MOSL: INDIA STRATEGY | 3QFY18 PREVIEW-End of a long drought-Earnings revival finally on the horizon

​INDIA STRATEGY | 3QFY18 PREVIEW: End of a long drought; Earnings revival finally on the horizon

Earnings rebound led by global cyclicals; low base of demonetization a booster

• The much-awaited 2HFY18 earnings season is here. It has been much-awaited owing to expectations of a good earnings rebound from a low base – demonetization had impacted select B2C sectors in 3QFY17. However, a deeper dive in 3QFY18 estimates suggests an interesting trend: while demonetization-impacted sectors – FMCG, Autos, Cement, Retail, Media, Durables – will rebound and post strong growth, a considerable push for earnings is coming from sectors that had higher base – Metals, Oil & Gas, PSU Banks and NBFC. Demonetization-impacted sectors will grow earnings at 25% and contribute ~30% of the earnings delta, while the rest of the sectors will grow earnings by 18% and contribute ~70% of the earnings delta.
  
• We expect MOSL Universe PAT to grow 19.6% YoY, the second highest growth print after June 2014. While Defensives are expected to post the fifth consecutive quarter of profit decline, dragged by IT and Healthcare. Global Cyclicals will post 41% YoY growth in PAT, led by Metals, O&G and Tata Motors. MOSL Universe sales growth is expected to come in at 16.2%, the highest in 21 quarters, led by Autos, Cement, Metals, Oil & Gas and Mid-caps. Excluding Healthcare and IT, the two sectors which have been facing headwinds for several quarters now, the MOSL Universe PAT growth estimate stands at 27%.
  
• We expect Nifty Sales, EBITDA and PAT to growth 16.5%, 11% and 18%, respectively. The estimated 18% profit growth for Nifty, if delivered, will be the highest in 14 quarters.
  
• We have tweaked our estimates for Nifty EPS: +1% for FY18 to INR487 v/s INR481 earlier, -1.7% for FY19 to INR598 v/s INR609 earlier, and +0.5% for FY20 to INR708 v/s INR704 earlier. We are now building in earnings growth of 16%/23%/18% for the Nifty for FY18/19/20. This implies 29% YoY growth for MOSL Universe PAT in 4QFY18E.