Strategy
India Strategy
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Result review 4QFY19; Financials drive performance;
Consumption
drags
Nifty EPS stable; Broader universe see more downgrades than upgrades
Refer our Mar-19
Quarter Preview
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
trends.
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
growth.
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%
profit growth.
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.
June 2019
Investors are advised to refer through important disclosures made at the last page of the Research Report.
1

Strategy
frequency indicators (IIP, Auto Monthly numbers) and slowdown in consumption as
highlighted by consumer companies in their quarterly commentaries point toward
near-term earnings headwinds. Valuations for the Nifty, meanwhile, remain rich at
20x FY20E EPS. At the margin, crude oil prices have corrected ~USD10/barrel, even as
inflation remains under control, paving the way for another rate cut in the
forthcoming RBI monetary policy. 10-year G-Sec yield has corrected below 7%. We
expect the government to take measures in the next 100 days to bolster growth.
Valuations: Positive sentiment, expectations of reforms and a potential revival in
domestic flows could keep valuations rich, in our view. Mid-caps provide a good
opportunity given their underperformance v/s large-caps over the last 12/18 months.
At ~20x FY20 EPS, Nifty is trading at 15% premium to long period average. Optimism
on stable government and potential reforms, earnings recovery and FII flows has
driven Nifty to an all-time high. However, broader markets (Nifty mid-cap / smallcap
indices), despite their recent run; have underperformed the Nifty materially in the last
12/18 months. Nifty Mid-cap 100 has underperformed Nifty by 16%/26% in 12/18
months while Nifty smallcap 100 has underperformed Nifty by 27%/41%. We believe,
this divergence should get corrected as liquidity environment gets better, domestic
flows into equities pick up and earnings trend look up.
Top Ideas: Large-caps: SBI, ICICI Bank, Maruti, L&T, Infosys, Bharti Airtel, Coal India,
Titan, Ultratech, HDFC Life
Mid-caps: Federal Bank, Indian Hotels, Siemens, ABFRL, Crompton Consumer, Ashoka
Buildcon, JK Cement, Godrej Agrovet, Oberoi Realty
Exhibit 1: Preferred large-cap ideas
Mkt Cap CMP
Company
Infosys
State Bank
ICICI Bank
Larsen & Toubro
Maruti Suzuki
Coal India
Bharti Airtel
Ultratech Cement
Titan Company
HDFC Life Insur.
(USD b)
48.3
45.1
39.2
31.3
29.7
22.6
20.0
18.7
15.7
12.7
(INR)
737
353
423
1,558
6,864
253
349
4,758
1,234
441
FY19
37.5
2.6
5.2
61.4
247.7
28.3
-8.8
89.4
15.7
6.3
EPS
EPS
(INR)
CAGR (%)
FY20E FY21E FY19-21
38.5 44.2
8.5
33.5 37.3
280.7
21.2 28.5
133.7
76.9 96.1
25.1
277.3 334.4
16.2
29.2 31.2
4.8
-5.4
-2.2
Loss
113.0 153.6
31.0
20.3 26.2
29.3
7.1
8.8
17.8
PE
PB
RoE
(x)
(x)
(%)
FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E
19.6 19.1 16.7
4.9
5.0
4.6
25.0 25.8 28.8
136.8 10.5
9.4
1.4
1.3
1.1
0.4
13.4 13.2
81.0 20.0 14.8
2.6
2.3
2.1
3.2
12.4 15.0
25.4 20.3 16.2
3.5
3.1
2.7
14.6 16.3 18.0
27.7 24.7 20.5
4.5
4.2
3.8
16.3 16.4 18.1
8.9
8.7
8.1
5.9
5.1
4.5
66.0 59.2 55.4
NA
NA
NA
2.0
1.9
1.9
-5.0
-3.4
-1.2
53.2 42.1 31.0
4.7
3.8
3.4
9.1
10.1 11.5
78.7 60.9 47.1 18.0 17.3 14.4 24.9 29.0 33.4
69.7 61.8 50.2
4.8
4.0
3.4
20.3 20.6 18.2
Source: Company, MOFSL
Exhibit 2: Preferred mid-cap ideas
Mkt Cap CMP
Company
(USD b) (INR)
Siemens
6.5
1,272
Federal Bank
3.1
107
Oberoi Realty
2.9
563
Indian Hotels
2.7
158
Aditya Birla Fashion
2.3
212
CG Consumer Elect.
2.1
237
Godrej Agrovet
1.4
509
J K Cements
1.2
1,040
Ashoka Buildcon
0.6
143
EPS
EPS
(INR)
CAGR (%)
FY19 FY20E FY21E FY19-21
25.1 32.5 34.0
16.4
6.3
8.0
10.0
26.0
22.5 33.5 35.0
24.7
2.4
3.2
4.4
36.0
1.6
3.7
5.4
81.9
6.0
7.6
9.0
22.9
12.5 15.6 19.1
23.4
34.1 41.9 52.7
24.3
11.9 13.0 15.4
14.0
PE
PB
RoE
(x)
(x)
(%)
FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E
50.7 39.1 37.4
5.5
5.0
4.5
11.2 13.3 12.7
17.0 13.5 10.7
1.6
1.5
1.3
9.8
11.4 12.9
25.1 16.8 16.1
2.6
2.2
2.0
11.6 14.2 13.1
67.2 50.0 36.3
4.3
4.1
3.7
6.6
8.4
10.7
128.5 56.8 38.8 11.4
9.5
7.6
10.1 18.3 21.9
39.8 31.0 26.3 13.5 10.8
8.7
39.6 38.7 36.7
40.6 32.6 26.6
5.9
5.3
4.7
15.7 17.2 18.7
30.5 24.8 19.7
3.0
2.7
2.4
11.3 11.5 13.0
12.0 11.0
9.2
1.8
1.6
1.4
16.1 15.3 15.9
Source: Company, MOFSL
June 2019
2

Strategy
Exhibit 3: Profit growth led by Financials and IT, whereas Autos and Telecom dragged
Sector
Sales
EBITDA
(no of companies)
High growth sectors
Others (23)
Media (7)
Logistics (2)
Banks - Private (11)
NBFC (13)
Technology (14)
Med/Low growth sectors
Cement (10)
Capital Goods (13)
Retail (2)
Consumer (19)
Healthcare (20)
Oil & Gas (14)
Utilities (8)
PAT de-growth sectors
Life Insurance (2)
Metals (9)
Automobiles (16)
Infrastructure (4)
Banks - PSU (4)
Telecom (4)
MOFSL Universe (195)
MOFSL Univ Ex OMCs (192)
MOFSL Ex Corp Banks (189)
Sensex (30)
Nifty (50)
Nifty Ex Corp Banks (47)
Mar- 19
2,149
395
52
35
371
182
1,115
7,735
327
771
58
511
455
4,854
759
4,462
203
1,629
1,837
50
340
402
14,345
11,664
13,872
6,678
10,317
9,954
Chg. % Chg. %
QoQ YoY
2
4
-5
3
4
4
1
-3
12
26
-15
0
-1
-9
3
7
41
4
9
18
2
1
0.4
2.6
0.4
1.6
-0.2
-0.3
19
23
19
12
22
17
17
11
14
10
18
10
13
12
3
6
16
6
0
31
19
21
10.6
10.7
10.3
9.5
10.2
9.9
Var.
over
Exp. (%)
0
0
5
-4
1
6
-1
-2
3
-1
3
-2
-1
-4
8
1
2
3
-1
9
0
-1
-0.8
-1.2
-0.9
-2.1
-0.8
-0.9
Mar- Chg. % Chg. %
19
QoQ YoY
782
73
17
5
296
136
256
1,231
61
98
6
122
89
578
278
888
10
311
199
12
249
106
2,901
2,708
2,539
1,755
2,308
2,026
0
17
-14
10
-2
2
-2
17
26
46
-22
0
-8
26
9
11
83
0
17
9
22
9
10.0
3.5
9.6
4.2
10.0
9.3
15
35
18
16
9
24
14
8
20
7
6
7
15
7
6
0
49
-8
-14
23
29
0
7.3
7.5
5.9
4.9
6.1
6.4
Var.
over
Exp. (%)
-2
3
7
-2
-4
1
-3
4
1
-3
-13
-4
-6
8
8
3
31
6
-6
11
4
7
2.1
0.2
1.8
1.0
2.6
2.0
PAT
EBIDTA Margin
Var.
Mar- 19
over
(%)
Exp. (%)
-4
36.4
22
18.6
-8
31.9
15
14.1
-28
79.9
12
74.6
2
22.9
4
15.9
5
18.7
3
12.7
-9
10.4
2
23.8
-10
19.6
5
11.9
8
36.6
-32
19.9
-7
4.9
29
19.1
18
10.8
7
24.3
PL
73.3
15
26.3
-4.5
20.2
-8.8
23.2
4.5
18.3
-5.7
26.3
-0.8
22.4
3.4
20.4
Chg.
YoY bp
-114
168
-19
49
-989
377
-53
-44
99
-25
-117
-73
35
-56
115
-117
112
-295
-181
-153
609
-543
-61
-68
-76
-116
-86
-67
Mar- Chg. % Chg. %
19
QoQ YoY
436
-3
38
35
8
-29
4
34
95
-26
92
18
199
0
659
21
30
44
61
55
4
-16
87
3
49
-10
304
26
124
23
136
-22
6
15
124
5
99
55
4
4
-51
PL
-47
Loss
1,231 5.6
1,109 -3.7
1,257 15.9
749 -2.5
1,010 6.4
976 11.4
23
45
34
33
29
26
15
7
13
13
12
10
7
7
3
420
-9
-11
-16
-12
Loss
Loss
23.6
23.3
0.7
16.4
15.8
1.7
Exhibit 4: MOFSL Universe PAT boosted by a low base
94
67
34
4
-38
-4
-10
6
0
6
-5
-10
8 2 5
-7
15
2 7
15 1417 15
-6
-7
3 2
24
Exhibit 5: Nifty PAT posted in-line 16% YoY growth
.
.
Exhibit 6: MOFSL Universe (Ex Corp Banks) PAT chg. YoY (%)
MOFSL Univ. ex Corp Banks PAT change YOY (%)
15.9
10.1
2.8
4.4
5.9
10.1
6.8
12.3
14.8
Exhibit 7: Nifty (Ex-Corp Banks) PAT change YoY (%)
Nifty Ex Corp. Banks PAT change YOY (%)
15.2
9.3
3.4
1.4
FY14
FY15
FY16
FY17
FY18
FY19 FY20E FY21E
.
16.4
13.6
9.8
8.7
10.5
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
FY13
June 2019
3

