Equity Strategy: Muted earnings were largely in line

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July 7, 2020 2:01 AM

FY21/22e Nifty EPS cut by 9/6%; FY21e Nifty EPS expected to decline by 3.7%.

Private Banks’ results were below expectation with PBT/PAT declines of 27%/19% on COVID related provisioning.

The March-quarter corporate earnings for our coverage universe were weak and muted but largely in line with our expectations. Profits declined 22% y-o-y (v/s est. 25%decline) in light of the COVID pandemic and the subsequent lockdown in the last few days of March, which impacted business operations for most companies across sectors. Most sectors reported double-digit declines in profits with Defensives like Healthcare, Technology and Consumer sectors being the only exception. Corporate commentary was expectedly uncertain and many companies did not provide guidance for Q1FY21/FY21. We continue to see downside risks for our FY21 earnings estimates given the multiple moving parts and uncertain underlying demand backdrop.

Nifty sales declined 5.1% y-o-y (v/s est. -10%), while Ebitda/PBT/PAT declined 4.8%/28.6%/20.1% y-o-y (v/s est. -8.8%/-21.2%/-20%). PAT was dragged by Autos, Oil and Gas (O&G), Metals, Private Banks and NBFCs. We have treated impairments by O&G and Commodity companies as exceptional item.

MOFSL Universe sales/Ebitda/ PBT/ PAT declines stood at 5%/6%/ 32%/22% y-o-y (v/s est. decline of 9%/9%/22%/25%). Only 4 sectors — PSU Banks (from Loss to Profit), Healthcare (10.8%), Technology (1%) and Consumer (0.3%) – posted y-o-y profit growth. Automobiles and Telecom sectors posted losses. Private Banks, O&G, Capital Goods, Metals and NBFC sectors saw y-o-y PAT declines of 19%, 30%, 39%, 35% and 32%,respectively.

Of the 18 sectors that we track, 6/1/11 sectors delivered PAT that was above/in-line/below our estimate. Sales for both the Nifty and MOFSL Universe declined for the third consecutive quarter, dragged by Automobiles, Metals, O&G and Cement.

Private Banks’ results were below expectation with PBT/PAT declines of 27%/19% on COVID related provisioning. Our NBFC Universe’s results were also below expectations as PAT declined 32% y-o-y. The consumer sector posted flattish PAT (v/s est. 11.4%) aided by lower taxes. The Cement sector’s results were above expectations as it posted just 5% y-o-y decline in profits (v/s est. 11% decline). Our technology Universe posted in-line PAT growth of 1% y-o-y. Capital Goods too disappointed with 39% y-o-y decline in PAT.

For Automobiles, PBT plummeted 96% y-o-y (much higher than est. decline of 72% y-o-y). Utilities impressed with 8% y-o-y PBT growth (v/s est. 43% decline). PBT for our Metals’ Universe declined 42% y-o-y (v/s est. 54% y-o-y decline) while our O&G Universe’s PBT plunged 73% y-o-y (v/s est. 61% y-o-y decline). Our FY21/FY22e Nifty EPS estimates have been cut by 9%/6% to Rs 454/637 (prior: Rs 499/677). We now expect FY21 Nifty EPS to decline by 3.7%.

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