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.