Strategy
Ten focus stocks from 4QFY19 earnings season
SBI:
Loan growth stood at 13% YoY/7% QoQ, driven by growth of 27.9% YoY in home
loans and 15% YoY in the corporate book. Further, it expects loan growth of 12%-
14% in FY20. Slippages moderated to INR79.6b, which, coupled with healthy
recoveries and higher write-offs, led to an asset quality improvement. Overall, the
bank expects recoveries of INR350b-380b in FY20. It expects the credit cost trend to
moderate significantly, going forward.
ICICI Bank:
Retail loan mix now stands at 60.2% (+120bp QoQ). Fresh slippages
stood at INR35.5b, but healthy recoveries/upgrades of INR15.2b and write-offs of
INR73.2b drove a 105bp/52bp QoQ decline in the GNPL/NNPL ratios to 6.7%/2.06%.
The quantum of BB and below assets declined to INR175.2b (-7% QoQ). ICICIBC
expects credit cost to normalize significantly from FY20. It maintained its
consolidated RoE target of 15% by June’20.
L&T:
Consol. revenue grew 10.5% YoY to INR449b on a strong base of last year,
taking full-year revenue growth to 18% (v/s guidance of 12-15%). EBITDA margin
shrank 80bp YoY on account of one-off provisions in the core E&C business. 4QFY19
did not witness any slowdown in execution/order inflow on account of scheduled
elections in April-May. LT remains our top pick in the capital goods sector.
Ultratech:
The company stabilized operations of Binani’s assets, which operated at
72% utilization in Mar’19. Overall volumes for UTCEM grew 15% YoY to 21.3mt. The
company successfully ramped up profitability of Binani’s assets, which achieved
EBITDA/t of INR830 (excluding one offs), an improvement of INR740/t. With various
cost-efficiency programs, cost/t for UTCEM declined 2% YoY. Thus, EBITDA/t
increased 13% YoY to INR1,039. Consequently, EBITDA increased 30% YoY to
INR22b, with the margin expanding 2.2pp YoY to 21.1%. Adj. PAT was up 42.5% YoY
at INR10.1b.
Maruti:
Maruti’s EBITDA remained under pressure due to factors such as inventory
de-stocking at the company (-50bp QoQ), Gujarat new line & engine plant fixed cost
(-70bp QoQ), Gujarat plant depreciation (-50bp), Fx (-60bp QoQ) and conversion
cost inflation (-50bp QoQ). We believe that MSIL will see the full impact of
headwinds on both volumes and margins over 1HFY20. We estimate FY20 volume
growth of 6%, which will be highly influenced by spread out of monsoon and new
product launch. Despite headwinds, EBITDA margin will likely expand by 30bp to
12.9% in FY20, as price increase and lower discounts will partially offset the impact
from operating deleverage.
Bharti Airtel:
India wireless business made a strong comeback with a beat on all
fronts – EBITDA grew 32% QoQ. Minimum recharge strategy drove ARPU by a steep
19% QoQ to INR123, while the subscriber base fell by a meager 1%. Recent rights
issue, impending Africa IPO/Bharti Infratel stake sale and the peak-out of capex
intensity should act as a key catalyst in alleviating concerns around burgeoning
leverage. Bharti is well poised to regain momentum. A turnaround in the India
wireless business, coupled with a steady uptick in the Africa business, should propel
overall growth.
June 2019
4

Strategy
Coal India:
Coal India's 4Q adj. EBITDA (ex-OBR) grew 4% YoY, driven by higher
realizations and volumes, partly offset by a higher wage bill. Excluding the wage bill,
cash cost was down ~4% YoY. We expect Coal India's cash costs per ton to decline as
it continues implementing productivity measures and shuts down old mines. This,
along with 5-6% growth in volumes, should drive ~8% earnings growth over the next
two years. The stock is attractive at current levels at ~4xEV/EBITDA (v/s historical
average of 7x) and P/E of 7-8x (v/s average of ~14x).
Indian Oil:
Led by its highest-ever marketing margins, IOCL’s EBITDA came in 45%
above our estimate. PAT exceeded our estimate by 63%, driven by higher other
income and a lower effective tax rate. No threat of spike in oil prices, combined with
continuity in reforms, is likely to result in stable marketing margins. The quality of
earnings is likely to improve with the commissioning of the PP plant at Paradip and
the ramp-up of the Ennore LNG terminal. It is trading at par with the FY15-18
deregulated period, while it should command a premium due to higher free cash
flow, in our view.
Federal Bank:
Fresh slippages moderated to INR2.6b (1.1% annualized), driven by a
32%/50% YoY/QoQ decline in SME slippages and NIL corporate slippage. The bank
expects the slippages trend to moderate, and thus, guided for 55-60bp of credit cost
for FY20, and continued RoA improvement over FY20/21. Also, the bank expects a
250bp improvement in the C/I ratio over the next two years.
Asian Paints:
Results were disappointing, with 12% sales growth and 2% EBITDA and
PAT decline (absolute EBITDA/PAT miss of 16%/ 17%). Ongoing top-line slowdown
particularly amid massive capacity expansion (50% capacity added in 6m ending
March 2019) and a deteriorating mix indicates a weak earnings outlook. Valuations
at 59.5x FY20E and 48.8x FY21E EPS are rich for a company with a weak earnings
growth outlook and RoCE likely below 20% for FY20 – as a result, we downgraded
our rating on the stock to Sell.
June 2019
5

Strategy
Mar’19 results review: MOFSL Universe delivers in-line performance; PAT
growth highest since Jun’14
For the MOFSL Universe, aggregate sales grew 10.6% YoY (our estimate: 11.5%),
EBITDA increased 7.3% YoY (our estimate: 5.1%) and PAT was up 23.6% YoY (our
estimate: 29.4%). The performance was dragged disproportionately by PSU
Banks (loss of INR51b v/s estimate of a profit of INR49b). Low base of Mar’18
(profit decline of 7% in Mar’18) supported aggregate profit growth. On a two-
year CAGR basis, MOFSL Universe profits grew 7% over Mar’17- Mar’19.
Excluding Corporate Banks, MOFSL Universe sales, EBITDA and PAT were up
10.3%, 5.9% and 0.7% v/s our estimate of 11.3%, 4.0% and (3.7) %, respectively.
The aggregate performance was disproportionately and expectedly supported
by financials (contributed INR230b to PAT delta), which accounted for the entire
earnings growth. However, we highlight that both private and public banks
delivered lower-than-expected PAT, as banks chose to ramp-up provisions and
boost PCR.
Of the 19 sectors we track, 7/4/8 posted profits that were above/in-line/below
our estimates. Automobiles, Cement, Metals, Utilities and Mid-cap universe
profits exceeded our expectations, while Private Banks, PSU Banks, Healthcare,
Retail and Telecom missed our profit expectations.
EBITDA margin for the MOFSL Universe (Ex Financials and OMCs) shrank 100bp
YoY to 19.1% (our estimate: 20.1%), dragged by Automobiles, Consumer,
Metals, O&G and Telecom, while Cement and Utilities delivered YoY expansion
in the operating margin.
Of the 195 companies, 80 exceeded our expectations (75 in 3QFY19), 68
delivered a miss (77 in 3QFY19) and 47 were in line (41 in 3Q) on the PAT front.
Sales
EBITDA
Mar- Chg. % Chg. %
19
QoQ YoY
782
73
17
5
296
136
256
1,231
61
98
6
122
89
578
278
888
10
311
199
12
249
106
2,901
1,755
2,308
0
17
-14
10
-2
2
-2
17
26
46
-22
0
-8
26
9
11
83
0
17
9
22
9
10.0
4.2
10.0
15
35
18
16
9
24
14
8
20
7
6
7
15
7
6
0
49
-8
-14
23
29
0
7.3
4.9
6.1
PAT
EBIDTA Margin
Chg.
YoY bp
-114
168
-19
49
-989
377
-53
-44
99
-25
-117
-73
35
-56
115
-117
112
-295
-181
-153
609
-543
-61
-116
-86
Exhibit 8: Profit growth led by Financials and IT, while Autos and Telecom dragged
Sector
(no of companies)
High growth sectors
Others (23)
Media (7)
Logistics (2)
Banks - Private (11)
NBFC (13)
Technology (14)
Med/Low growth sectors
Cement (10)
Capital Goods (13)
Retail (2)
Consumer (19)
Healthcare (20)
Oil & Gas (14)
Utilities (8)
PAT de-growth sectors
Life Insurance (2)
Metals (9)
Automobiles (16)
Infrastructure (4)
Banks - PSU (4)
Telecom (4)
MOFSL Universe (195)
Sensex (30)
Nifty (50)
Chg. % Chg. %
Mar- 19
QoQ YoY
2,149
395
52
35
371
182
1,115
7,735
327
771
58
511
455
4,854
759
4,462
203
1,629
1,837
50
340
402
14,345
6,678
10,317
2
4
-5
3
4
4
1
-3
12
26
-15
0
-1
-9
3
7
41
4
9
18
2
1
0.4
1.6
-0.2
Var.
over
Exp. (%)
19
0
23
0
19
5
12
-4
22
1
17
6
17
-1
11
-2
14
3
10
-1
18
3
10
-2
13
-1
12
-4
3
8
6
1
16
2
6
3
0
-1
31
9
19
0
21
-1
10.6
-0.8
9.5
-2.1
10.2
-0.8
Var.
Var.
Mar- Chg. % Chg. %
Mar- 19
over
over
19
QoQ YoY
(%)
Exp. (%)
Exp. (%)
-2
436
-3
23
-4
36.4
3
38
35
45
22
18.6
7
8
-29
34
-8
31.9
-2
4
34
33
15
14.1
-4
95
-26
29
-28
79.9
1
92
18
26
12
74.6
-3
199
0
15
2
22.9
4
659
21
7
4
15.9
1
30
44
13
5
18.7
-3
61
55
13
3
12.7
-13
4
-16
12
-9
10.4
-4
87
3
10
2
23.8
-6
49
-10
7
-10
19.6
8
304
26
7
5
11.9
8
124
23
3
8
36.6
3
136
-22
420
-32
19.9
31
6
15
-9
-7
4.9
6
124
5
-11
29
19.1
-6
99
55
-16
18
10.8
11
4
4
-12
7
24.3
4
-51
PL
Loss
PL
73.3
7
-47
Loss
Loss
15
26.3
2.1
1,231 5.6 23.6
-4.5
20.2
1.0
749 -2.5 16.4
-5.7
26.3
2.6
1,010 6.4 15.8
-0.8
22.4
June 2019
6

