April 2020

Company name

India Strategy

Tough battle on!

Gautam Duggad

–

Research analyst

(Gautam.Duggad@MotilalOswal.com); +91 22 6129 1522

Investors are advised to refer through important disclosures made at the last page of the Research Report.

10 December 2010

1

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Contents

India Strategy

–

Tough battle on!

...............................................................................................3-23

4QFY20 Highlights & Ready Reckoner

.......................................................................................

24-36

Sectors & Companies

.............................................................................................................

37-200

Automobiles

...................................... 37-48

Amara Raja Batt. ................................................ 41

Ashok Leyland..................................................... 41

Bajaj Auto ......................................................... 42

Bharat Forge ....................................................... 42

Bosch ................................................................... 43

CEAT .................................................................... 43

Eicher Motors ..................................................... 44

Endurance Tech. ................................................. 44

Escorts ................................................................. 45

Exide Inds. ........................................................... 45

Hero Motocorp................................................... 46

Mahindra & Mahindra .................................... 46

Maruti Suzuki...................................................... 47

Motherson Sumi................................................. 47

Tata Motors ..................................................... 48

TVS Motor ........................................................... 48

Capital Goods.......................................... 49-57

ABB ................................................................... 52

Bharat Electronics .............................................. 52

BHEL ................................................................. 53

Blue Star .............................................................. 53

CG Consumer Elect............................................. 54

Cummins India ................................................. 54

Engineers India ................................................... 55

Havells India ....................................................... 55

Larsen & Toubro .............................................. 56

Siemens ............................................................... 56

Thermax ........................................................... 57

Voltas .................................................................. 57

Cement ................................................... 58-66

ACC ................................................................... 62

Ambuja Cements ................................................ 62

Birla Corporation ................................................ 63

Dalmia Bharat ..................................................... 63

Grasim Industries ............................................ 64

India Cements..................................................... 64

J K Cements......................................................... 65

Ramco Cements ................................................. 65

Shree Cement ..................................................... 66

Ultratech Cement ............................................... 66

Consumer ............................................... 67-80

Asian Paints ..................................................... 72

Britannia ............................................................. 72

Colgate ................................................................ 73

Dabur .................................................................. 73

Emami ................................................................. 74

Godrej Consumer ............................................... 74

GSK Consumer .................................................... 75

Hind. Unilever ..................................................... 75

ITC........................................................................ 76

Jyothy Labs ......................................................... 76

Marico ................................................................. 77

Nestle .................................................................. 77

P&G Hygiene....................................................... 78

Page Industries ................................................... 78

Pidilite Inds. ........................................................ 79

Tata Consumer Products ................................... 79

United Breweries ............................................... 80

United Spirits ...................................................... 80

Financials ................................................ 81-96

AU Small Finance................................................ 89

Axis Bank ............................................................. 89

Bandhan Bank..................................................... 90

Bank of Baroda ................................................ 90

DCB Bank ............................................................ 91

Equitas Holdings ................................................. 91

Federal Bank ....................................................... 92

HDFC Bank ....................................................... 92

ICICI Bank ......................................................... 93

IndusInd Bank ..................................................... 93

Kotak Mahindra Bank ........................................ 94

Punjab National Bank ...................................... 94

RBL Bank ............................................................. 95

State Bank ........................................................ 95

HDFC Life Insur. .................................................. 96

ICICI Pru Life ....................................................... 96

NBFC ..................................................... 97-106

Bajaj Finance..................................................... 101

Chola. Inv & Fin. ............................................... 101

HDFC ............................................................... 102

L&T Fin.Holdings .............................................. 102

LIC Housing Fin ................................................. 103

M & M Financial ............................................... 103

MAS Financial ................................................... 104

Muthoot Finance .............................................. 104

PNB Housing ..................................................... 105

Repco Home Fin ............................................... 105

Shriram City Union ........................................... 106

Shriram Transport Fin. ..................................... 106

Healthcare ........................................... 107-118

Ajanta Pharma .................................................. 110

Alembic Pharma ............................................... 110

Alkem Lab ......................................................... 111

Aurobindo Pharma ........................................... 111

Biocon ............................................................... 112

Cadila Health .................................................... 112

Cipla ............................................................... 113

Divis Labs .......................................................... 113

Dr Reddy’ s Labs

........................................... 114

Glenmark Pharma ............................................ 114

GSK Pharma .................................................. 115

IPCA Labs. ......................................................... 115

Jubilant Life....................................................... 116

Laurus Labs ....................................................... 116

Lupin.................................................................. 117

Strides Pharma ................................................. 117

Sun Pharma ...................................................... 118

Torrent Pharma ................................................ 118

Infrastructure ...................................... 119-122

Ashoka Buildcon ............................................... 121

IRB Infra ............................................................ 121

KNR Constructions ........................................... 122

Media.................................................. 123-128

PVR .................................................................... 127

Sun TV ............................................................... 127

Zee Entertainment ........................................... 128

Metals ................................................. 129-137

Hindalco ......................................................... 133

Hindustan Zinc .................................................. 133

JSPL .................................................................... 134

JSW Steel........................................................... 134

Nalco ................................................................. 135

NMDC ................................................................ 135

SAIL .................................................................... 136

Tata Steel .......................................................... 136

Vedanta............................................................. 137

Oil & Gas ............................................. 138-151

Aegis Logistics................................................... 144

BPCL ................................................................ 144

Castrol India ...................................................... 145

GAIL ............................................................... 145

Gujarat Gas ....................................................... 146

Gujarat State Petronet..................................... 146

HPCL .............................................................. 147

