Rupee fall to aid export-oriented firms; positive on Infosys, TechM and Sun Pharma: Nischal Maheshwari

In an interview with ET Now, Nischal Maheshwari, Edelweiss Securities, shares his view on the first quarter earnings. Excerpts:
ET Now: The first quarter earnings have wound up. What did you make of the numbers?

Nischal Maheshwari: The results have been more or less in line with expectations. We expected a zero per cent revenue growth, but it came in at minus 2 per cent. On earnings before interest tax, depreciation and amortisation (EBITDA) and on the profit after tax (PAT) fronts, there has been some outperformance. That said, the numbers have been on expected lines. There are not much disappointment.

ET Now: One of our guests says that Q1 has been in the right step. Would you share his optimism, looking at what the first quarter has been? What would you say is in store for the next year?

Nischal Maheshwari: I believe for FY16, we still see a further cut of around 2-3 per cent in earnings growth. By the end of the year, you should end up with a growth around 12-13 per cent.

ET Now: The margin expansion trend is something that a lot of folks have been talking about. What stood out for you in that department?

Nischal Maheshwari: If you look at margins, on year-on-year (YoY) basis you will see margins continuing to be better and this is largely because of the fall in commodity prices. However, we are not seeing any big changes, expansion, happening from leverage or top line point of view.

ET Now: Another observation which was seen this time around was that though margins expanded, sales growth remained quite sluggish. By when do you see that sales growth coming across sectors?

Nischal Maheshwari: We are seeing some pick up happening in the domestic consumption story, especially in the auto space. In the auto space, pick-up is visible in the commercial vehicle and car segments. Domestic consumption stories otherwise seems to be taking off a bit. FMCG companies have done well; domestic consumer durables also seem to be doing okay. But beyond that, I do not see much happening. In terms of margins, there has been some downturn in the export-oriented sectors, especially IT and pharma sectors, thanks to cross-currency headwinds.

ET Now: What about other sectors? Where do you see maximum amount of earnings rebound? Which are the ones, where you see earnings remaining a big drag over the next couple of quarters?

Nischal Maheshwari: Sector-wise you have seen some earning rebound happening in the automobile sector. That will continue. For FMCG, you will continue to see some rebound happening. You will also see some rebound in all export-oriented sectors, given that rupee has depreciated in the recent past on the back of yuan devaluation.

Therefore, you can see that some earnings upgrades will come in the export-oriented sectors- both IT and pharma. But as far as particular stocks are concerned, we like Infosys and Tech Mahindra in the IT space and Sun Pharma in the pharma space. In case of consumption, we like domestic consumption stories like Marico and Dabur. It is the economic recovery stories which we like.

ET Now: What kind of delta do you see in earnings between the ongoing fiscal earnings and say FY17?

Nischal Maheshwari: At the moment, I do not think you have very strong visibility because most of the things and people are expecting that they are going to see a possible rate cut happening and economy picking up in the last two quarters of the current year.

There has been some green shoots, which we have been seeing. The financial year 2016-2017 will be better than FY16 and there is no doubt about it.
Given that the base should be higher than what FY15 numbers were, the growth should be anywhere between 12-5 per cent in FY17.