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MOSL: INDIA STRATEGY - RESULTS REVIEW 2QFY20: Operationally in line; tax cut drives PAT beat

INDIA STRATEGY - RESULTS REVIEW 2QFY20: Operationally in line; tax cut drives PAT beat

 Nifty EPS estimates stable for now

• The second-quarter corporate earnings season was in line with our modest expectations. While the corporate tax rate cuts helped in arresting earnings downgrades, commentaries do not suggest any imminent recovery. Demand concerns in the economy are now coming to the fore, continuation of which can raise the risk for earnings downgrades in FY21.
• Nifty sales/EBITDA/PBT/PAT grew -2.5%/2.1%/-3.1%/8.3% YoY (our estimate: -2.1%/-2.4%/-3.9%/-8%). Excluding Corporate Banks, Nifty PBT was down 10.6% YoY (our estimate: -11.8%). For the MOFSL Universe, sales/EBITDA/PBT/PAT grew -2% /2.1%/-0.6%/11.7% (our estimate: -1.1%/-1.1%/1.7%/-6.1% YoY). The divergence between the PBT and PAT performance can largely be attributed to the corporate tax rate cut. We, however, note that not all companies have shifted to the new tax regime.
• Of the 19 sectors that we track, 4/8/7 sectors posted PBT that was above/in line/below our estimates. Financials accounted for 90% of incremental profits for the quarter. At the PBT level, the contribution of Financials is even starker.