Indraprastha Gas .............................................. 147

IOC ................................................................. 148

Mahanagar Gas ................................................ 148

MRPL ................................................................. 149

Oil India ............................................................. 149

ONGC ............................................................. 150

Petronet LNG .................................................... 150

Reliance Inds. ................................................... 151

Retail - A ..............................................152-160

Avenue Supermarts ......................................... 157

Aditya Birla Fashion ......................................... 157

Future Lifestyle ................................................. 158

Future Retail ..................................................... 158

Shoppers Stop .................................................. 159

Trent .................................................................. 159

V-Mart Retail .................................................... 160

Retail - B ..............................................161-164

Jubilant Foodworks .......................................... 164

Titan Company ................................................. 164

Technology ..........................................165-175

Cyient ................................................................ 169

HCL Technologies ............................................. 169

Hexaware Tech. ................................................ 170

Infosys ............................................................ 170

L&T Infotech ..................................................... 171

Mindtree ........................................................... 171

MphasiS ............................................................ 172

NIIT Tech. .......................................................... 172

Persistent Systems ........................................... 173

TCS..................................................................... 173

Tech Mahindra ................................................. 174

Wipro ............................................................. 174

Zensar Tech....................................................... 175

Telecom ...............................................176-182

Bharti Airtel ...................................................... 181

Bharti Infratel ................................................... 181

Tata Comm ....................................................... 182

Vodafone Idea .................................................. 182

Utilities ................................................183-189

CESC .................................................................. 186

Coal India .......................................................... 186

JSW Energy ....................................................... 187

NHPC ................................................................. 187

NTPC .................................................................. 188

Power Grid Corp. .............................................. 188

Tata Power .................................................... 189

Torrent Power .................................................. 189

Others..................................................190-200

Brigade Enterpr. ............................................... 190

BSE..................................................................... 190

Concor ............................................................... 191

Coromandel International ............................... 191

Essel Propack .................................................... 192

Godrej Agrovet ................................................. 192

Indian Hotels .................................................... 193

Info Edge ........................................................... 193

Interglobe Aviation .......................................... 194

Kaveri Seed ....................................................... 194

Lemon Tree Hotel............................................. 195

MCX ................................................................... 195

Oberoi Realty .................................................... 196

P I Industries ..................................................... 196

Phoenix Mills .................................................... 197

Quess Corp ....................................................... 197

S H Kelkar .......................................................... 198

SRF ..................................................................... 198

Tata Chemicals ................................................. 199

Team Lease Serv............................................... 199

Trident............................................................... 200

UPL .................................................................... 200

India Strategy | Tough battle on!

India Strategy

BSE Sensex: 31,589

Nifty 50: 9,267

Covid halts earnings recovery; Slow grind ahead

20% earnings decline for Nifty in 4Q; FY21 sees sharp downward revision

In throes of an unprecedented global pandemic, FY21 has begun on a lackluster

note with India as well as several world economies in an extended lockdown.

This has impacted the underlying demand/supply dynamics and is expected to

have an adverse impact on economy and corporate earnings. While the

government has already announced several relief measures to take care of the

weaker sections, we expect the return to normalcy to be very gradual and

calibrated. Even the RBI has unleashed a series of important initiatives to bolster

the economy. However, MOFSL’s

in-house economist believes India would

experience its first technical recession since the 1990s with GDP in

4QFY20/1QFY21 declining by 3%/12%. That said, we expect the government to

announce more fiscal measures to revive the economy in the coming days.



India’s benchmark Nifty has corrected

24%

since Feb’20 and

underperformed

the global markets despite having much lower cases of COVID-19 vis-à-vis other

markets. This underperformance can be explained by the relatively smaller

magnitude of fiscal package for India. In fact, India has seen FII outflows of

USD10b in a short period of two months with an underlying 7% currency

depreciation. We expect market volatility to remain elevated and near-term

market direction to be a function of policy response, global market

developments, spread and duration of the virus, and indeed corporate

commentaries around the short/medium-term impact of the lockdown.



4QFY20 Nifty profits to decline 20%:

We

estimate MOFSL Universe’s 4QFY20

PBT/PAT to decline 22%/25% YoY, with the laggards being Autos/Oil and Gas/

Metals. In fact, these three sectors are expected to account for the entire 25%

YoY decline in MOFSL

Universe’s earnings in 4QFY20. Consumer/Private Banks

(benefit of low base)/ Healthcare are expected to be the key outperformers this

quarter. All the key matrices are expected to post multi-quarter low growth

figures; demand should take a broad-based hit across sectors with almost

double-digit top line decline for the Nifty and MOFSL Universe. Nifty sales are

estimated to decline 10% YoY, while EBITDA/PBT/PAT should decrease

9%/21%/20% YoY in 4QFY20.



Nifty EPS cut sharply; another flat year expected in FY21:

Our FY20/FY21 Nifty

EPS estimates are revised downwards by 8%/27%. The earlier expectations of a

sharp earnings revival in FY21 now stand belied. We now expect Nifty FY20 EPS

to remain flat at INR485 while FY21 Nifty EPS is now projected at a muted 3%

growth to INR499. Estimating earnings in such fluid global and local

environment is fraught with risks, and to that extent, is expected to undergo

more revisions as we move forward in FY21. Lower crude oil prices and cost

reduction measures would provide cushion to the weak earnings, in our view.



Sources of exhibits in this

report include Bloomberg,

SEBI, NSE, Capitaline,

Companies, and MOFSL

database

Top Picks





Large-Caps: ICICI Bank, Axis Bank, HDFC Ltd, Bharti Airtel, Infosys, Hindustan

Unilever, L&T, Eicher Motors, UltraTech, Lupin.

Mid-Caps: Tata Global, JK Cement, Alkem Labs, IPCA, ABFRL, L&T Infotech,

Crompton Consumer, Trent, PI Industries, Gujarat Gas.

3

April 2020

India Strategy | Tough battle on!

Key sectoral trends/highlights

















Auto

Universe’s PBT/PAT should decline 72%/85% YoY in 4QFY20. EBITDA

margin for OEMs (ex-JLR) are expected to decline 190bp QoQ to 9.5%, the

lowest in the last 6 years. Barring Bajaj Auto, we do not expect OEMs to post

profit growth YoY for the quarter. For FY21 too, we expect volumes to decline

across segments (2Ws/PVs/CVs to see drop of 8%/3%/9-10%), except in tractors

(+2%).

Technology

Universe's revenue (USD) / EBIT (INR) / PAT is expected to grow

6%/4%/-2% YoY in 4QFY20. We expect sharp 25% profit decline for Tech

Mahindra while Infosys should post flattish performance. We expect HCL

Tech/Infosys to delay their FY21 growth/margin guidance as uncertainty around

global macros is impacting visibility on near-term growth and profitability. On a

sequential basis, Tier I revenue should move in the range of -0.5% - +1.3% (CC)

and -1.7- +0.6% (USD) with HCLT leading and TechM lagging the pack.

Healthcare

Universe’s earnings trajectory is set to revive aided by a low base as

medicine stockpiling was witnessed in the chronic category in anticipation of the

shortage due to the lockdown. Large-cap names like Dr Reddy/Sun/Divi’s

are

expected to post 102%/48%/18% profit growth, while Lupin/Cipla’s profits are

likely to decline 33%/29% YoY.

Private Banks’

Universe is expected to report 14%/13%/21% growth in

PPOP/PBT/PAT. Banks might look to create additional provisioning, and thus,

suppressed credit growth, muted other income and elevated credit costs are all

likely to put pressure on near-term earnings. Commentary on COVID-19 impact,

asset quality, deposit build-up, margin trajectory and treasury performance

would be keenly observed by investors. HDFC Bank and ICICI Bank should post

strong results while IndusInd and RBL are likely to perform weakly. We expect

Kotak Mahindra Bank to post ~9% profit growth.

