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MOSL: INDIA STRATEGY | 4QFY18 Earnings Review-Earnings trajectory intact

INDIA STRATEGY | 4QFY18 Earnings Review: Earnings trajectory intact

 

Ten key takeaways from 4QFY18

• The 4QFY18 earnings season exhibited a mixed picture, with a healthy performance from the Consumption and Commodity oriented sectors marred by a drag from Corporate Banks and Capital Goods. Meanwhile, the hopes for a long-awaited earnings recovery in FY19 stay intact. Key trends of 4QFY18: 1] Good pick-up in consumption, especially rural, with improved commentaries on rural consumption trends from corporates in Auto, FMCG and Durables. 2] A sharp deterioration in profitability of PSU Banks led by higher slippages and provisions, exacerbated by the recent RBI guidelines on NPA dispensations. The value migration in favor of private banks continues unabated. 3] Lackluster performance of capex-driven sectors. 4] Cyclicals continue leading from the front, with Metals and O&G outperforming expectations. 5] After a strong outperformance by the IT sector over the past six months, we have downgraded the ratings of four companies in our IT universe this quarter.
• While aggregate sales and EBITDA were in line, profits missed our estimates. The miss at the PAT level for both MOSL and Nifty Universe can be entirely ascribed to Corporate Banks, which reported a significant jump in slippages and provisions, exacerbated by the change in the RBI guidelines on NPA dispensations.
• Proportion of companies reporting 30%+ PAT growth (at 35% of MOSL Universe) is the highest since Mar-11. Within our MOSL Universe, of the 19 sectors we track, 7/6/6 posted profits that were above/in-line/below our expectations. Surprise/miss ratio at 0.9x remains constant.