Strategy
Sector performance: Financials drove earnings but fell short of estimates
Sales growth was led by Private Banks (22%), Telecom (21%), PSU Banks (19%),
NBFC (17%) and Technology (17%), partly offset by the muted performance of
Metals (6%) and Utilities (3%).
EBITDA growth was driven by PSU Banks (29%), NBFC (24%) Cement (20%) and
Technology (14%). However, Auto and Metals reported a decline of 14% and 8%,
respectively.
PAT growth was led by Private Banks (29%), NBFC (26%), Technology (15%),
Cement (13%) and Capital Goods (13%). However, Auto and Metals reported a
decline of 16% and 11% YoY, respectively.
MOFSL Universe surprise/miss ratio highest since 3QFY18
For the MOFSL Universe, aggregate sales grew 10.6% YoY (our estimate: 11.5%),
EBITDA increased 7.3% YoY (our estimate: 5.1%) and PAT was up 23.6% YoY (our
estimate: 29.4%).
The number of companies exceeding our estimates surpassed that of companies
delivering a miss. MOFSL Universe surprise/miss ratio of 1.2 was the highest
since 3QFY18 (0.9x in 3QFY19).
Of the 19 sectors we track, 7/4/8 posted profits that were above/in-line/below
our estimates.
Exhibit 10: MOFSL Universe PAT growth: Telecom, PSU
Banks and Automobiles drag profits
94
67
34
4
-4
-38
-10
6
0
6
-5
-10
8 2 5
-7
15
2 7
15
1417 15
-7
3 2
24
Exhibit 9: MOFSL Universe surprise/miss ratio stood at 1.2x
for 4QFY19
MOFSL Universe PAT (Surprise / Miss ratio)
1.3
1.2
1.1
1.2
1.1 1.1
1.00.9
1.0
0.9
0.90.9
0.9
0.9
0.8
0.8
0.8
0.7
0.7
0.6
0.6
-6
Top-line growth remains in double-digits but slowest since Mar’17
The key highlight of the 4QFY19 results season was that top-line growth
remained in double-digits but came in lowest in nine quarters. On the other
hand, profit growth was the highest since Jun’14, driven by a low base in
financials.
16/19 sectors reported EBITDA that was either in line or better than our
expectations. 11/19 sectors reported PAT that was either in line or better than
our expectations.
EBITDA margin for the MOFSL Universe (ex -Financials and OMCs) contracted by
100bp YoY to 19.1% (our estimate: 18.8%).
June 2019
7

Strategy
Exhibit 12: EBITDA margin (ex-Financials & OMCs)
contracted 100bp to 19.1%
MOFSL Universe EBITDA Margin
LPA: 19.4%
Exhibit 11: MOFSL Universe posted in-line EBIDTA growth at 7%
32
39
30
13
3
-5
17
7 5 7
4 6
-2
14
3
1918
13
9
1110
151214 13
4
7
-8
Exhibit 13: Key highlights: EBITDA and PAT margin contraction was broad-based (barring Cement, Utilities and Healthcare) in
4QFY19
Sector
Automobiles
Capital Goods
Cement
Consumer
Financials
Banks - Private
Banks - PSU
Life Insurance
NBFC
Healthcare
Infrastructure
Logistics
Media
Metals
Oil & Gas
Excl. OMCs
Retail
Technology
Telecom
Utilities
Others
MOFSL Universe
MOFSL Ex Financials & OMCs
MOFSL Ex Fin, Oil & Metals
Sensex Universe
Nifty Universe
Mar 18
12.6
12.9
17.7
24.6
63.2
89.8
67.2
3.8
70.8
19.2
25.8
13.6
32.1
22.1
12.5
18.8
11.5
23.5
31.8
35.4
16.9
20.8
20.1
20.1
27.4
23.2
EBDITA Margin
Mar 19
10.8
12.7
18.7
23.8
63.1
79.9
73.3
4.9
74.6
19.6
24.3
14.1
31.9
19.1
11.9
17.7
10.4
22.9
26.3
36.6
18.6
20.2
19.1
19.5
26.3
22.4
Chg
-1.8
-0.3
1.0
-0.7
-0.1
-9.9
6.1
1.1
3.8
0.3
-1.5
0.5
-0.2
-2.9
-0.6
-1.1
-1.2
-0.5
-5.4
1.1
1.7
-0.6
-1.0
-0.5
-1.2
-0.9
Mar 18
6.4
7.6
9.2
16.9
-9.5
24.3
-84.1
3.9
46.7
11.3
13.0
10.5
13.4
9.1
6.6
10.0
7.8
18.2
-0.6
16.5
8.1
7.7
10.3
10.6
10.5
9.3
PAT Margin
Mar 19
5.4
7.9
9.2
17.0
13.0
25.7
-15.0
3.1
50.3
10.7
8.7
12.4
15.2
7.6
6.3
8.4
7.4
17.9
-11.6
16.4
9.5
8.6
9.1
9.8
11.2
9.8
Chg
-1.0
0.3
0.0
0.1
22.5
1.4
69.1
-0.8
3.6
-0.6
-4.3
1.9
1.7
-1.5
-0.3
-1.7
-0.3
-0.4
-11.0
-0.1
1.5
0.9
-1.1
-0.9
0.7
0.5
:
June 2019
8

Strategy
Nifty: 4QFY19 performance highlights
Nifty sales/EBITDA/PAT grew 10.2%/6.1%/15.8% YoY, in line with our estimate
of 11.1%/3.4%/16.8% YoY.
Excluding OMCs, Nifty sales/EBITDA/PAT were up 10.3%/6.9%/15.7% YoY v/s
our estimate of 11.3%/5.7%/20.9% YoY.
Excluding Corporate Banks, Nifty PAT grew by 1.7% YoY v/s our estimate of 1.7%
decline.
Excluding both OMCs and Corporate Banks, Nifty profit growth was flattish – in
line with our expectations.
Nifty EBITDA margin (Ex-Financials, OMCs) contracted 100bp YoY to 20.2%.
68% of Nifty Universe posted in-line or higher-than-estimated PAT; 66% of Nifty
Universe posted in-line or higher-than-estimated EBITDA.
Earnings downgrades outweighed upgrades by a factor of around 1.7x. 12 out of
the 50 Nifty companies saw upgrades (>3%) in FY20 EPS, while 14 companies
saw EPS downgrades of >3%.
Exhibit 15: Nifty EBITDA growth in line at 6.1% YoY (v/s
estimate of 3.4%) – lowest in seven quarters
Exhibit 14: Nifty sales growth slowest since Dec-16
Exhibit 16: Nifty PAT growth at 15.8% YoY (in-line) – highest
since Jun-14
Exhibit 17: Nifty EBIDTA margin (ex-Financials and OMCs)
shrank by 100bp YoY (%)
June 2019
9

Strategy
Domestic Cyclicals drive earnings growth in 4QFY19
Domestic Cyclicals drove 4QFY19 earnings growth, with 3x YoY increase. Global
Cyclicals, on the other hand, posted a decline for the second consecutive
quarter. However, the decline was lower than our estimate, with both Metals
and Oil & Gas profit numbers coming in ahead of our estimates. Defensives
disappointed again, dragged by elevated losses in Telecom for the seventh
consecutive quarter. In this quarter, the share of Domestic Cyclicals, Global
Cyclicals and Defensives in the profit pool is roughly equal.
We expect Domestic Cyclicals to continue driving earnings growth led by
Financials, as Global Cyclicals will slow down further and Defensives’
performance will continue to be dragged by Telecom.
Exhibit 18: Domestic Cyclicals, Global Cyclicals and Defensives share in profit pool roughly equal
100%
75%
50%
25%
0%
Defensives
Global cyclicals
Domestic cyclicals
Defensives
include Consumer, Healthcare, Technology, Telecom and Utilities
Global Cyclicals
include Metals, Oil & Gas and JLR
Domestic Cyclicals
include Automobiles, Banks, Capital Goods, Cement, Media, NBFCs, Real Estate and Retail
One third of MOFSL Universe reports YoY profit decline
27% of the companies reported >30% PAT growth.
Overall, 62% of the Universe reported PAT growth, whereas 38% reported a PAT
decline.
>15-30%
>0-15%
6
9
31 38 39
0
-3
8
12
9
17
7
26 35
-7
-9
<0%
-4
-3
-11
-13
-4
1
Ex OMCs (%)
18
20
3
10
8
8
-21
6
12
23
38
Exhibit 19: Distribution of PAT growth
Earnings Growth
26
20
23 26
24 26
-8
-15
42 41
-15
32 35
23
42
-11
>30%
26
22
27
24
9
13
11
4
18
11
31 27 30
25 24 31 34
18
9
18 18
17 16 19 23
14 14 9 13 10 20
27
20 22
24 19 13 27 17 16
17 18 16
25
21
16
17 22 19 24 16 22 25 25 18 22
22 18 22 10 17 22 21 18 23
20 18 21 16 19
18 18
18
18 15
19 19 15
15
24 25 18 22 17 17 19 16 18 18 14 20 22 20 23 13 26 13 19
10 14
12 16
16
43 51 38 39 35
35 30 26 27 32 41
35 41 31 30 27
32
21 21 24 25 25 28 26 24 19 26 24 19 20 26 18 21 22 21 26 26 29 30 29 23 19 25 31
42 40
42 40 37 38 45 36
38 47 36 39 37 35 32 34 45 47 32 31 35
22 32 32
PAT Growth Ex OMCs (%)
June 2019
10

Strategy
Global Cyclicals’ growth muted but better than expectations
Profits of Global Cyclicals (the primary engine of earnings growth in 1HFY19),
which were expected to moderate further, came in decent in the quarter.
Metals posted a profit decline of 11.3% v/s our estimate of a decline of 31.2%
(profit growth for Metals was at 47% in 4QFY18), whereas Oil & Gas posted
profit growth of 6.6% v/s our estimate of 1.5%, led by OMCs.
Defensives’ profit growth remained muted dragged by Telecom.
Exhibit 21: Global Cyclicals’ profit declined 2% on a high
base
84
Exhibit 20: Defensives posted flattish profits on low base
23
17
10
7
12 14
13
7
0
-4
-2 -4
-13
-5
3
13
0
-7
-1
10
8
-11
16
-2 -3
20 26 21
40
51
27
47
20
-2
-24 -31
-24
-15
-14
Financials drove Domestic Cyclicals’ growth
Domestic Cyclicals’ profits grew 3x in 4QFY19 off a weak base (62% decline in
the Mar-18 quarter).
Private Banks posted 29% PAT growth in the quarter, benefiting from a weak
base (29% decline in the base quarter).
NBFC Universe’s performance remained robust, with 12
th
consecutive quarter of
double-digit growth at 26% on a high base (profits had grown 36% in 4QFY18).
Exhibit 23: Private Banks’ post 29% profit growth but missed
expectations
Exhibit 22: Domestic Cyclicals’ PAT triple on low base
202
18 19 19 17
12
16 14
23
5
-2
-15
8 4 7
3
22
29
10 14 13 3 9 15
-14-29
-3 -1
30 36 13 18
2
-62
-11 -9
35
-8
-29
-13
June 2019
11

