Auto, cement shares will be in focus on monthly sales data

Auto and cement shares will be in focus next week as companies from these two sectors start unveiling monthly sales data for September 2011. Cement sales is likely to pick up as monsoon withdraws. On the other hand, higher interest rates and recent petrol price hike is expected to adversely impact sales of cars and two-wheelers during the festive season. The timing of the latest petrol price hike has been bad for auto firms. The festive season started early this month and it will last until Diwali, the festival of lights, at the end of October 2011. Sales normally pick up during the festive season every year.



Next week is a truncated trading week. Financial markets are closed on Thursday, 6 October 2011, on account of Dassera.

The HSBC purchasing manager index (PMI) data for the month of September, indicating health of manufacturing activity and Business activity index also for September, indicating health of the services sector activity, are due next week.

The government will on Friday, 7 October 2011, unveil data on some wholesale price indices viz. the food price index, the primary articles index and the fuel price index for the year through 24 September 2011.

Stock-specific action may be witnessed on the bourses ahead of Q2 result season, which starts during the second week of October 2011. The advance tax payment by top 100 companies rose a modest 9.9% in Q2 September 2011 from a year ago against 19% growth in Q1 June 2011, suggesting corporate profit growth is likely to be muted in the second quarter. Among the big companies that have paid lower advance tax, indicating a drop in profits, include State Bank of India (SBI), Maruti Suzuki and state-run Neyveli Lignite Corporation. SBI's advance tax payment declined 14.2% to Rs 1650 crore in Q2 September 2011. Maruti's tax payment fell 55.8% to Rs 120 crore. Neyveli Lignite tax payment plunged 50.1% to Rs 66 crore. But, Reliance Industries' (RIL) advance tax payment jumped 37.6% to Rs 1800 crore, hinting at good Q2 results from the diversified firm.

CRISIL Research expects corporate India to report a significant moderation in revenue growth and lower EBITDA (earnings before interest, taxation, deprecation and amortization) margins in Q2 September 2011, primarily due to decline in consumer confidence, on account of stubbornly high inflation, rising interest rates, and slowdown in investment growth. Based on an analysis of the aggregate financial performance of select companies across 21 industries, excluding banks and oil companies, CRISIL Research expects around 15% revenue growth in Q2 September 2011, as compared to 19% growth Q1 June 2011 and 22% growth in Q2 September 2010.

Although companies have hiked prices, slower volume growth, along with high input costs and rising wages, will put pressure on margins, CRISIL says. CRISIL expects a 100 basis points (bps) reduction in EBITDA margins in Q2 September 2011 from 19.5% in Q1 June 2011. Further, with increase in interest rates, net margins are expected to fall even more sharply.

According to CRISIL, sales volumes in consumption-linked and interest rate sensitive sectors such as automobiles, real estate, textiles, and retail have been significantly impacted. In infrastructure-linked sectors such as cement, capital goods, and construction, order book/volume growth has declined.

CRISIL expects real estate players to report a 5% year-on-year (yoy) decline in revenue and a sharp reduction in EBITDA margins. Automakers, textiles and steel manufacturers are also expected to see a sharp decline in margins on the back of slower offtake and high raw material costs. For cement and construction players too, EBITDA margins are likely to remain under pressure owing to slowdown in pace of project execution as well as rising input costs. But, IT services providers are expected to report buoyant revenue growth of around 17% on the back of strong pipeline. However, EBITDA margins are likely to decline by around 200 bps due to rising salary costs, CRISIL says.

Investors will closely watch the management commentary at the time of announcement of Q2 September 2011 results, which will provide cues on futures earnings outlook. IT bellwether Infosys kickstarts the Q2 September 2011 earnings season on 12 October 2011. Housing finance major HDFC unveils Q2 results on 17 October 2011. HDFC Bank and Bajaj Auto announce Q2 results on 19 October and 20 October, respectively.