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MOSL: INDIA STRATEGY | 1QFY19 Earnings Review – Earnings Season: Outlook getting better

INDIA STRATEGY | 1QFY19 Earnings Review – Earnings Season: Outlook getting better

 

Key takeaways from 1QFY19 earnings season

• India Inc has ended the last leg of its earnings season for the quarter ended June 2018. Although some interesting trends were observed during the course of the earning-report season, we note that the underlying narrative stays the same – a healthy performance from the Consumption- and Commodity-oriented sectors marred by higher provisioning costs at Corporate Banks. A low base of 1QFY18 indeed provided some succor to several sectors. Key trends of 1QFY19: [1] Asset quality woes of PSU and Corporate Banks appear to be stabilizing. Fresh slippages moderated, and Corporate Banks raised the provisioning coverage ratio further. [2] Consumption – both urban and rural – remains strong, with companies from FMCG, Auto, Durables and Retail pointing toward a healthy demand outlook. [3] Cyclicals continue leading from the front, with Metals and O&G driving more than 100% of incremental earnings for the MOSL Universe. [4] IT delivered a healthy quarter, with improved commentaries on demand in the US BFS market. [5] In Healthcare, pricing pressure in US generics is stabilizing even as earnings downgrades haven’t abated.
• While aggregate sales and EBITDA growth was healthy and in-line, profits missed our estimates. The miss at the PAT level for both the MOSL and Nifty Universe can be entirely ascribed to Corporate Banks, which were impacted by elevated provisions. Strong inventory gains in OMCs boosted the aggregate profits.
• Among the 19 sectors we track, 2/8/9 posted profits that were above/in-line/below our estimates.
• The proportion of companies reporting 30%+ PAT growth (at 41% of MOSL Universe) is the highest since Mar-10, partly aided by the low base of 1QFY18 in several consumption-oriented sectors.