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MOSL: INDIA STRATEGY-2QFY20 Interim Earnings Review; Operationally in line; tax cuts drive profit beat; Commentaries improving

India Strategy: 2QFY20 Interim Earnings Review; Operationally in line; tax cuts drive profit beat; Commentaries improving

 

• The September quarter earnings season is at the halfway point, with 92 MOFSL Universe and 28 Nifty companies announcing their results as of 2nd Nov'19. While the aggregate earnings have been in line with estimates, commentary is turning incrementally positive, especially on the Consumption front. The reduction in corporate tax has largely resulted in better-than-expected profit delivery and also restricted the pace of earnings downgrades. This, combined with various government announcements to revive the troubled sectors, has helped revive market sentiment.
• Key insights from 2QFY20 results so far: [1] Both the Nifty and the MOSL Universe have met expectations on the sales/EBITDA/PBT front but surprised on PAT owing to the revision in tax expenses post the corporate tax cuts. [2] In terms of PBT, Automobiles and Healthcare have exceeded, while Cement and Capital Goods have missed our expectations. [3] Not all corporates are shifting to the new tax regime due to considerations around MAT credit and other exemptions. [4] Notably, the trend in earnings revision has remained balanced so far which was skewed significantly in favor of downgrades in the past quarters. This can be attributed to the revised lower tax assumptions. [5] Management commentary is incrementally positive for Automobiles and Corporate Banks, while it is stable for FMCG. Commentary remains cautious for IT (especially on margins) and capex-oriented companies.