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MOSL: VOICES | INDIA INC ON CALL-Demand revival still patchy-GST impacts performance-Another quarter of GST-led volatility ahead

​VOICES | India Inc on Call: Demand revival still patchy; GST impacts performance; Another quarter of GST-led volatility ahead; private capex revival distant

• 1QFY18 earnings performance and management commentaries indicate delayed earnings revival for India. GST implementation exacerbated the demand trends in B2C sectors like Autos, Consumer, Pharmaceuticals and Cement. With continued asset quality issues in PSU Banks and lack of pick-up in private capex, there has been little succor to earnings.
  
• Most management commentaries indicate that the de-stocking ahead of GST implementation impacted primary sales. Margins were also impacted, as some companies decided to compensate dealers for losses owing to GST transition. Companies also decided to restrict price hikes till GST settles down.
  
• In BFSI, loan growth continued to pick up in 1Q, led by healthy growth in retail loans across Private and PSU Banks. Companies expect Ind-AS implementation to result in greater provisioning pressure, especially for corporate lenders. Management commentaries indicate that incremental retail slippages resulting from farm loan waivers are not a structural problem. Recoveries should kick in over the next few quarters. However, incremental slippages are expected from the Power sector over the next few quarters. Competition in retail home loans remains intense, leading to lower incremental yields as compared to book yields. Within vehicle financing, the cars and tractors segments have witnessed strong growth as well as improvement in collections.
  
• In Consumer, most companies expect a gradual return to normalcy in 2QFY18/3QFY18. Most companies expect modern retail to gain share over the long term. In Autos, most OEMs expect an improvement in FY18 volumes, with double-digit growth in PVs, 2Ws and tractors, led by recovery in the rural segment, expectations of good monsoon, and higher economic growth.