NBFCs

under our coverage are likely to post PBT/PAT decline of 8%/3% YoY,

with major laggards being MAS (-49%), M&M Financials (-37%), PNB Housing (-

36%) and LIC Housing Finance (-24%). BAF is expected to post a multi-quarter

low 11% profit growth while HDFC should report flattish profitability. We expect

Muthoot Finance to post 59% YoY profit growth as gold finance should be the

quickest to recover due to strong demand. Further, we have cut our FY21 EPS

estimates for MMFS (-66%), SHTF (-47%), BAF (-42%) and MASFIN (-30%).

PSU Banks

are expected to post weak earnings on account of dampeners such

as the dreadful impact of COVID-19, sluggish loan growth due to merger

integration, higher slippages and delay in the resolution of NCLT accounts. PSBs

are expected to post NII growth of 8% YoY and collective loss of INR14.6b. SBI

should report strong INR40.9b profits on a lower base.

Telecom

Universe is expected to report a loss for the 11

th

straight quarter

although recent price hikes should help ARPU gains drive incremental EBITDA

margins. AGR issue remains an overhang on incumbents.

Consumer

Universe should post muted 3% PBT growth in 4QFY20 while PAT is

expected to rise 12% YoY, led by tax cuts. Pidilite (21%), ITC (20%) and UL (14%)

are expected to post strong YoY profit growth aided by tax cuts while United

Breweries, Godrej Consumer and Emami are expected to post weak results.

Consumer is one of the three sectors (apart from Pharma and Financials), which

is expected to post double-digit YoY profit growth this quarter.

April 2020

4

India Strategy | Tough battle on!











Metals

Universe should post a decline of 26%/54%/58% YoY in EBITDA/PBT/PAT

for 4QFY20. None of our Metal coverage companies are expected to report YoY

profit growth for the quarter.

Oil and Gas

Universe should report decline in PBT/PAT of 61%/58% YoY,

dragged by expected losses in OMCs. Ex-OMCs, our Oil and Gas Universe’s

profitability is expected to stay flat. For OMCs, we expect refining and petchem

businesses to remain weak although marketing margins may remain healthy.

We are estimating huge inventory losses of USD6.7-7.5/bbl based on each

company’s

inventory cycle.

ONGC is expected to face steep decline in sales/PAT

by 24%/6% YoY for 4QFY20. RIL should post GRM of USD7.5/ bbl (v/s USD8.2 in

4QFY19) with expectation of 15% profit growth in consol. business. We expect

CGD companies to post strong quarter though.

Cement

Universe should post 0%/-6%/-11% growth in EBITDA/PBT/PAT. Lower

costs would help expand operating margins by 210bp to 21% for our Cement

Universe. UltraTech is expected to post 9% profit growth whereas ACC, Ambuja

and Ramco should report YoY profit decline.

Capital Goods

Universe is expected to report 6% YoY decline in PBT with flattish

PAT.

L&T’s

PAT should remain flat YoY while Siemens, Thermax and ABB are

expected to report YoY profit decline. In the Consumer Durables’ segment, we

expect Blue Star/Havells to post 6%/22% PBT decline while Voltas/Crompton

should post 9%/3% PBT growth.

Utilities

Universe should see PBT/PAT decline of 43%/29% YoY, dragged by Coal

India (-67% PBT YoY and -63% PAT YoY), as lower e-auction volumes would

depress overall realization. The dip in power demand from 22

nd

- 31

st

Mar’20 by

21% v/s daily 3-year average volumes could be attributed to the impact of the

lockdown on industrial and commercial consumers.

April 2020

5

India Strategy | Tough battle on!

Story of Indian Equity markets in ten key charts

Indian markets have undergone sharp correction after the onset of Covid 19

pandemic in Feb’20. Before we delve deeper into 4QFY20 earnings expectations, we

showcase the story of Indian markets through ten key charts.

We look at several

important investment parameters across cycles in the last two decades (Market

movements, Absolute market-cap behavior, Polarization & Multiple Valuation

metrics).

Exhibit 1:

Market-cap to GDP: Market cap-to-GDP ratio has fallen swiftly from 79% as on FY19 to 54% (FY20E GDP)

–

much

below long-term average of 75% and closer to levels last seen during FY09

No. of traded

companies was just

2,640 in 2004 v/s

3,861 in Mar’20

82

42

52

GFC: Peak of 149% in Dec’07

103

83

55

95

88

71

64

66

Average of 75% for the period

81

69

79

83

Lowest since

the GFC

79

54

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20E

Exhibit 2:

Returns in different phases in the two decades: Post the recent fall, the Nifty returns CAGR since Mar’13 stands at

6%, almost mirroring the earnings CAGR

12,000

9,000

6,000

3,000

Nifty CAGR: -3%

Nifty

Nifty CAGR: 37%

23.7

Nifty P/E (x)

Nifty CAGR: 4%

Nifty CAGR: 6%

25.0

20.0

21.0

Average: 15.9x

18.0

15.0

10.0

0

5.0

Exhibit 3:

Nifty and Nifty-Midcap absolute M-cap: Nifty-50

market cap has corrected 21% from Dec’19 levels and has now

slipped below the Dec’17 mark. Nifty Midcap-100 market cap is down 42% from peak and 24% below Dec’14 levels.

Nifty’s m-cap

almost halved during GFC

and then recouped in a year

Nifty-50 (INR t)

21% correction from peak

90.0

76.0

13.7

20.3

28.8

14.7

27.6

38.4

31.3

38.7

42.7

78.9

71.1

55.5

54.5

57.1

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Apr-20

Nifty Midcap-100 (INR t)

42% correction from peak

–

M-cap

now well below Dec’14 levels

21.9

16.7

2.8

3.6

6.5

2.8

6.7

8.2

6.9

9.0

11.0

17.0

16.7

15.9

16.1

12.6

Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Apr-20

April 2020

6

India Strategy | Tough battle on!

Exhibit 4:

Polarization: Sharp Divide - Nifty-35 at 6,837 levels, 50% U-PF v/s Nifty-15

since Dec’17!

