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MOSL: INDIA STRATEGY-1QFY18 interim earnings review-Performance broadly in line, but internals not yet convincing

India Strategy: 1QFY18 interim earnings review; Performance broadly in line, but internals not yet convincing

• The 1QFY18 earnings season is well past the half-way stage, with 92 MOSL Universe and 31 Nifty companies having already released their results till 31 July 2017.
• These companies comprise (a) 67% of estimated PAT for MOSL Universe and 70% of estimated PAT for Nifty and (c) 50% of India’s market cap.

Key takeaways

• The 1QFY18 earnings season, so far, has been broadly in line with expectations in terms of headline numbers. However, internals do not yet provide much encouragement, in our view. Of the 31 Nifty companies that have declared their results so far, 21 have reported earnings ahead of/in line with our estimates. The earnings upgrade/downgrade ratio is skewed in favor of downgrades, with 10 MOSL Universe companies seeing upgrades of 5%+ and 30 seeing downgrades of 5%+.
• The MOSL Universe has reported sales, EBITDA and PAT growth of 8.5%, 5.5% and 2% YoY, as against expectations of 7.2%, 7% and 5.3%, respectively.
• Sales/EBITDA/PAT for the 31 Nifty companies have grown 8.1%/4.9%/3.3% v/s expectation of 6.3%/7.1%/6.3%.
• `Almost two thirds (i.e. 58) of the 92 MOSL coverage companies have reported EBITDA either in line with or above estimates. On the PAT front, 50 out of 92 companies have either met or exceeded expectations. Ex-Financials, EBITDA margin contracted 150bp YoY to 22.2% v/s estimate of 23.3%.
• Based on the results of the 31 Nifty companies, our FY18 Nifty EPS estimate is unchanged at INR496 (16% growth). However, for FY19, we have raised our Nifty EPS estimate marginally upward by 0.6% to INR605. The upgrades are led largely by Reliance Industries, Vedanta and HDFC Bank, while Bharti Airtel, ITC, ICICI Bank, Wipro and Axis Bank have seen earnings downgrades.