Electricity price hike to dim corporate earnings

The recent electricity tariff hike is expected to hinder the corporate earnings of most listed companies during the June quarter and the early part of the September quarter this year, with companies having to absorb the rising cost in the immediate short term, according to a research arm of a local stockbrokerage.

Softlogic Equity Research therefore measures the impact on the market earnings as much as 200 basis points and said the earnings growth to be not more than 11 to 13 percent, from an earlier forecasted 13 to 15 percent.

Softlogic said the companies require time to pass on the higher cost to the end consumer.

In the March 2013 quarter, the market earnings grew by a mere 3 percent year-on-year (YoY) while on a quarter-onquarter basis, the earnings contracted by 19 percent to Rs.51.4 billion. Only three significant sectors recorded a positive YoY earnings growth during this period- manufacturing (27 percent), hotels (62 percent) and telecommunication (8,110 percent).

The telecommunication sector’s significant growth in the March 2013 quarter was a result of the absence of exchange losses incurred in the corresponding quarter, last year. The sector ended up incurring an accumulated net loss of Rs.40 million.

However, it is expected the earnings to show a recovery in the December 2013 quarter and the March 2014 quarter, amid growing revenue from the broadband and mobile segments.

Meanwhile, the leading sectors such as banking and finance, food and beverage and diversified sector saw their March 2013 YoY earnings declining by 12 percent, 26 percent and 0.2 percent, respectively.

However, Softlogic Research remains positive on these sectors to lead the earnings growth of the market and expects the bourse to rally the next three to six months. The Central Bank in May eased the monetary policy for the second time after two rounds of tightening measures in 2012 in order to oil the slow moving wheels of the island nation’s economy, which grew at 6 percent in the first quarter, lower than the 8 percent growth in the corresponding period in 2012.

Statistically, the corporate profits seem to have a positive correlation with the GDP growth. NDB Stockbrokers, in a recent report, expressing similar sentiments on the corporate earnings said this relationship might get slightly diluted in the short term and profits may underperform the broad economic growth in 2013. Slightly more than a month to the policy rate cut, the market interest rates are yet to respond and the credit from the commercial banking sector still remains inaccessible for the investors.