FREE

MOSL: INDIA STRATEGY-3QFY18 interim earnings review-In-line at the end of first half-earnings recovery story gaining ground

India Strategy: 3QFY18 interim earnings review; In-line at the end of first half; earnings recovery story gaining ground

 

• The current earnings-report cycle (3QFY18) is in full swing, with 112 MOSL Universe companies and 33 Nifty companies releasing their results until 4th February 2018. Encouragingly, the reporting season has sustained the good start it made, with almost 68% of the MOSL Universe companies posting PAT that was either in line or above our estimate.
• We note that companies that have reported earnings so far comprise (a) 67% of estimated PAT for the MOSL Universe, (b) 71% of estimated PAT for the Nifty and (c) 51% of India’s market cap. The reporting trends clearly indicate that we are striding fast toward an earnings recovery, marking the ‘End of a long drought’.

 Key takeaways

• The 3QFY18 earnings season has so far been broadly in line with expectations on headline numbers. Of the 33 Nifty companies that have declared their earnings results, 23 have either met or exceeded our estimates.
• For the MOSL Universe, sales, EBITDA and PAT have grown 14.4%, 11.2% and 13.3% YoY, as against estimates of 14.4%, 10.0% and 12.5%, respectively. For MOSL Universe ex OMC, PSU Banks and Metals, sales, EBITDA and PAT have grown 11.2%, 10.7% and 7.3%, as against expectations of 10.5%, 10.4% and 8.2%, respectively. The other income component has come below expectations for most of the companies.
• Sales, EBITDA and PAT for the 33 Nifty companies have grown at 13.3%, 9.4% and 14.1%, as against expectations of 14.2%, 9.4% and 11.9%, respectively.
• Approximately 82% (i.e. 92) of the 112 MOSL coverage companies have reported EBITDA either in line or above estimates. On the PAT front, 76 of the 112 companies have either met or exceeded expectations.
• Among the Nifty components, Bajaj Auto, Maruti Suzuki, NTPC, KMB and ICICIB have missed our PAT estimates, while L&T, HUL, IOC, HCLT and TECHM have surpassed our estimates.
• The upgrade to downgrade ratio is at par, with 30 companies seeing earnings upgrade of >3% and 31 companies seeing earnings downgrade of >3% for FY18.
• Margin pressures are evident, given inflation in commodity prices and apparent reluctance to pass on price inflation in a ‘modest demand recovery’ environment.