Nifty-50

16,000

13,500

11,000

8,500

6,000

10,531

Top-15 Stock (Re-based)

Next-35 Stock (Re-based)

Top 15 stocks delivered return of 16%

Gap between Top-15 and Next-35 is widening

Index delivered -12% return

12,196

9,267

6,837

Next 35 stocks delivered negative return of 35%

Exhibit 5:

Nifty: Nearly half of the Nifty constituents are >40% down from two-year highs

Count of Nifty companies away from their respective two-year highs (%)

9

10

9

10

4

5

3

0-10%

10-20%

20-30%

30-40%

40-50%

50-60%

>60%

Exhibit 6:

Nifty-50 Composition: Telecom and Consumer big gainer; Auto, Metals big loser

Sector

Automobiles

Banks - Private

Banks - Public

NBFC

Capital Goods

Cement

Consumer

Healthcare

Metals

Oil & Gas

Telecom

Technology

Utilities

Miscellaneous

Nifty-50

Dec-04

6.7

4.7

5.8

2.1

4.0

2.8

7.8

6.3

8.2

27.1

6.3

14.5

1.9

2.0

100

Dec-06

6.4

5.7

4.4

2.1

8.6

3.3

6.2

3.9

5.0

21.1

12.0

19.4

1.1

0.9

100

Dec-08

2.5

5.0

5.4

2.3

7.7

1.7

6.5

2.6

4.8

24.5

11.6

9.0

13.3

3.3

100

Weight in Nifty-50 (%)

Dec-10

Dec-12

Dec-14

7.5

8.8

9.3

14.5

16.9

19.9

4.9

4.7

4.8

6.6

7.9

7.1

8.7

5.9

5.2

1.9

4.2

2.8

6.8

12.3

10.5

3.7

5.0

6.1

8.4

3.8

3.1

14.7

12.3

9.3

2.9

2.0

1.7

14.3

11.4

15.7

4.5

4.5

3.6

0.6

0.5

1.0

100

100

100

Dec-16

11.8

21.5

3.1

6.6

4.0

3.0

10.1

6.3

1.5

9.4

2.3

14.4

4.4

1.6

100

Dec-18

7.3

24.9

2.6

10.5

4.1

1.7

10.0

2.4

3.2

12.5

1.5

13.5

3.1

2.8

100

Mar-20

5.1

24.2

1.9

9.9

3.0

2.3

13.2

3.3

1.9

12.7

3.3

13.7

3.3

2.4

100

Exhibit 7:

No. of companies above USD1b market-cap shrunk by nearly thirty percent

Number of billion dollar companies peaked in 2007

>1 USDb

240

180

129

94

214

164

224

228

After hitting a peak of 329 in CY17, number of billion-dollar

companies has come down sharply

329

282

212

150

187

276

228

102

CY05

CY06

CY07

CY08

CY09

CY10

CY11

CY12

CY13

CY14

CY15

CY16

CY17

CY18

CY19

Apr-20

April 2020

7

India Strategy | Tough battle on!

Exhibit 8:

Earnings yield converges with Bond yields; EY/BY highest since demonitisation

2.0

Earnings Yield (12 month forward)/G-Sec Yield

EY/BY spiked

sharply during

GFC

It remained below 1x for last

six years, except for a brief

period during demonetisation

LT Avg: 0.80%

Highest since

Nov-16

1.6

1.2

0.8

0.87

0.4

Exhibit 9:

Valuations: Nifty trailing P/E at four-year lows

25

22

19

16

13

10

LT Avg: 18.5x

19.0

12 month trailing Nifty P/E (x)

24.9

Exhibit 10:

while trailing P/B is at a 23% discount to LPA

5.5

4.5

3.5

2.5

2.3

12 month trailing Nifty P/B (x)

LT Avg: 3x

3.1

1.5

April 2020

8

India Strategy | Tough battle on!

4QFY20 PREVIEW

Earnings story weakens; lockdown drags

Consumer and Healthcare to provide respite







Markets entered FY21 on an unprecedented negative note with a global

pandemic ravaging the world economy. Post the COVID-19 outbreak, since

Feb’20,

the Nifty has corrected 24% underperforming global markets sharply

with more than USD10b of FII outflows. The INR has depreciated to INR76-77

per USD band and bond yields have hardened again, reflecting the tightness in

the debt markets. We believe the economy-wide lockdown and absence of a

major fiscal relief package from the government has resulted in sharp

underperformance. From 25

th

Mar’20, the government has announced a

complete lockdown across India to control the spread of the COVID-19

pandemic. The economic fallout of the lockdown being extended to 3

rd

May’20

would be seen across different sectors in the 4QFY20 results as well as

guidance/outlook for FY21.

Both the central government and the RBI have come up with an initial round of

relief measures to contain the impact of the lockdown imposed to fight the

COVID-19 pandemic. While the FM has announced a relief package of INR1.7t

(approximately 0.9% of GDP), it was focused on households at the bottom of the

pyramid and is the lowest in comparison with relief packages of other countries.

We expect a more comprehensive fiscal package to be announced in the next

few weeks addressing more segments. The RBI, on the other hand, has

introduced several important monetary policy stimulus measures by softening

interest rates, improving liquidity and offering some immediate relief measures

to borrowers.

Overall, we expect the 4QFY20 earnings season to be driven by Healthcare and

Consumer Staples while low base of some large banks like ICICI and SBI would

make the contribution of Private Banks look optically better. More than the

4QFY20 earnings, we will be keen to hear the corporate commentary on the

impact of COVID-19 on businesses models, supply chains as well as the demand

outlook ahead. For certain sectors like Autos, Consumer Discretionary, Cement

and Infrastructure that have faced complete shutdown of activity, it would be

interesting to see how companies are managing their costs and dealing with the

situation as they see complete loss of revenue. We believe that there would be no

earnings recovery in FY21 as the country still remains in lockdown and potential

second order impact plays out in the medium term (3-6 months).

4QFY20 earnings to decline 25% YoY; Healthcare and Consumer to provide

marginal respite; 3/5

th

of MOSL Universe expected to post YoY PAT decline





The impact of COVID-19 and the subsequent lockdown would be felt on

corporate India’s

earnings

across sectors. The decline in crude prices would also

impact earnings as OMCs would be sitting on huge inventory losses. The

reduction in corporate tax rates would result in several adjustments in the

taxation charge in this quarter as well. Thus, we place more emphasis on

analyzing PBT metrics for a more meaningful comparison.

MOFSL Universe's PBT/PAT is expected to decline 22%/25% YoY in 4QFY20;

impact would be seen across most sectors with global cyclicals like Oil and Gas

April 2020

9

India Strategy | Tough battle on!



















and Metals contributing maximum to the decline along with Automobiles. Autos

are expected to post PBT/PAT decline of 72%/85% YoY followed by Oil and Gas

with PBT/PAT decline of 61%/58%. Metal companies are expected to report

PBT/PAT decline of 54%/58% YoY.

On the flipside, Private Banks, Healthcare and Consumer sectors should provide

some support to earnings growth. Private Banks are expected to post PBT/PAT

growth of 13%/21% YoY in 4QFY20 (largely aided by low base of ICICI Bank; Ex-

ICICI Bank, Private Banks should report PBT decline of 4%) while Healthcare is

likely to post PBT/PAT growth of 14%/17%. Consumer Staples would benefit

from tax cuts and post 12% profit growth. Losses reduction in Telecom/PSU

banks will also be accretive at the aggregate level.

Ex-OMCs, MOSL Universe’s PBT should decline 8% YoY, while PAT is expected to

decline 13% YoY.

Approximately 58% of MOFSL Universe is expected to post YoY decline in PAT,

while 23% should deliver >15% growth.

Domestic Cyclicals are expected to contribute 39% of the profit pool, followed

by Defensives at 38%. Share of Defensives in the profit pool would be the

highest since Mar’18.

