10 stocks that may outperform Sensex earnings in Q1

IT bellwether Infosys will kick start the first quarter earnings season later this week. TCS, India's biggest software services exporter, will report numbers the same day. Corporate earnings are likely to provide some trigger to the lacklustre equity markets.

The earnings of the 30 Sensex companies are likely to grow in single digits, according to a report by Kotak.

"We expect net income of the BSE-30 Index to grow 9.6 per cent year-on-year, led by the banking (notably SBI from a low base), pharmaceuticals and technology sectors. On an ex-energy basis, we expect the net income of the BSE-30 Index to grow 13 per cent year-on-year," Kotak said in its report.

Here are 10 stocks that might outperform the average Sensex earnings.


1) TCS: India's biggest IT software and services exporter is likely to lead the tier I pack in terms of US dollar revenue growth. Infosys and Wipro might report a decline in sequential US dollar revenue terms on the back of weakness in demand, pressure on discretionary spending, and visa challenges.

2) M&M: It is likely to benefit from the improvement in average selling prices due to its XUV500 model. High raw material prices are likely to to keep earnings under pressure for most auto companies, despite strong revenue growth. Ebitda margins are likely to be under pressure because most companies have not been able to pass on increased input costs to customers. Ashok Leyland may underperform on the back of rise in depreciation/interest costs.

3) State Bank of India: India's biggest lender is likely to report improved performance in the first quarter. Restructuring, mainly of state electricity boards, is likely to impact PSU banks. Net interest margins are likely to be stable. SBI, ICICI Bank, HDFC Bank will drive earnings growth.

4) HUL: India's biggest FMCG firm, along with Jubilant Foodworks, is likely to report strong volumes. Asian Paints, ITC, Nestle, and Titan are likely to report moderate volume growth, but sales growth will be driven by price hikes.

5) L&T: India's biggest engineering and construction firm may deliver strong revenue growth of 16-17% on execution of its existing large order backlog. For other industrials, revenue growth and margins are likely to remain under pressure due to weak investment climate. Margins are likely to remain under pressure on account of high commodity prices, competition and mix changes. Siemens, Thermax, and Voltas may see weak capex.

6) JSPL: The steel maker is likely to outperform other firms in terms of net income. Rise in long and flat steel products due to rupee depreciation and fall in coking coal prices may lead to sequential improvement in profits for most steel firms. However, absolute ebitda of steel companies is likely to fall due to lower steel deliveries and prices.

7) ONGC, OIL are likely to report strong increase in revenues and ebitda due to higher realizations on the back of weak rupee. Oil marketing companies are likely to report huge losses due to under recoveries, rupee depreciation, and inventory losses due to decline in crude prices.

8) Sobha Developers is likely do well because its focus is on Bangaluru, which has seen strong sales. HDIL and Oberoi Realty are likely to report poor sales because of the sluggish sales in Mumbai.  DLF and HDIL are likely to see poor cash generation and moderate debt reduction.

9) Idea will lead the telecom industry in volume growth. Bharti would be closely watched as it has unleashed a tariff war, but has not seen a growth in ebitda for the last 11 quarters.

10) Zee: It is likely to benefit from market share gains and robust subscription growth. Sun is likely to report weak numbers, given market share losses.

(Based on the Strategy Report: June 2012 Quarter Earnings Preview by Kotak Institutional Equities)