Strategy
Exhibit 24: PSU Banks posted INR 51b loss v/s expectations
of INR49b profits
Exhibit 25: NBFCs posted strong performance led by Bajaj
Finance and HDFC
44
36
20
8
24
19
19
22
28
30
22
26
12
6
12 10
4
16 16
14
Exhibit 26: Sector estimates revision from preview
PAT (INR B) - PREVIEW PAT (INR B) - REVIEW
Sector
Automobiles
Capital Goods
Cement
Consumer
Financials
Banks - Private
Banks - PSU
Life Insurance
NBFC
Healthcare
Infrastructure
Logistics
Media
Metals
Oil & Gas
Excl. OMCs
Retail
Technology
Telecom
Utilities
Others
MOFSL Universe
MOFSL Univ Ex OMCs
NIFTY EPS (INR)
FY19E
295
164
113
331
816
481
41
25
295
209
17
14
39
452
1,174
893
18
768
-166
430
107
4,804
4,523
486
FY20E
404
191
145
386
1,405
743
315
29
346
262
16
17
46
422
1,300
955
22
820
-157
498
155
5,958
5,614
606
FY19
309
164
119
333
673
444
-69
24
299
202
16
15
38
482
1,224
899
17
767
-172
452
109
4,773
4,448
481
FY20E
402
196
147
369
1,435
720
374
26
341
248
15
16
44
407
1,302
959
22
815
-147
488
160
5,945
5,602
604
% Upgrade /
Downgrade
FY19
FY20E
5.0
-0.6
0.1
2.7
5.5
1.3
0.6
-4.4
-17.5
2.1
-7.8
-3.1
PL
18.5
-2.0
-8.8
1.4
-1.5
-3.5
-5.3
-2.9
-7.8
3.9
-1.3
-1.7
-3.0
6.8
-3.4
4.2
0.2
0.7
0.4
-2.9
-0.2
-0.1
-0.6
Loss
Loss
5.2
-2.0
1.9
3.1
-0.7
-0.2
-1.7
-0.2
-1.0
-0.4
Growth YoY (%)
FY18
15.8
13.4
0.7
10.7
-28.5
-1.2
PL
6.0
24.2
-20.3
25.9
28.1
-9.3
73.2
5.5
6.3
51.1
5.2
PL
8.5
23.6
2.7
2.6
6.7
FY19
-21.8
20.5
17.4
15.4
46.4
9.2
Loss
-11.4
28.0
12.3
4.2
17.6
23.4
24.1
6.0
18.5
29.7
13.5
Loss
27.2
-6.3
9.7
12.5
6.7
FY20E
29.9
19.6
23.9
10.7
113.1
62.2
LP
8.6
14.1
23.0
-9.5
12.5
17.0
-15.6
6.4
6.7
27.9
6.3
Loss
7.8
46.2
24.6
26.0
25.6
Nifty EPS estimate for FY20 remains unchanged
The index delivered EPS growth of 6.7% in FY19; identical to FY18
Nifty delivered EPS growth of 6.7% in FY19 (similar to FY18) to INR481. Our Nifty
FY20/21 EPS estimates remain unchanged at INR604/706, building in YoY
growth of 25.6%/16.9%.
69% of incremental earnings in FY20 for Nifty are expected to come from
Financials.
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): Yes Bank, Asian Paints, Hindalco, Sun Pharma and
Bharti Infratel have seen EPS downgrades of 43.1%, 16.5%, 12.9%, 8.8% and
7.9%, respectively.
12
June 2019

Strategy
Exhibit 27: Nifty stock revision since preview
Company
FY18
Current EPS (INR)
FY19
FY20E
EPS UPGRADE /
DOWNGRADE (%)
FY19
FY20E
EPS GROWTH (%)
FY18
FY19
FY20E
UPL
State Bank
Tata Motors
Tata Steel
GAIL
Ultratech Cement
Cipla
Larsen & Toubro
JSW Steel
Mahindra & Mahindra
ICICI Bank
Wipro
IOC
Dr Reddy’ s Labs
TCS
Hero MotoCorp
Bajaj Finance
Grasim Industries
Power Grid Corp.
Coal India
Reliance Inds.
Britannia
Adani Ports
Eicher Motors
BPCL
Axis Bank
Infosys
ONGC
Bajaj Finserv
Titan Company
Tech Mahindra
Maruti Suzuki
Zee Entertainment
IndusInd Bank
HDFC
ITC
Bajaj Auto
Kotak Mahindra Bank
Hind. Unilever
HCL Technologies
Vedanta
NTPC
Indiabulls Housing
Bharti Infratel
Sun Pharma
Hindalco
Asian Paints
Yes Bank
Bharti Airtel
Nifty (50)
43.8
-5.3
22.9
69.5
20.3
85.7
19.3
51.7
24.0
41.0
11.1
13.4
24.6
64.7
66.0
185.1
43.4
47.3
16.5
19.2
60.9
41.8
17.7
799.6
49.8
1.1
32.4
20.2
166.5
12.6
42.7
266.7
12.0
60.2
33.3
8.9
151.3
32.5
24.5
62.6
20.4
8.9
91.3
13.6
13.5
18.9
21.1
18.4
3.5
451
43.4
2.6
-4.4
88.6
28.1
89.4
18.7
61.4
31.8
42.5
5.2
14.8
18.8
105.2
83.5
169.5
69.5
71.3
19.2
28.3
67.2
48.1
19.3
813.9
43.4
18.2
37.5
27.1
202.3
15.7
48.2
247.7
16.4
54.9
43.1
10.2
165.4
37.7
28.9
73.6
18.1
12.3
95.9
13.6
15.1
24.7
23.1
7.5
-8.8
481
63.5
33.5
13.8
78.6
30.3
113.0
22.6
76.9
21.9
46.4
21.2
17.1
18.7
131.6
89.8
176.8
86.8
85.7
20.9
29.2
70.7
59.2
22.2
877.4
47.7
40.0
38.5
28.3
273.8
20.3
52.9
277.3
18.4
96.8
49.2
10.8
174.3
44.1
33.1
77.7
16.6
13.1
101.9
13.1
18.6
22.9
23.7
14.1
-5.4
604
-5.6
-62.1
Loss
-0.2
-4.8
13.8
6.5
-1.6
4.1
4.6
-26.3
0.1
21.7
-5.9
1.4
0.7
2.9
7.7
5.1
3.4
1.6
-0.5
3.4
0.0
10.2
-0.4
3.7
1.8
-5.9
-2.8
-1.8
2.5
0.9
2.1
0.6
2.2
2.5
-0.8
0.5
-0.2
37.6
11.2
-1.8
-3.8
-7.0
-4.0
-4.2
-59.1
Loss
-1.0
32.4
23.3
13.8
9.3
6.8
6.6
6.5
6.2
5.7
5.2
3.9
3.2
2.3
1.9
1.8
0.8
0.8
0.8
0.7
0.6
0.5
0.2
0.0
-0.1
-0.2
-0.3
-0.3
-0.5
-0.7
-1.1
-2.2
-2.5
-2.5
-2.6
-2.8
-3.0
-3.2
-3.2
-3.5
-4.2
-4.6
-4.9
-5.6
-7.9
-8.8
-12.9
-16.5
-43.1
Loss
-0.4
4.8
PL
15.7
83.3
19.7
-10.9
24.6
22.4
61.2
49.8
-34.3
7.7
11.0
-10.9
-1.0
9.5
35.9
-30.2
16.1
26.3
20.7
13.5
-6.1
27.0
3.0
-92.8
3.1
-9.9
17.2
39.9
33.6
7.3
-23.2
25.2
-16.4
5.5
7.3
21.3
24.7
4.5
34.6
-10.9
33.2
-8.1
-48.5
120.5
1.9
26.3
-68.6
6.7
-0.8
LP
PL
27.3
38.4
4.3
-3.1
18.7
32.4
3.7
-52.8
10.1
-23.7
62.6
26.4
-8.5
60.0
50.6
16.0
47.9
10.4
15.1
8.6
1.8
-12.9
1538.1
15.9
34.4
21.5
24.0
12.8
-7.1
36.4
-8.8
29.6
14.8
9.3
16.0
18.2
17.6
-11.0
38.7
5.0
-0.3
12.2
30.9
9.1
-59.6
PL
6.7
46.3
1199
LP
-11.2
7.9
26.4
20.9
25.3
-31.2
9.0
305.8
15.6
-0.8
25.1
7.6
4.3
25.0
20.2
9.2
3.1
5.2
23.1
15.4
7.8
9.9
119.9
2.7
4.2
35.4
29.4
9.8
12.0
12.0
76.3
14.2
6.6
5.4
16.8
14.3
5.7
-8.2
6.0
6.3
-3.4
23.3
-7.3
2.6
88.6
Loss
25.6
June 2019
13