The share of Global Cyclicals ex-OMCs at 23% would be

the lowest since Sep’16.

We expect MOFSL Universe's revenue to decline 9% YoY (on the base of 11%

growth in 4QFY19)

–

the worst in 20 quarters

since Mar’15 and

the third

consecutive YoY decline

–

largely due to (a) the lockdown, which has led to

closure of industrial activities, owing to which Autos/Utilities/ Cement would be

posting top line declines of 26%/11%/10% YoY, (b) the correction in commodity

prices, which would lead YoY top line decline of 18% for Metals (fourth

consecutive quarter decline) and of 15% for Oil & Gas.

MOFSL Universe

EBITDA is estimated to decline by 9% YoY, the worst quarter in

more than a decade (in fact, even worse than during GFC). The operating margin

ex-Financials and OMCs are expected to expand by 10bp YoY to 19.1%.

Global Cyclicals

are expected to post sixth consecutive quarter of PAT decline (-

67% YoY) on a base of 2% YoY decline in Mar’19. The impact of

COVID-19 on

global growth and demand is weighing heavily on commodity prices.

Defensives

should post 6% YoY profit growth off a benign base (1% YoY decline

in 4QFY19 PAT) as robust growth of 17%/12% is expected from Healthcare and

Consumer universe in the current environment. Growth in the Consumer

universe, however, is aided by tax cuts as PBT growth is likely at ~3% YoY.

For 4QFY20,

Domestic Cyclicals'

EBITDA/ PAT are expected to grow by just

2%/1%, off a high base, largely due to Private Banks. On the other hand,

Automobiles are dragging Domestic Cyclicals with an expected 85% YoY decline

in PAT.

April 2020

10

India Strategy | Tough battle on!

Earnings breadth weak; more than half of the universe to post YoY PAT

decline















Earnings breadth is likely to remain very weak with 58% of the MOFSL Universe

expected to post YoY decline in PAT. The number of companies reporting >30%

growth should decline from 24% in 3QFY20 to 14%, while that of companies

reporting 15-30% growth is likely to decline to 9% from 19%.

Oil and Gas, Automobiles and Metals should contribute 105% of the 25% YoY

decline in 4QFY20 earnings. Among other sectors, Infrastructure/Utilities are

expected to post 30%/29% YoY decline in profits while Retail/Cement/Life

Insurance too should post double-digit profit decline at 26%/11%/10% YoY.

Private Banks/Healthcare/Consumer, on the other hand, are expected to

provide support to earnings, growing 21%/17%/12% YoY.

Nifty sales are estimated to decline 10% YoY, while EBITDA/PBT/PAT should

decrease 9%/21%/20% YoY in 4QFY20. Ex-OMCs, Nifty PBT and PAT should

decline by 8% each YoY.

Nifty EPS estimates see sharp downward revision for FY20/FY21:

Our FY20

Nifty EPS estimates have been revised downwards by 8% to INR485 (prior:

NR527) as a result of the economic fallout due to COVID-19 and imposition of

the lockdown in India. Contribution/share of Oil and Gas, Automobiles and

Metals in earnings decline (incrementally) is around 56%/27%/22% for 4QFY20.

Further, we are now estimating flat FY20 EPS performance for the Nifty.

Excluding Financials, Nifty profits are likely to decline 12% in FY20.

For FY21, we have cut our estimates by 27% from INR679 to INR499. The sharp

earnings cut reflect the current lockdown in India owing to the global pandemic.

Remaining cognizant of the ever-changing underlying situation, we also note

that making earnings estimates at this stage is fraught with tremendous risks. 15

out 50 Nifty companies have seen >30% cut in FY21 estimates while 17

companies have seen 10-30% cut.

Companies that have seen major downgrades for FY21 are Tata Motors (P to L),

Tata Steel (P to L), JSW Steel (-91%), Vedanta (-64%), ONGC (-57%), Hindalco (-

56%), Shree Cement (-46%) and IndusInd Bank (-44%). On the other hand,

earnings estimates have been upgraded for

Cipla (6.4%) and Dr. Reddy’s Labs

(4.5%).

April 2020

11

India Strategy | Tough battle on!

Exhibit 11:

Metals, Oil and Gas and Autos account for the entire earnings decline in 4QFY20

SECTOR

(NO OF COMPANIES)

High growth sectors

Banks-Private (11)

Healthcare (18)

Med/Low growth sectors

Consumer (18)

Capital Goods (12)

PAT de-growth sectors

Technology (13)

NBFC (12)

Media (3)

Life Insurance (2)

Cement (10)

Retail (9)

Utilities (8)

Infrastructure (3)

Others (22)

Metals (9)

Oil & Gas (15)

Automobiles (16)

Telecom (4)

Banks-PSU (3)

MOFSL Universe (188)

MOFSL Ex OMCs (185)

Nifty (50)

Sensex (30)

Sales

Mar-20

888

407

480

1,299

529

770

10,889

1,195

177

33

203

336

207

676

37

394

1,336

4,153

1,366

429

348

13,076

10,996

9,329

5,427

Var % Var %

YoY QoQ

11

1

14

1

8

1

3

16

4

-1

3

31

-12 -10

8

0

14

1

-12 -13

0

27

-10

2

-3 -22

-11 -8

-6

13

6

-4

-18 -4

-15 -17

-26 -14

7

5

8

-11

-9

-7

-6

-3

-10 -8

-2

-5

EBITDA

Mar-

20

435

336

99

229

132

97

1,974

278

143

10

2

71

16

242

10

58

232

368

118

162

264

2,638

2,632

2,103

1,629

Var % Var %

YoY QoQ

14

-2

14

-3

15

1

6

16

8

-2

3

55

-14 -11

8

-1

15

1

-22 -21

-78 -65

0

22

0

-40

-13 -12

-8

3

-22 -25

-26

9

-37 -30

-41 -33

53

9

12

-2

-9

-8

-2

-4

-9

-9

5

-2

Net profit

Mar- Var %

20

YoY

197

20

142

21

55

17

155

7

97

12

59

0

571

-39

197

-2

76

-3

6

-7

6

-10

30

-11

7

-26

89

-29

3

-30

18

-49

52

-58

129

-58

15

-85

-40

Loss

-15

Loss

923

-25

975

-13

812

-20

738

8

EBITDA

PAT

PAT Delta Margins Margins

Var % PAT Share Share Chg bp Chg bp

QoQ Delta

%

%

YoY

YoY

-15

33

21

-11

149

173

-20

25

15

-8

23

218

1

8

6

-3

116

85

9

10

17

-3

40

43

-8

10

10

-3

94

136

58

0

6

0

1

-22

-31 -357

62

114

-44

-229

-5

-4

21

1

10

-160

-7

-2

8

1

75

-728

-30

0

1

0

-398

93

1

-1

1

0

-384

-32

29

-4

3

1

211

-10

-54

-2

1

1

23

-97

-18 -36

10

11

-79

-328

-2

-1

0

0

-61

-260

-47 -17

2

5

-520

-482

35

-70

6

22

-178

-360

-46 -177

14

56

-306

-319

-82 -84

2

27

-220

-429

Loss

6

-4

-2

1149

220

PL

34

-2

-11

247

1102

-23 -314 100

100

11

-155

-15

-140

92

-67

-19

-204

28

-111

-6

55

203

127

Exhibit 12:

