EARNINGS PREVIEW

The second quarter results are around the corner. ET Intelligence Group brings to you the companies which are going to be the likely winners  IF YOU have ever been to popular film sites for a review, the last part of the article is 'trivia', which means those finer points, which hitherto went ignored. We have decided to turn it upside down and start our week's story with a trivia.      While the stock market was crashing like pack of cards in 2008, it did not really matter how much growth the company reported in its quarterly profit. There were cases, when a certain company doubled its profits, yet the its stock lost 10% in a day because of 'concerns' about the socalled quality of the results.      When the stock market started soaring in March 2009, suddenly quarterly results became the most important indicator. Like goes a cliché 'The equity market has jumped substantially, we need to see what cues the result season provides" In simpler words, it means that the investors expect  companies to post results in line with their performance on the bourses.      In our endeavor to capture this sentiment at Dalal Street, we at ET Intelligence Group bring to our readers seven companies, which are the likely stars of this result season, i.e. quarter ended September 2009. By likely stars, we mean companies, which are expected to post a high growth in their profits.      Topping the list is Idea Cellular – the fifth-largest mobile operator in the country. The company is likely to throw some surprises in the ring following robust subscriber growth in the September quarter. Idea has been adding over 1.5 million subscribers per month compared to the monthly rate of just over 1 million a year ago. This is on account of acquisition of Spice Communications last year, which paved way for the company in Punjab and Karnataka and Idea's own organic expansion into circles of Mumbai and Bihar. The stronger subscriber addition is expected to offset declining average revenue per user (ARPU). Reckoned year-on-year, net profit is expected to more than double to Rs 357.4 crore backed by 43.6% jump in revenue at Rs 3,307 crore.      While, Idea adds 'spice' to the telecom space, ACC continues to be the 'Tendulkar' of cement industry. The company is expected to post 62% growth in net profit driven largely by lower operational costs, coupled with improved realisations on an all India basis. ACC's cement despatch volumes rose 2.8% to 5.06 million tonnes in the second quarter of FY 2010, while itsrealisations on a per tonne basis rose an estimated 3.75%. At first glance, it does appear that for players like ACC, demand from government funded infrastructure projects and rural housing projects have not shown signs of weakening. Nevertheless, lower operational costs like power & fuel is expected to be key profit driver for ACC.      Hero Honda has surprised the investors so consistently. This quarter is not going to be any different. In other words, in this quarter too, the company is expected to maintain its dream run with net profit estimated to go up by 90% to reach an all time high of Rs 580 crore. The earnings will be driven by higher sales volume –up 22% and nearly 800 basis points reduction in raw material cost due to lower metal prices. However, other players in the sector are revving-up and it would be tough for the company to maintain the current volume growth in next two quarters.      Like we have a 'Tendulkar' in ACC, we have a 'Dravid' too in Bharat Heavy Electricals (BHEL). The company has stood like a 'wall' in testing times. It is expected to report 44% growth in profits in the second quarter of FY 2010 thanks to continued inflow of orders and falling raw material costs. The company maintains almost one year of raw material inventory. It has not seen any gain from softening commodity prices until June 2009 quarter. But it is certain to see significant drop in its raw material costs in September 2009 quarter. There may be some lowering of employee cost as a percent of sales, leading to better operating margins, which had risen after the wage revision last year.      State Bank of India (SBI) and Axis Bank have become sort of 'usual suspects' of the results season. And the quarter ended September 2009 is not likely to be any different with these banks expected to report 34% and 25% growth respectively in net profit. What comes as a surprise is not merely high growth, but the fact that high growth is coming on a large base as these banks have been posting good results for quite some time now. Though, the growth in credit off take has further slipped to 13% in September 2009 quarter, still it is expected that both the banks would grow the loan book at a higher rate than industry due to their aggressive strategies. For instance, Axis Bank has reportedly cut the rates on car loans recently and SBI is already offering lowest rates in many loan segments. Another factor, which would work in their favor is volatility in the yields in the bond market. This would have provided opportunities to book profits in investment portfolio.      Like a good old hindi film does not end without the prodigal son returning to his doting mother, this story too won't end without a similar anecdote. India's second-largest petroleum retailer Bharat Petroleum Corporation (BPCL) suffered a net loss of Rs 2,625 crore in the quarter ended September 2008, as high crude oil prices led to hefty retailing losses. Inventory losses following the oil crash added to its woes. However, the company is likely to report healthy profits when it publishes its results for the September 2009 quarter.      The crude oil prices averaged $68 per barrel in second quarter of FY 2010, which is 40% lower than corresponding period last year. The reduced volatility during the quarter means there won't be any inventory losses. Thanks to the upward revision in auto fuel prices starting July, the company's retailing operations have remained profitable in most parts of the quarter.      The investors are advised to keep a keen eye on the developments in this result season. As the first half of FY 2010 has gone, the results for quarter ending September 2009 will play a crucial role in the continuance of the current stock market rally.