Q2FY2007 Earnings Review
- The Q2FY2007 earnings of the Sensex companies grew by 22.7% year on year (yoy) and 8.4% quarter on quarter (qoq) compared with the consensus expectations of 20.0% growth yoy and 6.0% growth qoq. Capital goods, cement, and information and technology (IT) companies led the growth in the earnings.
- The quarter was a celebration of sort as of the total thirty companies in the Sensex twenty five companies reported results above or in line with expectations.
- While the sales of the non-banking companies in the Sensex grew by 29.3% yoy, the operating profit of these companies grew by a slower 24.4% as their operating profit margin (OPM) contracted by 120 basis points yoy to 23.5%.
- The earnings of the BSE200 companies grew by 35.0% yoy. The sales of the non-banking companies reported a revenue growth of 34.1% whereas their operating profit grew faster at 40.6% driven by an 80-basis-point expansion in the margins.
- The consensus estimates for the earnings growth of the Sensex companies has been upgraded to 22.6% for FY2007E and FY2008E. The earnings growth estimate for FY2007 has been upgraded to 22.6% from the earlier 21% whereas the FY2008 consensus estimate has seen a sharper upgrade from 11% to 14.6%. At the current level of 13,091, the Sensex is trading at 16.2x its one-year forward earnings which is towards the higher end of its valuation range.
- Many of the companies in our universe have seen upgrades in their earnings, led by cement and banking sectors. The IT sector is not far behind with almost all the IT companies also witnessing upgrades in their FY2007 and FY2008 estimates. The ratio of upgrades to downgrades in full year's earnings after Q2FY2007 stands at a stupendous 28:5.
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