MOFSL Universe

–

PBT is expected to decline 22% YoY and PAT should decline 25% YoY

SECTOR

(NO OF COMPANIES)

Automobiles (16)

Capital Goods (12)

Cement (10)

Consumer (18)

Financials (28)

Banks-Private (11)

Banks-PSU (3)

Life Insurance (2)

NBFC (12)

Healthcare (18)

Infrastructure (3)

Media (3)

Metals (9)

Oil & Gas (15)

Oil Ex OMCs (12)

Retail (9)

Technology (13)

Telecom (4)

Utilities (8)

Others (22)

MOFSL Universe (188)

Nifty (50)

Sensex (30)

Mar-19

132

91

46

123

199

170

-83

6

106

64

6

10

182

427

248

12

260

-59

168

44

1,705

1,403

926

Dec-19

102

53

30

134

430

235

84

6

105

69

4

11

68

326

261

19

265

-51

150

43

1,654

1,401

1,091

PBT (INR b)

Mar-20

37

85

43

127

362

192

67

6

97

73

4

8

84

165

243

8

258

-50

96

23

1,324

1,105

974

Var %

YoY

-72.1

-6.2

-6.5

3.4

82.1

12.5

LP

1.7

-8.2

13.8

-31.8

-19.0

-53.6

-61.4

-2.1

-32.1

-0.6

Loss

-42.6

-46.9

-22.3

-21.3

5.2

Var %

QoQ

-63.9

60.4

41.5

-5.4

-15.7

-18.4

-19.8

11.7

-8.0

5.9

-2.3

-28.5

24.6

-49.4

-6.9

-58.2

-2.6

Loss

-35.8

-46.2

-19.9

-21.1

-10.7

Mar-19

99

59

34

86

152

117

-49

6

78

47

4

6

122

306

184

9

201

-47

124

35

1,237

1,015

683

Adjusted PAT (INR b)

Var %

Dec-19 Mar-20

YoY

84

15

-84.7

37

59

0.3

24

30

-10.6

105

97

11.8

302

208

37.4

178

142

21.4

37

-15

Loss

6

6

-10.3

81

76

-2.7

54

55

17.0

3

3

-30.0

8

6

-7.0

38

52

-57.6

239

129

-58.0

196

181

-1.8

14

7

-25.7

206

197

-1.9

-61

-40

Loss

108

89

-28.8

34

18

-48.7

1,196

923

-25.4

1,005

812

-20.1

784

738

8.1

Var %

QoQ

-81.9

58.2

28.7

-8.0

-31.0

-20.5

PL

1.5

-7.1

1.4

-2.3

-30.0

34.6

-46.1

-8.0

-54.2

-4.6

Loss

-17.7

-47.4

-22.8

-19.2

-5.8

April 2020

12

India Strategy | Tough battle on!

MOFSL Universe

–

Expect Sales decline of 9%, PBT decline of 22% and PAT decline of 25% YoY

Exhibit 13: Commodities and autos to drag top line

Exhibit 14: Earnings to decline 25% YoY; multi-quarter low

3

Exhibit 15: EBITDA margin to stay flat YoY in 4QFY20 YoY

Average: 19.5%

Exhibit 16: MOFSL Universe’s PAT margin to decline 7.8%

–

lowest since Jun’12

Average: 9.5%

Source: MOFSL, ex financials and ex OMC

Source: MOFSL, ex financials and ex OMC

Exhibit 17:

Key Assumptions

Macro

GDP Growth (%)

IIP Growth (%)

Inflation CPI-RU (%)

Currency: USD/INR

Repo Rate (%)

Interest Rate (%):

1Year CP Rate (Avg)

10Year G Sec (Avg)

Sectoral

Auto:

CV Volume growth (%)

Car Volume growth (%)

Banking: Loan Growth (%)

Cement: Volume growth (%)

Capital Goods: L&T order Intake (INRb)

Capital Goods: L&T order Intake (% YoY)

Metal:

Steel (USD/Tonne)

Aluminium (USD/Tonne)

Zinc (USD/Tonne)

Oil: Brent (US$/bbl)

Oil & Gas:

Under Recoveries (INRb)

Singapore GRM (USD/bbl)

Technology: $Revenue growth (%)

1QFY20

5.6

3.0

3.1

69.6

5.75

8.10

7.21

1QFY20

-15.4

-14.4

12.0

-3.0

387

11.0

582

1,792

2,761

68.5

91.4

3.5

1.3

2QFY20

5.1

-0.4

3.4

70.3

5.40

7.39

6.56

2QFY20

-42.8

-2.0

10.5

-2.0

483

19.9

524

1,762

2,347

61.9

50.7

6.5

2.0

3QFY20

4.7

-1.6

5.8

71.2

5.15

7.16

6.56

3QFY20E

-25.2

2.0

7.5

0.0

416

2.5

496

1,754

2,387

62.6

41.4

1.6

1.9

4QFY20E

-2.9

-1.0

6.7

72.4

4.40

7.20

6.42

4QFY20E

-50.7

-16.0

4.9

-8.0

513

-6.9

545

1,694

2,131

50.6

34.0

1.2

-0.2

FY20E

3.1

0.0

4.8

70.9

4.40

7.46

6.69

FY20E

-35.0

-16.1

4.9

-3.0

1,799

5.3

537

1,750

2,407

60.9

217

3.2

7.3

FY21E

-1.3

-0.2

4.5

75.9

4.00

7.27

6.17

FY21E

-10.7

-3.3

8.7

0.0

1,930

7.3

510

1,700

2,000

45.0

160

5.0

2.9

FY22E

7.0

7.4

4.9

77.0

4.00

7.04

6.04

FY22E

15.8

14.3

12.4

10.0

2,198

13.9

515

1,800

2,100

60.0

214

6.0

9.3

April 2020

13

India Strategy | Tough battle on!

