MOSL: INDIA STRATEGY | 2QFY18 PREVIEW-Turbulence behind-Clear skies ahead-OMC’s and select Cyclicals drive earnings

​INDIA STRATEGY | 2QFY18 PREVIEW: Turbulence behind; Clear skies ahead; OMCs and select Cyclicals drive earnings; maintain Nifty EPS estimates

Earnings rebound led by OMCs, Cyclicals and low base

• As we prepare estimates for 2QFY18, we can’t help but notice the slight moderation in the Indian macro story – weaker than expected GDP growth for 1QFY18, higher crude prices and some teething troubles pertaining to GST implementation. That said, our Economist, Nikhil Gupta believes that the worst is behind as far as GDP growth is concerned. Post-GST restocking and an early festive season should help 2QFY18 performance of India Inc.
  
• We expect MOSL Universe PAT to grow 23.4% YoY, but just 4% YoY excluding OMCs, PSU Banks and Metals. Growth will be led by Cyclicals like Metals, PSU Banks, OMCs, while Defensives are expected to post the fourth consecutive quarter of profit decline, dragged by IT and Healthcare.
  
• We maintain our FY18/FY19 Nifty EPS estimates at INR487/INR602 and introduce our FY20 Nifty EPS estimate at INR693. We expect Nifty EPS to grow 15%/24% in FY18/FY19.
  

Key sectoral trends/highlights

• PSU Banks will report 2.9x YoY jump in profits owing to swing in SBI’s numbers from loss of INR5.6b to profit of INR29b.
  
• Oil & Gas will report 60% YoY profit growth, led by OMCs, which will benefit from inventory gains and higher GRMs, and report 3.2x higher profits.
  
• Metals will report another strong quarter, led by strong underlying commodity prices and low base – profits are expected to grow 123% YoY.
  
• Autos will report positive growth in profits after three consecutive quarters of YoY decline, while our Consumer universe will post 10% profit growth.
  
• Technology is expected to report the third consecutive quarter of muted PAT.
  
• Healthcare, Telecom and Cement will have a lackluster quarter, with YoY earnings decline. Utilities’ performance will be buoyed by low base of Coal India.