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4 things to expect from September 2015 quarter results
Falling commodity prices, weak global demand, volatile rupee is likely to have an influence on the profits of companies in the quarter to September 2015. Overall our analysts expect a weak quarter for companies they track and those in the BSE 30 index.
Here are 4 things you could expect from September 2015 quarter results:
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Auto advantage
Low commodity prices are likely to help companies in the automobile sector improve their profit margins. This is the net profit as a percentage of sales. Falling commodity prices make the cost of auto components reasonable. The currency fluctuation (which accompanied a fall in the rupee value) benefits companies that export two-wheelers or cars overseas. This is the profitability of auto sector companies is expected to improve despite a relatively flat growth in vehicle sales.
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Pharma pill
The fall in the rupee value could benefit companies in the pharmaceutical and IT services sector. Many pharma companies like Lupin, Sun Pharmaceuticals and Cipla have strengthened their US business and generate revenue by selling generic drugs in the US markets. "We expect EBITDA margin to remain strong across the sector as INR depreciation will help offset cross-currency headwinds and given steady US business," said our analyst in a report on September quarter results. EBITDA is earnings before interest taxation depreciation and amortization.
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Rupee fall
The IT sector is expected to be the biggest beneficiary of the rupee fall. About 2.5% rupee depreciation is expected to boost earnings before interest and taxes or EBIT by 0.6 to 0.8%, according to our analyst estimates. However, actual gains would be dependent on respective hedging strategies of companies and cross currency movement. There are two areas of focus in the September quarter. These include pricing pressure and digital business growth. By "Pricing pressure", we mean to say that clients are demanding higher discounts on fresh contracts. A higher pricing pressure could affect the profitability of IT companies negatively. Recently, Accenture, a leading IT services company, announced a strong growth in the digital business. Analysts would track Indian companies for their digital business growth.
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Sensex companies
Overall, the net profit of the 30 companies that form the S&P BSE Sensex is expected to fall by 2.8%. Share prices today are a reflection of the profit tomorrow. If the profits of the Sensex companies fall more than expected, the Sensex value could fall further. If the September quarter results show profits are higher than expected, then the Sensex could gain in value.
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1488
The earnings per share (EPS) of the 30 companies that make up the S&P BSE Sensex for 2015-16 is expected to be Rs 1,488, according to Kotak Securities estimates. This is the aggregate of the EPS of all 30 companies. The multiple of that is the Sensex value. So the current Sensex value of 26,800 is about 18 times the 2015-16 earnings per share. The multiple is used to determine if the market is trading at a valuation that is cheap or expensive.