Exhibit 18:

3/5th of the MOSL Universe is likely to report PAT decline, while 23% expected to post >15% PAT growth

Earnings Growth

Ex OMCs (%)

-21 5

0

-9

-3

1

-13

9

20

10

18

9

7

8

11

12 -13

23

42

9

22

-11

4

7

-3

-4

3

6

2

-7

8

9

-4

11

18

13

11

12

17

24

26

32 30

23 32 34

26 35

35

38 39 42 40 37 38 45 36

38 47

36 39 37 35 32 34

45

47

38

38

34 35

58

16

9 10 20

18

18

17 15

24

27

21

24 19

13

16 20 22

27 17 16

17

25

25 25

21 23 19 22

20

16

13

22 18

17 22 19

24

16 22

22 18 23

20 18

18

21

21 15 16

13

16 19

22 17 17 19 16 18 14 22 20

26 13 19

19

19 15

12

18

24 25 18

18

17 16

23 16 13

20

18

16

51

41 31

38 32

39

35

9

32 35

26 25 26 31 24

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

14

27 30 27 25

34 42 40

24 31

>30%

>15-30%

>0-15%

<0%

31

PAT Growth Ex OMCs (%)

23% of the companies would grow at >15% YoY, and 9% of the Universe would report >30% PAT growth. 58% of the Universe would report

PAT decline.

Exhibit 19:

Financials, Consumer and Healthcare to drive aggregate earnings; Oil &Gas, Autos and Metals to drag

34

25

10

8

6

0

-0

-1

-1

-2

-2

-4

-4

-17

-36

-70

-84

-177

Source: MOFSL

Share of Defensives in MOFSL Universe earnings at 38%

Exhibit 20:

PAT share of Global Cyclicals estimated at 23% (multi-quarter low) and of Defensives at 38% (multi-quarter high)

100

Excl. OMCs

28 27 27

75

37 38

37 35 36

32

36

50

38 42 40 42 41 43 42 37

27 26 28

26 28

DEFENSIVES

31 27

34

34

37

34

38 37 36 41

40

35 35 36 35 40

46 42 42 43

34 29

32

33 33 32

38

25

GLOBAL CYCLICALS

25

34

31

31 32 32 30 32 35 37 33 34 35 37 34 30

0

35

34 34

32

28

26 30

24

24 33

26

23

26

34 29 28 34

48

34 35

34

35 26 30

23

37

34

35

30

27 34 31 31

33

26

33 34 35 31 36 36 31

11

29

31

38 34

41

37 42 39

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, Infrastructure, Cement, Media, NBFCs, Real Estate and Retail

April 2020

14

India Strategy | Tough battle on!

Nifty expected to post 21 % decline in PBT; PBT ex-OMCs to decline 8%











Nifty PBT is expected to decline by 21% YoY, while PAT is likely to decline by 20%

YoY despite a benign base (+2% growth in the base quarter).

Ex-OMCs, Nifty PBT is likely to decline 8% YoY, while PAT is expected to be down

8% YoY.

Nifty sales are expected to decline 10% YoY

–

the third consecutive quarter of

sales decline.

Nifty EBITDA is expected to decline by 9% YoY.

26 Nifty companies are expected to report YoY decline in PAT, while 5 are

expected to post losses.

Exhibit 21:

Nifty sectoral 4QFY20 PAT change YoY (%)

LP

389

32

27

17

16

12

6

1

-2

Auto, Metals, Oil

and Gas, to drag

Nifty; Banks,

Healthcare and

Consumer to support

-5

-8

-20

-24

-34

-48

-73 -95

Source: MOFSL

April 2020

15

India Strategy | Tough battle on!

Exhibit 22:

Nifty Universe PBT and PAT change

PBT (INR M)

Company

Bajaj Auto

Eicher Motors

Hero MotoCorp

Mahindra & Mahindra

Maruti Suzuki

Tata Motors

Axis Bank

HDFC Bank

ICICI Bank

IndusInd Bank

Kotak Mahindra Bank

State Bank

Bajaj Finance

Bajaj Finserv

HDFC

Larsen & Toubro

Grasim Industries

Shree Cement

Ultratech Cement

Asian Paints

Britannia

Hind. Unilever

ITC

Nestle

Cipla

Dr Reddy’ s Labs

Sun Pharma

Adani Ports

Zee Entertainment

Hindalco

JSW Steel

Tata Steel

Vedanta

BPCL

GAIL

IOC

ONGC

Reliance Inds.

Titan Company

HCL Technologies

Infosys

TCS

Tech Mahindra

Wipro

Bharti Airtel

Bharti Infratel

Coal India

NTPC

Power Grid Corp.

UPL

Nifty Universe

Sector

Automobiles

Automobiles

Automobiles

Automobiles

Automobiles

Automobiles

Banks-Private

Banks-Private

Banks-Private

Banks-Private

Banks-Private

Banks-PSU

NBFC

NBFC

NBFC

Capital Goods

Cement

Cement

Cement

Consumer

Consumer

Consumer

Consumer

Consumer

Healthcare

Healthcare

Healthcare

Infrastructure

Media

Metals

Metals

Metals

Metals

Oil & Gas

Oil & Gas

Oil & Gas

Oil & Gas

Oil & Gas

Retail

Technology

Technology

Technology

Technology

Technology

Telecom

Telecom

Utilities

Utilities

Utilities

Others

Mar-19

15,339

7,441

10,811

15,151

23,121

23,722

23,030

89,544

7,820

5,070

21,110

4,312

18,116

21,301

28,058

49,481

7,557

4,026

15,318

7,344

4,502

22,980

49,539

7,131

7,114

4,051

7,462

15,834

4,635

18,911

23,530

41,849

41,040

45,951

20,663

86,344

55,793

1,37,900

4,515

31,910

52,830

1,09,301

15,073

32,018

-13,086

10,064

88,927

35,995

33,510

9,450

14,03,405

Dec-19

Mar-20

PBT

Adj. PAT (INR M)

PAT

QoQ

YoY (%)

Mar-19 Dec-19 Mar-20 YoY (%) QoQ (%)

(%)

