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MOSL: INDIA STRATEGY-3QFY20 interim earnings review; In-line; tax cuts drive profit beat

India Strategy: 3QFY20 interim earnings review; In-line; tax cuts drive profit beat

 

• Third-quarter earnings for the 65 MOFSL Universe and 20 Nifty companies that have announced results as of 29th Jan'20 have been in line with expectations. This twenty Nifty companies account for 70% of index weight and 57% of Nifty universe PAT.
• Key insights: [1] Both the Nifty and the MOSL Universe have met expectations on the sales, EBITDA, PBT and PAT front. [2] In terms of PBT, Consumer has exceeded, Automobiles, Capital Goods and Metals have missed, while Private Banks, NBFC and Healthcare have met our expectations. [3] Tax cuts continued supporting earnings growth. [4] The FY20 earnings revision trend is balanced. [5] Management commentary is incrementally positive on rural consumption (both Auto and Consumer managements alluded to rural consumption recovery) but cautious on loan growth/asset quality trends in retail banks. 

Key highlights of 3QFY20 results:

• Sales, EBITDA, PBT and PAT for the 20 Nifty companies have grown at 3.7%, 11.1%, 7.2% and 16.5% YoY, as against our estimate of 4.4%, 7.6%, 8.6% and 15.1% YoY, respectively. Of the 20 Nifty companies that have announced their earnings, 12 have either met or exceeded our PBT estimates.
• For the MOFSL Universe, sales, EBITDA, PBT and PAT have increased 4.1%, 9.7%, 2.1% and 11.5% YoY versus our estimate of 5.4%, 8.2%, 4.6% and 11.4% YoY, respectively.
• The earnings upgrade/downgrade ratio for FY20 has been balanced so far, with 16 MOFSL Universe companies witnessing upgrades of more than 3% and 15 witnessing downgrades of more than 3%.
• Among the Nifty constituents, Reliance Industries, ICICI Bank and Asian Paints exceeded our PBT estimates, while Maruti, L&T, IndusInd and Kotak Mahindra Bank missed our expectations.
• Within the MOFSL sectoral coverage, Healthcare, Retail, Consumer, Cement and Auto have seen 1-5% earnings upgrade, while PSU Banks, Media, Metals, Life Insurance and NBFCs have seen an earnings cut.