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MOSL: INDIA STRATEGY | 1QFY18 PREVIEW-Still in the works-Earnings breadth yet to improve-GST to impact B2C sector earnings

INDIA STRATEGY | 1QFY18 PREVIEW: Still in the works; Earnings breadth yet to improve; GST to impact B2C sector earnings

Earnings decline after three quarters of growth; quality, breadth still weak

As we commence the first quarterly earnings season of FY18, the macro and broader market context appears sanguine with the timely implementation of GST, decent progress of monsoon, controlled inflation and a stable currency backdrop. Positive macro factors notwithstanding, the quarter will be faced with several sector-specific headwinds and GST-related destocking in some B2C sectors. We thus expect 1QFY18 to be a lackluster quarter from earnings growth perspective.

• ​We expect MOSL Universe PAT to decline 1.8% YoY, but grow 6.6% YoY excluding OMCs. Growth will be led entirely by Domestic Cyclicals, while Defensives are expected to post third consecutive quarter of profit decline.
  
• We cut our FY18/FY19 Nifty EPS estimates by 1.5%/1%% to INR497/INR601. We now expect Nifty EPS to grow 17%/21% in FY18/FY19.
  

Key sectoral trends/highlights

• PSU Banks will report 5x YoY jump in profits and contribute 83% of YoY earnings delta for the MOSL Universe excluding OMC's.
  
• NBFCs’ trajectory should return to normal, with earnings growth of 20%.
  
• Consumer and Cement universe is expected to post flattish PAT YoY. The impact of GST-related destocking will impact our Consumer universe.
  
• Autos would report weak performance, with 5% YoY PAT decline (6.4% YoY PAT growth excluding Tata Motors). This would be the third straight quarter of PAT decline for our Auto universe.
  
• Technology is expected to report second consecutive quarter of PAT decline.
  
• Oil & Gas, Healthcare, Telecom and Logistics would have a lackluster quarter with YoY earnings decline. OMCs should report YoY PAT decline of 59% YoY.​