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MOSL: VOICES | INDIA INC ON CALL- Mixed commentary; short-term respite not visible yet!

VOICES | INDIA INC ON CALL: Mixed commentary; short-term respite not visible yet!

In this report, we present detailed takeaways from the 3QFY20 conference calls as we refine the essence of India Inc ‘Voices’.

** The December-quarter corporate earnings-report was in line with our expectations for both the Nifty and the MOFSL Universe. EBITDA/PBT/PAT met our estimates, supported by tax cuts. Financials drove 100%+ of incremental earnings as expected, while Metals and O&G dragged the aggregates. Nifty delivered 9% YoY earnings growth (in-line) for the quarter, even as PBT was up by 4% YoY. For FY20, our Nifty EPS estimate is revised down marginally to INR527, and we now expect 9% profit growth for the Nifty, singularly led by Financials. Retail and Utilities were the only sectors exceeding our PBT estimate in the quarter. Corporate commentaries remained mixed with very few pockets of optimism and emerging concerns around the potential impact on supply chain in the wake of coronavirus outbreak in China.

** In BFSI, Banks have reported slowdown in corporate loan growth, reflecting the weak macro and the lower utilization limits by the corporates. Also, Banks are maintaining a cautious and conservative stance toward wholesale lending, while retail loan growth remains steady (ex-auto segment). A few banks like AXSB and ICICIBC have downgraded the stressed telecom account to BB & below pool, and near-term credit cost is thus likely to stay elevated. NBFC commentaries across companies were mixed. In the auto segment, sentiment is turning positive for passenger vehicles and tractors, while it still remains subdued for CVs and 2Ws. Asset quality for vehicle financiers is likely to be stable.

** Consumer companies across the board were cautious on the outlook, given the weak rural scenario and the ongoing moderation in personal care products demand. Demand slowdown continued to be led by subdued consumer sentiment, liquidity crunch in channels, and weakness in wholesale. North and west India witnessed sharper slowdown compared to the rest of the country.

** In Autos, OEMs expect the demand scenario to remain weak during the BS6 transition phase. They do not expect a revival before 2HFY21. Commodity price benefits are likely to ease in 4QFY20 due to an uptrend in RM prices, impacting players on the margin front. Demand trend is likely to remain volatile over the next 6-8 months due to BS6 transition-related cost inflation.

** In IT, margins improved sequentially as companies work their way on cost-optimization levers, but shrank on an annual basis due to structural changes in industry. However, despite uncertain macros, companies highlighted robust deal wins, particularly INFY and TECHM.