Strategy
Exhibit 28: Nifty FY18-20 free float; PAT CAGR at 17%; sales CAGR at 17%
Sales (INR b)
Company
High PAT Growth (20%+)
State Bank
Axis Bank
Dr Reddy’ s Labs
ICICI Bank
Bajaj Finance
Grasim Industries
IndusInd Bank
Bajaj Finserv
Titan Company
Zee Entertainment
HDFC
Coal India
Larsen & Toubro
GAIL
HDFC Bank
NTPC
UPL
Medium PAT Growth
(10-20%)
Britannia
ONGC
Ultratech Cement
Sun Pharma
Kotak Mahindra Bank
Hind. Unilever
TCS
Power Grid Corp.
Adani Ports
ITC
Tech Mahindra
Hindalco
HCL Technologies
Asian Paints
Low PAT Growth (<10%)
Cipla
Reliance Inds.
Bajaj Auto
Wipro
Mahindra & Mahindra
Tata Steel
Indiabulls Housing
Eicher Motors
Maruti Suzuki
Infosys
Bharti Infratel
BPCL
Hero MotoCorp
JSW Steel
Vedanta
Yes Bank
IOC
Tata Motors
Bharti Airtel
Nifty (PAT free float)
FY18
6,078
749
186
142
230
78
158
75
92
161
67
96
859
1,197
537
401
878
174
FY19
7,218
883
217
152
270
114
206
88
122
198
79
115
995
1,410
751
482
915
218
FY20E
8,178
998
250
174
313
146
223
135
136
240
90
130
1,024
1,622
755
593
995
354
Sales
CAGR %
18-20
16
15
16
11
17
37
19
34
22
22
16
16
9
16
19
22
7
43
15
14
17
21
10
21
11
14
15
4
10
10
11
17
14
17
10
36
14
7
11
10
23
10
9
14
0
17
6
8
0
20
25
4
1
17
EBIDTA
Margin (%)
FY18 FY19 FY20
38
80
84
16
107
63
20
89
78
10
31
88
20
11
14
81
26
20
23
15
18
20
20
75
21
26
88
62
38
15
12
23
19
16
19
16
19
20
14
17
125
31
15
27
44
6
16
21
22
100
10
12
36
21
36
63
88
19
87
67
20
91
80
10
32
96
25
12
13
82
22
19
24
16
18
18
20
74
23
27
87
60
38
18
12
23
18
14
19
15
16
20
15
19
107
30
13
25
41
5
15
22
21
83
7
10
32
20
39
65
92
21
88
68
20
89
88
11
31
97
24
13
14
84
31
23
24
17
19
19
23
76
23
27
90
65
39
18
12
23
17
13
20
13
17
22
15
17
90
28
13
25
39
5
15
20
24
81
5
12
32
20
EBITDA
CAGR %
18-20
17
4
22
25
5
42
21
35
30
26
15
22
21
24
20
23
15
51
17
19
19
17
19
22
17
15
17
7
11
20
11
19
9
7
13
21
6
11
12
12
4
4
1
9
-5
3
0
6
5
8
-8
7
-6
13
PAT (INR b)
PAT YoY (%)
PAT
Contbn
to
CAGR %
Delta %
18-20
40
58
49
76
LP 1,199 LP
29
1,596 122 514
8
63
25
43
1
-50 306
42
6
60
25
41
2
51
20
35
2
-8
92
33
2
22
35
29
1
24
29
27
1
36
12
24
1
33
14
23
2
47
3
23
5
19
25
22
3
38
8
22
2
21
22
21
7
39
6
21
3
-1
46
20
1
21
15
34
4
12
16
18
23
16
9
15
13
31
15
9
-10
-3
10
9
7
4
27
5
2
-7
-3
0
-13
-8
32
-11
-59
-24
PL
PL
9
8
23
4
33
23
17
14
7
9
15
7
8
-7
4
3
8
21
5
5
6
9
-11
6
8
12
5
-3
10
5
-31
-8
97
-1
LP
Loss
26
14
19
18
18
18
17
16
14
13
12
11
11
10
10
6
-2
8
8
7
7
6
6
6
5
2
1
-2
-2
-2
-5
-10
-10
-13
-22
PL
17
28
0
9
1
1
2
2
7
2
1
2
1
1
1
0
-4
0
5
1
1
1
1
0
0
0
0
0
0
0
0
-1
-1
-5
-3
-3
100
FY18 FY19 FY20E FY18 FY19 FY20
755
-46
3
11
68
25
31
36
26
11
12
56
119
72
46
175
88
22
1,056 1,670
23
299
47
104
17
22
34
137
40
50
47
56
33
63
32
44
14
18
16
18
74
85
175 180
86
108
63
68
211 257
122 129
22
32
-5
PL
-93
-11
-31
36
-2
26
16
40
-23
-12
26
22
20
20
-11
6
1
8,900 10,644 11,728
99
3,622
294
261
95
345
1,231
299
113
406
308
1,152
506
168
21,228
152
3,917
252
545
921
1,322
48
89
798
705
145
2,358
322
701
919
77
4,215
2,916
826
36,206
111
4,535
357
288
113
382
1,465
385
109
450
347
1,305
604
193
25,619
164
5,671
302
586
1,029
1,577
58
97
869
827
146
2,982
337
848
920
98
5,281
3,019
808
43,481
129
4,948
428
316
140
429
1,612
396
123
492
372
1,428
696
219
29,285
184
7,292
327
623
1,138
1,592
72
108
945
909
145
3,207
360
818
910
111
6,577
3,127
839
49,192
1,118 1,358 1,461
10
12
14
14
259 348 363 -10
24
25
33
-11
32
36
45
-49
62
72
84
26
53
63
72
25
258 316 337
-2
87
100 110
16
37
40
46
-6
108 125 133
6
38
43
47
38
42
55
51
121
88
101 106
4
20
22
23
2
1,590 1,428 1,538 16
16
15
18
25
361 398 419
21
44
48
50
7
85
92
97
2
49
51
55
50
80
101
90
116
39
41
43
34
22
22
24
27
81
75
84
7
161 157 164
12
25
25
24
-8
98
85
94
3
37
34
35
9
58
76
53
62
76
67
62
35
42
17
34
27
226 173 171
11
78
-15
47
16
14
-35
-28
-69
1,776 1,934 2,435 7
June 2019
14

Strategy
Sector-wise: Highlights / Surprises / Guidance
AUTO: Weak quarter; expect demand recovery from 2QFY20, RM inflation to soften in 1HFY20
Demand weakness continues across segments, but expect recovery from 2QFY20:
In 4QFY19, auto demand
was impacted by (a) weak buying sentiment in rural areas, (b) liquidity crunch and (c) a high base. While most
OEMs have slashed their growth guidance for FY20, demand is likely to be driven by BS-VI-related pre-buy from
2QFY20. In FY20, the PV industry is expected to grow at 3-5%, 2W at mid-single-digit and the tractor industry at
5-8%.
RM cost inflation continues hurting margins:
RM cost increased by 220bp YoY (+60bp QoQ) to 71.4% for our
Auto Universe. However, most OEMs expect the positive impact of softening RM inflation to start reflecting in
1HFY20.
EBITDA margin (ex-JLR) shrinks for third straight quarter:
EBITDA margin shrank by 130bp YoY (-30bp QoQ) to
11.4% for our Auto Universe (ex JLR) in 4QFY19, impacted by RM inflation, operating deleverage and higher
other expense. All auto OEMs (ex TTMT S/A) witnessed margin contraction YoY, particularly EIM S/A (-4.5pp
YoY), BJAUT (-3.9pp YoY), MSIL (-3.7pp YoY), HMCL (-2.4pp YoY), AL (-1.7pp) and MM (-1.6pp). JLR’s margin
shrank by 3.8pp YoY (+2.4% QoQ).
Aggregate PAT (ex-JLR) declined first time in seven quarters:
Aggregate OEM (ex JLR) PAT declined by 16% YoY
(-6.1% QoQ), impacted by a significant YoY fall in TTMT S/A (-68.3%), HMCL (-24.5%), MSIL (-13%), EIM (-16%)
and AL (-11%).
Earnings change:
We have lowered our FY20/21 EPS estimate for MSIL (2.5%/4%), MSS (14%/6%), TVSL (8/9%),
BJAUT (3% each), but have upgraded MM’s consol. EPS estimate by 5%/3%.
Top picks:
We prefer PVs over CVs and 2Ws as it is likely to be the least impacted segment from BS-VI and a
stable competitive environment. Our top picks are MSIL and MSS among large caps, and ENDU and EXID among
midcaps.
Positive surprise:
MM, BHFC, ENDU, EXID, AMRJ and CEAT
Negative surprise:
MSIL, EIM, TTMT SA, MSS and BOS
Guidance highlights:
MSIL – FY20 is likely to be an unpredictable year due to the impact from several regulations. It expects to grow
faster than the SIAM’s outlook of 3-5% growth in FY20. It expects INR-based royalty for all models by 2022 (~40
currently).
M&M – domestic tractors/PV/CV industry is likely to grow at ~5%/3-5%/10-12% in FY20. FES inventory is
comfortable at 4-5 weeks (v/s industry inventory at 7-8 weeks).
TTMT – JLR: FY21 retail sales growth to be higher in the premium segment. For FY21, it has guided for an EBIT
margin of 3-4% (maintained) and negative FCF (earlier expected FY21 to be FCF positive).
BJAUT – domestic 2W industry growth now cautious v/s 8-10% growth expected earlier. It expects to surpass
FY19 domestic 3W volumes in FY20. The focus is to expand market share in the large passenger and diesel 3W
portfolio.
HMCL – FY20 industry volumes are expected to grow in mid-single-digit. HMCL expects to grow ahead of
industry.
TVSL – FY20 outlook of marginal industry growth based on good growth in 2HCY19. TVS to outperform industry.
EIM – production target of 950k for FY20. It targets to have ~1,000 dealers by end-FY20 (v/s ~915 in FY19).
AL – CV industry growth guided at 10-12% in FY20 due to BS-VI-related pre-buying from 2QFY20.
Escorts – domestic tractor industry to grow at 5-8% in FY20. CE/Railway business to grow at 10-12%/15-18%.
Motherson Sumi – Expect normalization in SMP margins in 2-3 quarters once new product launches come
through.
June 2019
15

