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MOSL: Morning India (4/June/18): 1. India Strategy (4QFY18 Earnings Review: Earnings trajectory intact); 2. Ecoscope (GST collections less than desired in April-May); 3. Automobiles (May-18 Volumes)

MOrning India (4/June/18): 1. India Strategy (4QFY18 Earnings Review: Earnings trajectory intact); 2. Ecoscope (GST collections less than desired in April-May); 3. Automobiles (May-18 Volumes)

 

Today’s top research theme

INDIA STRATEGY | 4QFY18 Earnings Review: Earnings trajectory intact

• 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.
• 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. Proportion of companies reporting 30%+ PAT growth (at 35% of MOSL Universe) is the highest since Mar-11.
• Global Cyclicals single-handedly drove the quarterly performance, led by Metals and OMCs. Defensives posted earnings growth after five consecutive quarters of earnings decline, dragged by Healthcare, while Domestic Cyclicals posted a 98% YoY PAT decline dragged by corporate banks.
• Within Domestic Cyclicals, Auto, Capital Goods, Private Banks and PSU Banks posted weaker-than-expected PAT growth.
• Earnings downgrade/upgrade ratio moderated QoQ – 78 companies saw earnings cut of 3%+ (72 in 3QFY18) and 53 companies saw earnings upgrades of 3%+ (39 in 3QFY18). The upgrade/downgrade ratio improved from 0.54x to 0.68x.
• We expect Nifty EPS to grow 27.4% to INR579 in FY19 and 19.6% to INR 693 in FY20.

Piping hot news

Govt weighs merger of Bank of Baroda, IDBI Bank, Oriental Bank, Central Bank

• The government is considering merging at least four state-run banks, including Bank of Baroda, IDBI Bank Ltd, Oriental Bank of Commerce and Central Bank of India, two people aware of the matter said. If the plan goes through, the merged entity will become the second-largest bank in the country after State Bank of India, with combined assets of ₹16.58 trillion.