack of diversification was evident across:
• Clients: With 8%+ q-o-q growth in top 10 clients versus no growth in the non-top 10.
• Verticals: With BFSI & energy (42% of revenues) growing by 5.5% q-o-q vs rest of verticals down 1% q-o-q.
• Services: With IMS, BPO and business analytics (39% of revenues) growing by 3.6% q-o-q vs rest of services up at 0.6% q-o-q. Any hopes of a near-term rebound in revenue growth might be premature.
Nomura has listed the 2QFY13 results highlights of Wipro as follows:
• IT services US dollar revenue growth of 1.7% q-o-q was below our expectation of 1.8% growth (versus Infosys’ 2.6% and TCS’ 4.6% for the same quarter).
• In constant currency terms, revenue growth in IT services was 1.3% q-o-q, in line with the company’s guidance of 0.3-2.3% q-o-q growth.
• Volume growth in global IT services was 0.2% (compared with 4.9% at TCS and 3.8% at Infosys).
• Wipro has guided q-o-q revenue growth of 1.2-3.2% for IT services for 3QFY13F, which is lower than Infosys’ 3.7% implied revenue growth guidance (after assuming even growth across 3-4QFY13F).
• Growth at two of its four focus verticals—namely BFS (4% up q-o-q) and energy and utilities (8% up q-o-q)—was stronger than the overall company growth rate. Healthcare declined by 4% q-o-q, while retail with 1.4% q-o-q growth and media and telecom with 1.3% q-o-q decline had muted performance.
• Among geographies, US grew by 1.4% q-o-q, Europe by 2% q-o-q and Asia-Pacific by 5.1% q-o-q. Japan was down by 11% q-o-q.