Strategy
Exhibit 29: Key operating indicators
BJAUT
HMCL
TVS Motor
MSIL
MM
TTMT (S/A)
TTMT (JLR)
TTMT (Cons)
Ashok Leyland
Eicher (RE)
Eicher (VECV)
Eicher (consol.)
Agg. (ex JLR)
Volumes ('000 units)
4QFY19
YoY (%)
QoQ (%)
1,194
14.2
-5.3
1,781
-10.8
-1.1
907
2.0
-8.3
458
-0.7
7.0
236
-0.4
0.7
193
-5.6
12.4
162
-11.6
14.1
60
196
21
5,046
1.3
-13.6
-9.0
-1.9
36.0
0.9
24.1
-1.8
EBITDA margins (%)
4QFY19
YoY (bp)
QoQ (bp)
15.7
-390
10
13.6
-240
-50
7.0
-30
-100
10.5
-370
70
13.5
-160
30
7.3
340
-150
9.8
-380
240
9.3
-130
150
11.1
-170
90
27.8
-450
-170
8.5
-100
190
27.8
-450
-170
11.4
-130
-30
4QFY19
10,671
7,303
1,338
17,956
10,502
1,750
255
21,387
6,625
4,804
1,394
5,448
61,593
Adj PAT (INR M)
YoY (%)
QoQ (%)
-1.2
-3.2
-24.5
-5.0
-19.2
-25.0
-12.9
20.6
-6.4
-28.0
-68.3
-72.7
-25.6
-193.9
-31.6
-285
-11.2
71.8
15.9
-4.8
-21.8
83.3
-16.0
2.2
-16.1
-6.1
Source: MOFSL, Company
Exhibit 30: Aggregate EBITDA margin (excluding JLR) shrinks
YoY/QoQ…
Aggregate (excld JLR)
17
14
11
8
Aggregate (incl JLR)
Exhibit 31: …led by YoY contraction in margins across
segments
4QFY18
1QFY19
2QFY19
3QFY19
4QFY19
2W
Source: MOFSL, Company
Cars
CVs
Source: MOFSL, Company
Exhibit 32: Revised EPS estimates
Rev
174
177
18
277
46
14
7
877
33
22
578
73
58
43
11
6
FY20E
Old
180
175
20
284
44
12
7
878
36
24
614
83
60
43
11
7
Chg (%)
-3.1
0.8
-7.9
-2.5
5.1
13.4
-0.3
-0.1
-7.6
-7.2
-5.7
-11.4
-4.0
-0.4
2.2
-13.6
Rev
190
185
23
334
46
15
6
1,007
38
24
674
91
60
49
12
7
FY21E
Old
196
182
25
348
44
16
6
1,008
43
27
724
98
63
50
12
8
Chg (%)
-2.9
1.7
-9.4
-3.9
3.0
-3.4
4.8
-0.1
-11.7
-10.3
-7.0
-6.8
-4.7
-1.2
2.7
-6.0
Bajaj Auto
Hero MotoCorp
TVS Motor
Maruti
M&M
Tata Motors
Ashok Leyland
Eicher Motors
Amara Raja
Bharat Forge
BOSCH
Ceat
Escorts
Endurance Tech
Exide Industries
Motherson Sumi
Source: MOFSL, Company
June 2019
16

Strategy
CAPITAL GOODS: In-line performance at profitability level
Infrastructure: Performance beat supported by better-than-expected execution
Revenue growth for industry marginally below estimate:
Revenue growth stood at 9.5% YoY for the industry,
below our estimate of 11% YoY. Below-estimated revenue booking was on account of weak order availability for
execution in the T&D sector and execution delays witnessed in a few companies. Even the room AC segment for
companies like Voltas, Havells and Blue Star saw a tepid performance, given delayed summer and high inventory
position in the system. Large players like L&T, Siemens and ABB were able to smoothly execute and deliver
revenue in line with expectations.
Mixed performance on profitability front:
Operating profit growth for the quarter stood at 7% YoY, below our
estimate of 10% YoY, while net profit growth of 13% YoY was ahead of our estimate of 10% YoY. Performance
improvement during the quarter was restricted to a few companies like ABB, Bharat Electronics and BHEL.
Disappointment on the profitability front came from companies like L&T, EIL, GE TD and Havells. L&T’s
disappointment was on account of weaker-than-estimated margins in the infra segment, while Havells, EIL and
GE TD suffered on account of weak execution and operating deleverage.
Order inflow declines given weakness in domestic ordering:
Order inflows declined due to weakness in
domestic ordering in the run up to the general elections. Order inflow for L&T increased 14% YoY to INR565b
(supported by orders in the international market), but that for BHEL declined 73% YoY to INR68b as not many
BTG order saw finalization during the quarter. Management commentary suggests that small- and medium-sized
orders are flowing in, but large-ticket orders are on hold and should see pick up in 2HFY20.
Infrastructure:
Excluding Sadbhav, the performance of the sector at the operating level was ahead of our
expectation. Revenue growth of 30% YoY was above our estimate of 20% YoY. Execution of KNR and Ashoka was
way ahead of our estimate (36% beat to our estimate), supported by a pick-up in execution of orders in hand.
Sectoral operating profit was 11% ahead of our estimate (+23% YoY), supported by a better revenue mix and
operating leverage. PAT declined 12% YoY and was ahead of our estimate by 7%. PAT decline was mainly on
account of a higher tax rate from companies facing the end of 80IA benefits.
Post weak ordering in FY19, ordering and construction activity is likely to pick up in FY20 (with election
uncertainty behind) and the focus of the new government is likely to continue on road infrastructure
development. Even the prevailing issues of (a) difficulty in achieving financial closure and (b) non-availability of
land to execute the already awarded projects have been addressed to a large extent. This will not only improve
execution of the already awarded projects but also help in paving way for improving ordering activity.
Top picks:
We maintain our positive stance on
L&T in the capital goods sector,
given (a) an improvement in
domestic execution, (b) ordering from overseas geography showing signs of pick-up, (c) working capital cycle
improvement and (d) leaner balance sheet due to non-core asset divestment. In
infrastructure,
we like KNR and
Ashoka given its (a) ability to timely execute projects, (b) healthy balance sheet and (c) ability to grow without
diluting the quality of balance sheet.
Positive surprise:
ABB, Bharat Electronics, BHEL, Siemens, Blue Star, KNR and Ashoka
Negative surprise:
Voltas, Cummins and Sadbhav
Guidance highlights:
Cummins guided for domestic revenue growth of 10-15% in FY20 and export growth guidance of flat to negative.
Bharat Electronics: Revenue growth guidance of 13-15% and operating margins of 20-21%.
L&T: It guided for sales growth of +12-15% YoY, orders increase of 10-12% and EBITDA margin of 10.5% (ex-
services) in FY20.
June 2019
17

Strategy
Exhibit 33: Book-to-bill ratio stands at 2.1x
Order book (INR b)
BTB (x)
CEMENT: Improvement in profitability led by better realizations
Profitability increase led by realization gains and healthy volumes:
Cement companies under our coverage
universe reported volume growth of 12% YoY in 4QFY19 (our estimate: 6%YoY). EBITDA/t improved 11% YoY to
INR891 (our estimate: INR877), led by a 2% YoY increase in realization and flat cost curve. As a result, EBITDA
improved 20% YoY to INR61b (our estimate: INR60b). PAT grew 14% YoY to INR30b (our estimate: INR29b).
Healthy volume growth:
Volume growth was healthy at 12% YoY. Industry grew by 10% YoY in 4QFY19, as all-
India utilization stood at 78%, highest in the last 28 quarters. Roads and low-cost housing projects like Pradhan
Mantri Awaas Yojana (PMAY) are driving growth. Prices increased by 4-5% QoQ in south and 2% QoQ in west.
Prices rose by a marginal 1% QoQ in central India but were flat in east and north. Overall industry pricing
improved 1-2% QoQ.
EBITDA/t up 11% YoY:
Cement companies reported aggregate sales of INR309b (+13% YoY, +15% QoQ), led by
higher volumes and a 2% YoY increase in realizations. Cost/t remained flat YoY and declined 4% QoQ due to
moderation in power & fuel and freight cost/t. Some companies also benefitted from higher operating leverage.
Hence, EBITDA/t stood at INR891/t (+11% YoY, +23%QoQ).
Top picks:
We prefer companies with higher exposure to north, as this region is poised to witness a maximum
improvement in capacity utilization over the next two years. Our top pick to play the north theme is
JK Cement.
We also like
ACC,
which is in capex growth mode and should witness an improvement in profitability.
Positive surprise:
Ultratech, Birla Corp, Orient Cement, Prism Cement, Sanghi Industries
Negative surprise:
ACC, Ambuja, India Cement
Guidance highlights:
Across India, cement players hiked prices by INR20/bag in Apr’19, followed by another hike of
INR10-30/bag in May’19, which was partly rolled back toward end-May. While there was a slowdown in construction
activities in the run up to the general elections, we still expect companies to report better margins in 1QFY20, led by
higher realizations.
Exhibit 34: Volume growth of 12% YoY for MOFSL Cement
Universe
Aggregate Vol (m ton)
12
-4 -1 -3
3
16
7 6
-6
5
0 3
8
2 4
8 8
Volume growth (%)
21
13
14 17 14
10 12
Exhibit 35: Profitability increased 11% YoY
Aggregate EBITDA (Rs/ton)
June 2019
18

Strategy
Exhibit 36: Trend in key operating parameters
Volume (m ton)
4QFY19
YoY (%) QoQ (%)
7.5
5.5
0.0
6.4
2.4
3.9
21.3
15.4
19.0
3.9
13.2
19.9
3.3
7.7
12.6
7.3
13.3
23.1
2.9
5.8
15.3
2.9
32.0
27.7
3.3
20.2
19.8
1.8
9.2
21.3
1.8
4.8
16.7
0.7
14.0
6.5
63
12
15
Realization (INR/ton)
EBITDA (INR/ton)
4QFY19 YoY (INR) QoQ (INR) 4QFY19 YoY (INR) QoQ (INR)
4701
70.1
-12.9
708
17.2
27.7
4596
-6.3
-75.1
727
-88.0
68.4
4930
53.0
6.4
1039
116.7
262.5
4625
58.3
72.1
804
44.9
158.7
4697
173.0
246.7
577
64.7
121.4
4225
67.8
-89.5
1103
146.7
35.3
5182
343.9
84.8
971
303.0
127.9
3983
-39.1
-73.3
446
-8.3
19.6
4640
68.4
247.8
987
-13.9
202.5
4101
405.0
318.8
835
390.8
584.4
4545
20.7
154.3
971
153.5
270.8
3903
-187.5
-103.5
651
-14.4
167.0
4,662
72
21
891
85
166
ACC
Ambuja Cement
UltraTech
Birla Corp
India Cement
Shree Cement
J K Cements
JK Lakshmi Cem.
Madras Cement
Orient Cement
Prism Cement
Sanghi Industries
Sector Agg.
CONSUMER: Weak quarter; expect demand recovery post 1QFY20
Sales/EBITDA/PAT largely in line for our coverage universe:
Consumer Universe revenue grew 9.8% YoY (our
estimate: +11.7%), EBITDA increased 6.5% YoY (our estimate: +11.3%) and adj. PAT grew 10.2% YoY (our
estimate: +7.8%). Volume growth across our coverage was slightly lower than our expectations. 9 of the 19
companies under our coverage reported EBITDA that was either in line or above our estimate. Coverage
companies’ aggregate EBITDA margin at 23.8% was below our estimate of 24.5%.
Slowdown in demand scenario:
Companies across the board called out a slowdown and also indicated that this
could persist in 1QFY20. Management is hopeful of a recovery post 1QFY20 as a result of benefits announced in
the budget reaching rural customers and anticipated normal monsoon. Commodity costs are largely benign –
while this is good for margins, it is affecting realization growth. If volume growth slowdown persists,
promotional intensity could increase, leading to weak sales growth.
We downgraded Asian Paints to Sell from Neutral
on account (a) the slowdown amid a higher fixed cost
environment, with APNT having just finished a massive round of capacity addition (>50% capacity added over
the last six months), (b) the weakening operating performance and (c) the deteriorating mix over the past few
quarters severely affecting the gross margin.
We also downgraded Pidilite to Neutral
on account of near-term headwinds.
Top picks: BRIT, HUL and MRCO due to their ability to outpace peers on earnings growth.
BRIT
is well poised given its sustained strong growth in volumes, strong pace of new launches and continued
cost efficiencies.
HUL:
It is a key beneficiary of the confluence of positive factors which are likely to drive rural volumes as
well as strong premiumization trend.
MRCO:
It is a high-quality franchise offering better earnings visibility relative to peers, led by the benign
input cost environment and increasing rural salience.
Positive surprise:
GSKC
Negative surprise:
APNT, DABUR, HMN, GCPL, JYL, PAG, PIDI, UBL
Guidance highlights:
HUVR:
Macroeconomic indicators are pointing toward some pressure on near-term market growth.
Nevertheless, HUVR appears confident of performing well even in a relatively difficult environment.
MRCO
is targeting 8-10% volume growth in India and double-digit CC growth in international business. Domestic
EBITDA margins are targeted to be over 20% and international margins over 18%.
APNT:
Near-term growth outlook remains uncertain.
BRIT:
Double-digit steady state volumes should be possible in the medium-to-longer term. Near-term
disruptions should be present. Management expects a modest increase in inflation from current levels and will
take price hikes in the future.
June 2019
19

