Aggregate revenue growth for our coverage universe stood at 8% for Q1, a step down from the 9.8% print in Q4FY19 and 12-15% prints from Q1-Q3FY19.
Q1FY20 review — varying degrees of slowdown across companies. Q1 saw a very high divergence in performance and outlook across companies. The aggregate picture suggests slowing growth (but not a meltdown), easing RM environment, continued belt tightening, and still-healthy profit growth. The Ind-AS 116 adoption introduced a fresh round of noise in the numbers. Select stocks, even in the tier-1 pack, have seen good correction and are getting closer to the fair value zone.
Aggregate revenue growth for our coverage universe stood at 8% for Q1, a step down from the 9.8% print in Q4FY19 and 12-15% prints from Q1-Q3FY19. That said Q1FY20’s 8% aggregate revenue growth print was at the higher end of the 2-9% range from Q1FY17-Q4FY18. This begs an important question — has the demand environment really slowed down as much as the 700-odd bps gap between Q3FY19’s 15% aggregate growth and Q1FY20’s 8% suggests? Or did the 12-15% prints from Q1-Q3FY19 have a one-off kicker from GST and what we are seeing now is just normalisation with the one-off kicker now in the base? We believe the answer is somewhere in the middle. There is some underlying demand slowdown, for sure, but the deceleration is not as sharp as the reported growth comps suggest.
Let’s test themes. Rural — most companies suggested a sharper slowdown in rural growth rates than urban. What explains Dabur’s growth outperformance then? Dabur’s 9.6% volume growth print was the highest among staples companies— nearly 2X than the rest. Dabur is generally seen as the stock to play the ‘rural’ theme and here we have the company report the highest growth (off a high base; so, no base benefit) in a quarter where nearly all companies suggested a sharp rural slowdown. Let’s move to the next theme — discretionary under pressure, look at autos. Is paints discretionary? Should be, we guess. APNT’s standalone volume growth? 17%, second highest y-o-y growth print since Q3FY11! Off a high base (+13%), again. Themes, anyone? Slowdown, what slowdown?
Y-o-y Ebitda growth comps, on a reported basis, for Q1FY20 were generally meaningless as part of above-Ebitda costs moved below the line. PBT and PAT impact was marginal for most companies. Aggregate PBT growth for our coverage universe accelerated to 11.9% y-o-y from Q4FY19’s 8% print. Acceleration wasn’t broad-based, however, it was quite skewed.