MOSL: INDIA STRATEGY | 2QFY18 Earnings Review-A breath of fresh air

​INDIA STRATEGY | 2QFY18 Earnings Review: A breath of fresh air

Ten key takeaways from 2QFY18

The 2QFY18 earnings season was notable in that it concluded without any disruption, despite being the first quarter post GST implementation. In fact, the quarter exhibited improving internals in the broader earnings mix, with more hits than misses. Re-stocking post GST rollout, retention of input tax credits and the early onset of the festive season this year v/s CY16 supported a few B2C sectors, while many corporates sounded optimistic about rural consumption revival, going ahead.

Nifty earnings grew in double-digits for the first time after six quarters. For Nifty (Ex-OMCs), earnings growth of 10.5% was the highest in 13 quarters. The miss at PAT level for both MOSL and Nifty Universe can be entirely ascribed to OMCs.

Improving earnings quality was also corroborated by the reducing proportion of companies reporting PAT decline (at 33% of our MOSL Universe – ~12 quarter low). Within our MOSL Universe, 14/17 sectors posted EBITDA and 11/17 sectors posted PAT that was either in line or ahead of expectations. The surprise/miss ratio at 1.3x was the best in 16 quarters.

Global Cyclicals drove the quarterly performance, led by Metals and Tata Motors. Defensives posted the fourth consecutive quarter of earnings decline, dragged by Healthcare.

Within Domestic Cyclicals, Autos, Cement and Capital Goods posted better-than-expected EBITDA and PAT growth.

In BFSI, while NBFCs maintained their consistent earnings growth trajectory (20%+ PAT growth), Banks reported a sharp decline in slippages (barring Axis Bank) and bottoming out of asset quality.