Strategy
CLGT:
Management will prioritize growth even if it comes at the cost of near-term EBITDA margins.
EMAMI:
Focus will be on volume growth with price growth in the range of 2.5-3% in domestic business.
Management believes that current margins are sustainable.
PIDI:
Company expects slower near-term market growth and is cautiously optimistic of growth hereon. EBITDA
margin guided at 21-24%; expansion should be primarily led by gross margin.
DABUR
is targeting high-single-digit volume growth in India FMCG in FY20, with 2-3% realization growth.
GCPL:
Strong sales growth expected in FY20 due to innovation and a better go-to-market strategy.
UNSP:
Management reiterated its medium-term target of double-digit sales growth and mid-to-high-teen
operating margins over this period.
4Q17
10.0
2.0
(3.0)
2.4
(1.5)
5.0
(1.0)
4.0
0.0
10.0
15.0
10.0
6.0
7.0
1Q18
4.0
2.0
(5.0)
(4.4)
(18.0)
(9.0)
0.0
0.0
1.0
(9.0)
(9.0)
(8.0)
(9.0)
0.0
2Q18
9.0
5.0
(0.9)
7.2
10.0
15.0
2.5
4.0
(6.0)
8.0
12.0
3.0
12.0
15.0
3Q18
6.0
11.0
12.0
13.0
6.0
15.0
15.0
11.0
(3.0)
9.4
15.0
8.0
0.0
23.0
4Q18
10.0
11.0
4.0
7.7
8.0
15.0
8.0
11.0
(2.0)
1.0
(5.0)
11.0
(1.0)
13.0
1Q19
10.0
11.0
4.0
21.0
18.0
10.0
12.0
12.0
1.0
12.4
9.0
15.0
10.0
20.2
2Q19
11.0
11.0
7.0
8.1
(4.0)
10.0
10.0
10.0
6.0
6.0
8.0
5.0
5.0
11.0
3Q19
21.0
7.0
7.0
12.4
3.5
0.0
8.0
10.0
7.0
5.0
9.0
7.0
2.0
13.0
4Q19
10.0
7.0
5.0
4.3
0.0
NA
6.5
7.0
8.0
8.0
6.0
1.0
18.0
4.0
Exhibit 37: Quarterly volume growth
Quarterly volume growth (%)
Asian Paints (Domestic decorative)*
Britannia (Base business)
Colgate (Toothpaste)
Dabur (Domestic FMCG)
Emami (Domestic)
Godrej Consumer (Soaps)*
GSK Consumer (MFD)
Hindustan Unilever (Domestic)
ITC (cigarette)*
Marico
Domestic
Parachute
VAHO
Saffola
Pidilite (Consumer bazaar)
*Our estimate
Source: Company, MOFSL
Exhibit 38: Momentum in sales growth hurt by slowdown in demand
Consumer aggregate sales growth YoY (%)
12.4
9.9
7.4
7.7
1.7
6.9
1.4
7.2
7.6
13.6
11.2
9.8
Source: Company, MOFSL
Exhibit 39: Consumer aggregate EBITDA margin down 70bp YoY
Consumer aggregate EBITDA margins (%)
23.6
22.8
22.8
22.9
22.7
24.2
24.6
24.2
24.3
23.9
23.8
23.1
Source: Company, MOFSL
June 2019
20

Strategy
Exhibit 40: Aggregate adj. PAT growth lowest since 1QFY18
Consumer aggregate adj. PAT growth YoY (%)
16.4
11.4
0.9
0.0
10.4
17.3
19.6
14.9
12.7
10.2
13.1
12.6
Source: Company, MOFSL
FINANCIALS-BANKS: Coverage ratio improves; earnings outlook getting stronger
It was a mixed quarter for banks with private banks delivering a healthy operating performance, led by (a) a
revival of domestic credit growth, (b) margin improvement due to lower interest reversal and (c) fee income
boosted by retail fees, while credit cost remained elevated due to downgrade of ILFS exposure and a few other
names getting added to the stressed pool. However, most PSBs reported losses due to elevated credit cost as
banks made ageing-related provisions toward NCLT accounts (Essar Steel, Alok & Bhushan Power) and ILFS
downgrade. However, asset quality trends also improved, with most corporate banks (e.g., AXSB, ICICIBC, SBIN,
BOB) reporting benign slippages and higher recoveries and write-offs during the quarter.
Private Banks – strong operating performance, NPL formation has subsided:
Private banks demonstrated a
strong operating performance improvement, with a steep decline in net stressed loans (barring IIB and YES due
to IL&FS downgrade/new names added to the stressed pool). HDFC Bank maintained steady earnings growth,
ICICIBC and RBK reported margin expansion, while KMB and DCB delivered stable margins. A few private banks
like AXSB have increased focus on retail deposits to support loan growth momentum.
Public Sector Banks – Coverage ratio has improved significantly:
Most of the PSBs either reported losses or
subdued profits led by elevated credit cost due to ageing-related provisions toward NCLT accounts (Alok, Essar
and Bhushan) and select banks making provisions toward large potential stressed groups and IL&FS. The trend in
slippages has improved, though a few banks like PNB reported elevated slippages. However, healthy recoveries
and write-offs enabled a decline in GNPA/NNPA ratios. SBIN, BOB and PNB appear to be better placed to benefit
from resolution of bad loans.
Small Finance Banks – strong growth momentum:
AU Bank and Equitas reported strong loan growth, led by
healthy disbursements in vehicle finance/MSME loans. Equitas continues de-risking its balance sheet with a
focus on non-MFI. C/I ratio for AU Bank has improved, but slightly increased for Equitas.
Life Insurance – protection business mix improves further:
In FY19, the share of the protection business (total
APE basis) stood at 16.7% for HDFC Life, while it stood at 9.3% for IPRU Life. VNB margins and persistency
improved for both HDFC Life and IPRU.
Our view:
The outlook for corporate banks is improving, given the moderation in slippages, the reduction in total
stressed loans and the improving profitability. Revival in credit growth, along with improved pricing power, will help
drive faster NII growth. For corporate lenders, we expect earnings to accelerate significantly from FY20.
Top picks:
AXSB, ICICIBC and HDFCB among private banks, and SBIN among PSBs.
Positive/Negative surprises:
YES surprised negatively during the quarter, while RBL and DCB performed
marginally better than our expectations. IIB and INBK missed our estimates.
Rating change:
In 4QFY19, we have upgraded DCB Bank to Buy from Neutral.
June 2019
21

Strategy
Guidance highlights:
AXSB:
Yields are expected to improve led by an improving asset mix. However, margins are likely to remain flat
as funding cost stays elevated. Also, expect card business is likely to gain traction and expand market share.
ICICIBC:
Credit cost of 1.2%-1.3% in FY20 as PCR has already crossed targeted ~70%. Also, expect margins to
remain stable at 3.4% with a positive bias.
RBL:
The bank continues to maintain cautious stance on Agri book. It also aims to grow at 30%-35% CAGR with a
target mix of 50%.
KMB:
The bank retained its cautious stance on the SME/business banking segment and the NBFC/HFC sector.
The bank continues to focus on retail term deposits below INR10m. Also guided for stable/improving credit cost.
HDFCB:
It maintains cautious stance toward Agri book, while it expects wholesale growth to pick up. The bank
expects margins to remain within the long-term range of 4.0%-4.4%. Also, it further expects C/I ratio to improve
on the back of digitalization. The bank is fully prepared for either verdict on succession planning by the RBI.
SBIN:
The bank expects credit growth of 12%-14% in FY20. It expects recoveries of INR350b-INR380b in FY20
(recovery of INR160b on the three NCLT accounts – Essar Steel, Bhushan Power and Alok Industries).
Exhibit 41: Operating performance for private banks
remains strong
4QFY19 NII Growth (%) PPP Growth (%) PAT Growth (%)
QoQ
YoY
QoQ
YoY
QoQ
YoY
PSBs
SBIN
1
15
34
7
(79)
NM
PNB
(2)
37
(8)
NM
NM
NM
BOB
7
27
9
45
NM
NM
INBK
3
8
9
7
NM
NM
PBs
AXSB
2
21
(9)
37
(10)
NM
FB
2
17
7
28
14
163
HDFCB
4
23
1
23
5
23
ICICIBC
11
27
1
(17)
(40)
(5)
IIB
(2)
11
(2)
17
(63)
(62)
KMB
4
18
18
13
9
25
DCB
2
14
7
31
12
50
YES
(6)
16
(34)
(38)
NM
NM
RBL
13
48
12
46
10
39
Exhibit 42: Net stressed loans continue declining; margins
have bottomed out and showing recovery signs
Loan
Net Stress
4QFY19
NIM (%)
Growth (%)
Loans (%)*
4QFY19 3QFY19 QoQ
YoY 4QFY19 3QFY19
SBIN
2.8
2.8
6.7
13.0
3.4
4.8
PNB
2.5
2.6
5.5
5.7
7.1
8.8
BOB
2.9
2.7
4.5
9.7
3.3
4.3
INBK
3.0
2.9
5.9
15.8
5.2
5.4
AXSB
FB
HDFCB
ICICIBC
IIB
KMB
DCB
YES
RBL
3.4
3.2
4.4
3.7
3.6
4.0
3.8
3.1
4.2
3.5
3.2
4.3
3.4
3.8
4.0
3.8
3.3
4.1
4.1
4.4
4.9
4.0
7.6
4.7
3
-1.0
8.9
12.5
19.9
24.5
14.5
28.6
21.2
16
18.7
34.9
4.4
3.3
0.4
5.9
1.3
0.8
0.8
2.7
0.7
5.2
3.7
0.4
6.8
0.8
0.7
0.9
2.0
0.8
*Net Stress loans = NPA + watchlist/ vulnerable pool + Stressed
assets under various dispensations less overlap
Exhibit 43: PSBs’ domestic loan growth (YoY %) improves
slightly, though private banks continue gaining market share
Exhibit 44: Margins remain stable/slightly improving for
most banks
3QFY19
4QFY19
June 2019
22

