BSE Sensex: 40,268
Motilal Oswal values your support in
the Asiamoney Brokers Poll 2019 for
India Research, Sales and Trading
request your ballot.
S&P CNX: 12,089
Result review 4QFY19; Financials drive performance;
Nifty EPS stable; Broader universe see more downgrades than upgrades
Refer our Mar-19
The 4QFY19 corporate earnings-report season was in line with our expectations for
both the Nifty and the MOFSL Universe. Domestic Cyclicals continued driving earnings
growth for the second consecutive quarter, led by Financials, which contributed
almost the entire earnings delta but still fell short of expectations.
Sales/EBITDA/profit growth for the Nifty came in at 10.2%/6.1%/15.8% v/s
expectations of 11.1%/3.4%/16.8%. For the MOFSL Universe, sales/EBITDA/profit
growth stood at 10.6%/7.3%/23.6% v/s expectations of 11.5%/5.1%/29.4%.
Sales growth for the MOFSL Universe was the slowest since Dec’16, dragged by
Commodities like Metals and O&G. EBITDA growth stood in-line at 7%. Notably, the
EBITDA margin for the MOFSL (ex-Financials & OMCs) Universe shrank by 100bp to
19.1%, dragged by Automobiles, Consumer, Metals, O&G and Telecom. On the other
hand, Cement and Utilities delivered YoY expansion in the operating margin.
Corporate Banks continued reporting an improvement in the slippage/asset quality
NBFC Universe delivered a better-than-expected performance in a very crucial quarter
for them. However, we note that the performance was divergent across companies.
Bajaj Finance was an outlier, showing no signs of liquidity problems, while most other
players continued facing liquidity stress and posted a moderation in disbursement
Telecom delivered its seventh consecutive quarter of loss, while profits for
Automobiles and Metals declined by 16% and 11% YoY, respectively, but came in
better than estimates. Pharma performance was weaker than expected with only 7%
Consumer, Cement and Capital Goods posted largely in-line 10%, 13% and 13% profit
growth, while our Mid-cap universe surprised with solid 45% profit growth.
Domestic Cyclicals drove the quarterly performance, led by Financials. Defensives’
growth was dragged by Telecom losses, while Global Cyclicals posted flattish growth
with Metals and Oil & Gas delivering better-than-expected numbers.
Nifty EPS estimates stable for FY20; broader universe continues witnessing more
downgrades than upgrades: Nifty EPS grew 7% to INR481 in FY19. Our Nifty FY20/21
EPS estimates remain unchanged at INR604/706, building in growth of 25.6%/16.9%.
However, the direction of earnings revision for the broader markets still remains
downward, with 55 companies in the MOFSL Universe witnessing an earnings cut of
5%+ and 28 companies witnessing upgrades of 5%+. For the MOFSL Universe, at the
sectoral level, PSU Banks and Capital Goods saw upward earnings revision of 19% and
3%, respectively, while Consumer, Pharma and Metals have seen cuts of 4%, 5% and
4%, respectively. Upwards revision in PSU banks is largely attributed to the shifting of
provision write-backs pertaining to NCLT cases from 4QFY19 to FY20.
Top upgrades (FY20E): UPL, SBI, Tata Motors and Tata Steel have seen EPS upgrades of
32.4%, 23.3%, 13.8% and 9.3%, respectively.
Top downgrades (FY20E): Asian Paints, Hindalco, Sun Pharma and Bharti Infratel have
seen EPS downgrades of 16.5%, 12.9%, 8.8% and 7.9%, respectively.
Macro stress evident but markets could climb the wall of worry: Post the election
verdict in which the BJP came back to power with a thumping majority, market
sentiment has improved even as underlying macros have weakened with GDP growth
coming in at a 20-quarter low. Deceleration in core sector growth, weakness in high-
Gautam Duggad – Research Analyst
(Gautam.Duggad@MotilalOswal.com); +91 22 6129 1522
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.