Expect revenue growth to decelerate in 4QFY12E: 14% vs. 23% in 3Q, but EBIT growth to accelerate to 11% in the seasonally strong 4Q (vs.
7% in 3Q).
Sectors for which we expect margin expansion to continue in FY13E: Utilities (higher utilization and merchant realisations), Telecom (improving margins in Africa for Bharti and domestic operation), Infrastructure (focus on cost optimization), Materials and Metals (higher
realisation and pick up in demand).
Utilities - expect margins to improve on the back of higher overall PLFs due to improvement in availability of domestic coal, higher merchant realizations due to seasonality and some companies to book notional fx losses due to Rupee depreciation
Telecom - In 4QFY12, we expect the overall minutes growth for incumbent operators like Bharti/Idea/Vodafone to remain strong. However, we expect their revenue per minute (RPM) to decline qoq led by: 1) a high base effect with RPM inching up consistently in the last 4 quarters; and 2) More competitive strategy by Bharti to regain some of the lost market share by realigning its tariffs and thus forcing operators like Idea to respond by electively lowering tariffs/launching counter promotions
Infrastructure - Weak order inflows have been a key feature of the infrastructure segment till 3QFY12. Updates on order inflow visibility for FY13E would be key, expect steady toll collections on operational projects and strong execution on existing order backlog in the construction divisions of infrastructure companies, expect net margins to decline due to high finance cost for majority of the companies under coverage.
Materials / Metails For steel companies, we expect sequential margin expansion, on higher pricing (specifically in long products) and higher volume growth (sequential pick-up in demand). For Base Metals, we expect higher realizations - average 4QFY12 base metal prices increased 6% QoQ.
India is trading at 13.2x 12m forward P/E multiple, 16% discount to the 5-year average and we believe it is fairly priced compared to peers in Asia. But Tread the Water Cautiously, especially India as Future Political situation looks very BAD to the Country scarred with scams and Corruption.