Strategy
Exhibit 45: Net slippage ratio – All coverage PSU banks
reported a decline in GNPL portfolio
SBIN
PNB
CBK
BOB
BOI
UNBK
INBK
FY17
2.2
2.3
2.9
1.7
4.5
2.9
1.9
FY18
1.3
6.7
2.2
1.9
(0.6)
2.9
1.5
1QFY19 2QFY19 3QFY19 4QFY19
(0.1)
1.5
(0.0)
0.5
(1.1)
1.9
(0.4)
3.4
(0.0)
2.1
2.7
1.6
1.7
0.6
1.5
1.5
2.4
1.2
2.0
0.8
4.4
1.4
1.6
2.6
(0.5)
1.5
2.3
0.4
Source: MOFSL, Company
Exhibit 46: Net stressed loans have moderated for all PSBs
GNPA (%)
NNPA (%)
NSL (%)
% of loans 3QFY19 4QFY19 3QFY19 4QFY19 3QFY19 4QFY19
SBIN
8.7
7.5
4.0
3.0
4.8
3.4
PNB
16.3
15.5
8.2
6.6
8.8
7.1
CBK
10.3
8.8
6.4
5.4
7.3
7.1
BOB
11.0
9.6
4.3
3.3
4.3
3.3
BOI
16.3
15.8
5.9
5.6
8.5
8.0
UNBK
15.7
15.0
8.3
6.9
9.8
8.2
INBK
7.5
7.1
2.4
3.4
5.4
5.2
Source: MOFSL, Company
FINANCIALS – NBFCs: Divergent performance
4QFY19 was a key quarter for our coverage universe. Performance was divergent across sectors, and more so,
across companies within a sector. Bajaj Finance was an outlier, showing no signs of liquidity problems.
Liquidity management:
Liquidity remains a key challenge for most players. While the companies have managed
the liquidity situation, they have been curtailing disbursements. Like in 3Q, the share of CPs for most NBFCs
declined sequentially in 4Q too. There has been a shift toward bank borrowings from market borrowings.
HFCs report a modest quarter:
Growth remains sluggish, especially on the wholesale lending front. Retail
growth for HDFC, LICHF and PNBHF has been steady. IHFL’s disbursements bounced back from 3QFY19 lows, but
remain significantly below the run-rate. Interestingly, the quantum of sell-downs in the quarter also reduced
meaningfully from 3QFY19 highs. As a result, the upfront assignment income also declined QoQ. Margins remain
under pressure. There were no significant asset quality issues with any player. However, PNBHF disclosed a
watch-list of accounts that would be closely monitored.
Vehicle financiers embrace an auto slowdown:
Disbursement growth for vehicle financiers slowed due to two
factors — the OEM slowdown, and high base of 4QFY18. Yet, CIFC reported impressive disbursement growth of
11% YoY compared to our estimate of 1% YoY. SHTF witnessed a pick-up in disbursements but margins were
lower sequentially. All vehicle financiers have guided for a slowdown in growth in FY20 too.
Diversified/corporate financiers:
Bajaj Finance was an outlier delivering 40%+ AUM growth, notwithstanding
the tight liquidity environment. At the same time, margins were higher on a YoY basis. Other corporate
financiers were on a strong growth path, given the emerging opportunities in corporate lending due to asset
quality issues at corporate banks. However, PIEL witnessed some deterioration of asset quality and also put up a
watch-list of accounts that would be closely monitored.
Our view:
We remain cautious on housing finance companies but recommend investing in good parentage
names like HDFC and LICHF, as such players have the easiest access to debt capital at the best price. Vehicle
financiers are likely to face a tough FY20 – hence growth would be a key monitorable. In addition, credit costs
are likely to increase as asset quality stabilizes.
Positive surprise:
CIFC, BAF
Negative surprise:
Repco
Guidance highlights:
Among the HFCs, PNBHF continues to guide for 1.5-1.8x of industry growth, while Repco
has guided to 14-15% AUM growth with stable margins. With incremental thrust on mortgages, BAF targets 36-
38% share from mortgages in the medium term, compared to 30% currently. All vehicle financiers have indicated
a slowdown in growth for FY20 – CIFC has guided for 15% YoY AUM growth in FY20 v/s 20% earlier. MMFS has
guided for 500-600bp higher disbursement growth compared to the auto industry.
June 2019
23

Strategy
Exhibit 47: IHFL AUM growth drop sharply (%)
60.0
50.0
40.0
30.0
20.0
10.0
0.0
-10.0
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Source: MOFSL, Company
HDFC
LICHF
PNBHF
IHFL
Exhibit 48: CIFC maintains healthy AUM growth (%)
35.0
30.0
25.0
20.0
15.0
10.0
5.0
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Source: MOFSL, Company
CIFC
SHTF
MMFS
Exhibit 49: PAT growth of NBFC universe has declined in the past few quarters
44
36
20
8
24
28
19
14
19
22
30
22
26
16
16
Source: MOFSL, Company; Note: FY18 and FY19 numbers are as per Ind-AS, others as per IGAAP
HEALTHCARE: Niche launches in US offset to some extent by DF weakness
Aggregate revenue trend for companies under our coverage took a breather with 13.2% YoY (our estimate: 14%)
growth for the quarter. YoY growth in EBITDA and PAT was at 16% and 7% YoY, as against our estimate of 23%
and 19%, respectively. This was largely led by weaker-than-expected performance by SUNP and CDH.
The aggregate performance has been affected largely by a significant reduction in DF sales by SUNP on account
of a change in distribution mechanism. Excluding SUNP’s financials, aggregate revenue/EBITDA/PAT were up by
15%/27%/11% for 4QFY19.
DF sales declined 15% YoY, affecting the overall performance of pharma companies. The decline was led by a
considerably reduced business by SUNP and a gradual slowdown in revenue of other companies.
Difficulty in pushing inventory to trade channels led to a softer 4Q for most of the companies, barring pharma
MNCs like Abbott/Sanofi India.
Further, the impact of Jan Aushadhi initiative by the government and trade generics took a toll on overall DF
growth.
Interestingly, US sales continued the uptrend for the fifth consecutive quarter, with 16% CC YoY growth in
4QFY19. Favorable INR further supported this growth.
Growth in US sales was led by new business opportunity for SUNP, superior execution/acquisition for ARBP, at-
risk launch for Cipla and exclusive launch for LPC.
The base business in the US generics segment continued to suffer from price erosion, albeit at lower intensity.
The ANDA pipeline has been strong with 807 ANDAs pending for approvals on an aggregate basis. LPC had
maximum ANDAs pending for approval as at end-4QFY19.
Lower share of higher-margin DF business, product recalls and continued price erosion in key molecules led to a
50bp YoY contraction in the gross margin. However, operational cost rationalization and the focus on
productivity drove a 50bp YoY improvement in the EBITDA margin on an aggregate basis for the quarter.
24
June 2019

Strategy
YoY growth in PAT was less than EBITDA growth, led by increased depreciation and a higher tax rate for ARBP,
higher interest cost for CDH and lower other income/higher tax rate for Cipla.
We expect better prospects in the coming quarter on the back inventory rationalization largely being done in DF
segment, healthy momentum in approvals for the US generics segment and a favorable scenario for the API
business. Regulatory headwinds remain the key risk in the developed market.
Top picks:
Ipca Lab, Alkem Lab and Aurobindo Pharma.
Positive surprise:
CIPLA’s earnings were better than estimates led by increased traction from at-risk launch.
LPC
was operationally better than estimates on the back of exclusive product launch, but earnings were below
estimates due to higher tax outgo. Even
ARBP
was operationally better than estimates led by superior execution
in the US, while earnings trailed estimates due to increased depreciation and tax outgo.
Negative surprise: DRRD’s
earnings were lower-than-estimates. Competition in key products, increased
manufacturing overheads, adverse impact of inventory management and unfavorable currency impacted
performance of the quarter.
Guidance highlights:
SUNP
guided for single-digit to low mid-teen YoY growth in FY20 over reported FY19 revenues.
Despite high base of FY19 witnessed in US sales,
CDH
guided to maintain business to remain at similar levels
(USD900m) in FY20.
LPC
guided for 20+ launches in US market, despite ongoing regulatory issues at its Goa site. Particularly, LPC
guided for g-Proair launch in 2HFY20. LPC also plans to launch biosimilar Etanercept in Japan and EU in 2HFY20.
DRRD
indicated that launch of g-Copaxone is unlikely in FY20. There are no pending queries related to g-
Nuvaring.
IPCA
guided for overall sales growth to be 12-14% in FY20 on YoY basis. Remediation cost to come down to
INR80-100m in FY20 from INR490m in FY19.
TRP
has guided to launch at least 10 products in the US market over next one year.
In Biologics,
BIOS
guided for revenue momentum and core EBITDA margin(Ex-R&D) to sustain in FY20 as well; (2)
Branded Formulation sales growth would remain moderate due to revised downward pricing in the UAE market
With favorable API prices,
ALKEM
guided for gross margin to improve over the medium term.
ALKEM
also
guided for EBITDA margin to expand by 100-150bp YoY annually over the next 2-3 years.