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MOSL: INDIA STRATEGY | 3QFY19 Earnings Review – In-line quarter-domestic cyclicals led by financials stage a solid comeback

INDIA STRATEGY | 3QFY19 Earnings Review – In-line quarter; domestic cyclicals led by financials stage a solid comeback

 

Key takeaways from 3QFY19 earnings season

• The December corporate earnings-report season for both Nifty and MOSL Universe was in line with our expectations, with domestic cyclicals led by financials picking up the baton from global cyclicals as the driver of earnings growth. Corporate Banks, IT and Consumer delivered a strong performance, while Autos and Cement disappointed.
• Top-line growth for MOSL Universe and Nifty was at a multi-quarter high. However, this failed to translate into concomitant EBITDA growth. Notably, EBITDA margin shrank 300-320bp for MOSL and Nifty Universe, dragged by OMCs. Capital Goods, IT and Retail exhibited YoY expansion in the operating margin.
• Corporate Banks showed a material sequential improvement in the slippage/asset quality trends. This provides good visibility on the earnings outlook, as Corporate Banks were one of the key drivers for the earnings miss over the past few years. Consequently, the share of domestic cyclicals in the profit pool increased to 39% - the highest since Jun'09.
• NBFC Universe delivered an in-line performance, but saw some moderation in the growth estimates owing to the prevailing stress in the liquidity and cost of funds environment. Disbursement growth moderated sequentially.
• Telecom posted its sixth consecutive quarter of loss, while Automobiles and Oil & Gas posted a decline of 23% and 21% YoY, respectively, in profits.
• Overall, the direction of earnings revision is still trending down, dominated by a big miss in some of the large-caps in global cyclicals like Tata Motors.
• Domestic cyclicals single-handedly drove the quarterly performance, led by financials. Defensives' growth was dragged by Telecom, which continues reporting elevated losses, while Global cyclicals after driving earnings growth for several quarters posted de-growth.
• Sensex posted sales/EBITDA/PAT growth of 22%/14%/23%, while Nifty posted 23%/5%/6% growth. This divergence between Sensex and Nifty can be attributed to OMCs, which have dragged the profits of Nifty Universe.