-6.6 -14.3 10,671 12,616 10,701

0.3

-15.2

-26.7 -13.1

5,448

4,987

3,950

-27.5

-20.8

-24.1 -18.9

7,303

8,804

6,304

-13.7

-28.4

-60.7 -56.9 10,459

8,305

4,104

-60.8

-50.6

-31.0 -20.5 17,956 15,648 12,403 -30.9

-20.7

PL

PL

21,387 17,744 -33,563

PL

PL

-14.2 -13.0 15,051 17,570 13,992

-7.0

-20.4

6.8

-3.4

58,851 74,165 71,562

21.6

-3.5

355.4 -34.8

9,691

41,465 26,723 175.8 -35.6

-67.9 -90.5

3,601

13,092

617

-82.9

-95.3

-0.9

7.6

14,078 15,959 15,336

8.9

-3.9

1,024.6 -55.8

8,384

55,834 40,960

389

-26.6

-2.3 -18.5 11,761 16,141 13,152

11.8

-18.5

23.5

0.2

8,387

11,253 14,702

75.3

30.6

7.1

8.4

24,784 22,273 24,196

-2.4

8.6

0.0

53.6 32,158 21,608 32,541

1.2

50.6

-73.2 -5.7

5,359

1,949

1,715

-68.0

-12.0

59.8 57.8

3,210

3,100

4,893

52.4

57.9

11.7 51.4 10,679

8,069

11,628

8.9

44.1

12.5 -20.4

4,875

7,797

5,538

13.6

-29.0

-2.1 -11.3

2,946

3,696

3,425

16.3

-7.3

3.8

2.5

15,900 16,910 18,068

13.6

6.8

6.4

2.0

34,819 42,740 41,730

19.8

-2.4

-0.8

16.0

4,750

4,681

5,289

11.3

13.0

-27.0

2.6

5,120

3,510

3,619

-29.3

3.1

83.0 34.7

3,008

5,945

6,083

102.2

2.3

87.9 10.4

6,879

8,420

10,174

47.9

20.8

21.0 10.2 12,854 13,523

9,707

-24.5

-28.2

-4.7 -13.6

2,968

3,883

3,315

11.7

-14.6

-18.6 -1.0

13,385 10,562 10,685 -20.2

1.2

-57.7 367.8 15,230

234

6,780

-55.5 2,793.6

-93.2

LP

24,194

-7,005

-400

PL

Loss

-64.9 -39.0 26,150 13,629

4,607

-82.4

-66.2

PL

PL

31,249 11,647

-9,588

PL

PL

-15.9 -7.1

14,546 12,334 11,209 -22.9

-9.1

PL

PL

60,993 23,390 -30,268

PL

PL

2.0

-5.1

40,446 41,516 37,970

-6.1

-8.5

12.5

2.9 1,04,270 119,809 120,206 15.3

0.3

-17.0 -44.4

3,482

4,931

3,218

-7.6

-34.7

17.7

0.5

25,680 30,380 29,285

14.0

-3.6

7.5

-2.9

40,740 44,570 41,665

2.3

-6.5

-4.2

-0.9

83,541 81,180 79,870

-4.4

-1.6

-25.2 -23.5 11,325 11,459

8,516

-24.8

-25.7

-7.6

-3.8

24,937 24,629 23,562

-5.5

-4.3

LP

LP

-11,882 -10,805 -3,820

Loss

Loss

-8.4

-8.0

6,076

7,465

6,897

13.5

-7.6

-66.5 -44.2 60,268 39,208 22,326 -63.0

-43.1

-31.3 -49.8 31,735 28,993 29,366

-7.5

1.3

-9.2 -12.2 26,717 26,537 27,123

1.5

2.2

40.9 19.8

9,078

8,233

9,631

6.1

17.0

-21.3 -21.1 10,15,495 1004,583 8,11,701 -20.1 -19.2

16,713

14,320

6,275

5,455

10,115

8,203

13,826

5,957

20,064

15,945

13,510

-29,628

22,718

19,765

99,019

95,655

54,654

35,611

17,143

1,629

19,441

20,927

1,09,697

48,494

21,701

17,692

26,270

26,314

27,745

30,062

32,232

49,500

2,150

2,028

4,079

6,435

11,306

17,115

10,381

8,263

4,969

4,409

23,280

23,854

51,676

52,694

6,097

7,071

5,064

5,194

5,503

7,415

12,695

14,019

17,390

19,160

5,110

4,415

15,540

15,389

2,130

9,964

-2,366

2,852

23,620

14,409

16,371

-14,381

18,716

17,379

37,222

-45,379

59,986

56,927

1,50,820 1,55,135

6,739

3,746

37,370

37,544

58,490

56,809

1,05,690 1,04,732

14,731

11,270

30,759

29,595

-4,528

3,140

10,022

9,217

53,347

29,750

49,244

24,745

34,668

30,439

11,120

13,319

14,00,514 11,04,574

April 2020

16

India Strategy | Tough battle on!

Exhibit 23:

Nifty sales to decline 10% in 4QFY20, dragged by Commodities and Auto

-9.9

Exhibit 24:

4QFY20 Nifty PAT to decline by 20% YoY

-20.1

Exhibit 25:

Nifty EBITDA to post 9% YoY decline

–

the worst in the last decade

-8.7

April 2020

17

India Strategy | Tough battle on!

Exhibit 26:

Nifty companies’ 4QFY20 performance (INR b)

EBITDA

PAT

Contribution to PAT

EBITDA margin

Var %

Var %

Var %

Company

Mar-20

Mar-20

Mar-20

(%)

Gr. (%)

Mar-20

Var (bp)

YoY

YoY

YoY

High PAT Gr.

2,310

3.0

807

7.2

340

41.6

41.9

-49.1

35

1

State Bank

237

3.4

183

8.3

41

388.5

5.0

-16.0

77

3

ICICI Bank

81

6.9

70

12.0

27

175.8

3.3

-8.4

86

4

Dr Reddy’ s Labs

45

16.4

10

55.7

6

102.2

0.7

-1.5

22

6

Bajaj Finserv

108

-16.6

108

-16.6

15

75.3

1.8

-3.1

100

0

Shree Cement

34

2.2

11

25.9

5

52.4

0.6

-0.8

32

6

Sun Pharma

81

15.7

17

80.0

10

47.9

1.3

-1.6

21

7

HDFC Bank

151

15.2

133

22.9

72

21.6

8.8

-6.2

88

6

ITC

127

5.7

51

11.3

42

19.8

5.1

-3.4

40

2

Britannia

29

2.2

5

4.1

3

16.3

0.4

-0.2

16

0

Reliance Inds.

1,417

2.2

219

5.1

120

15.3

14.8

-7.8

15

0

Med/Low PAT Gr.

1,558

5.1

429

11.7

230

6.5

28.4

-6.9

28

2

HCL Technologies

185

15.7

45

25.6

29

14.0

3.6

-1.8

24

2

Hind. Unilever

102

2.7

25

7.0

18

13.6

2.2

-1.1

24

1

Asian Paints

52

3.6

10

19.9

6

13.6

0.7

-0.3

19

3

Bharti Infratel

36

0.6

15

1.0

7

13.5

0.8

-0.4

42

0

Bajaj Finance

37

35.5

31

37.9

13

11.8

1.6

-0.7

83

1

Zee Entertainment

19

-6.1

5

-9.7

3

11.7

0.4

-0.2

27

-1

Nestle

32

6.2

8

3.8

5

11.3

0.7

-0.3

24

-1

Kotak Mah. Bank

35

14.1

25

11.1

15

8.9

1.9

-0.6

73

-2

Ultratech Cement

110

-10.7

28

8.3

12

8.9

1.4

-0.5

25

4

UPL

101

18.6

23

26.5

10

6.1

1.2

-0.3

23

1

Infosys

231

7.3

57

10.5

42

2.3

5.1

-0.5

25

1

Power Grid Corp.

92

-5.0

86

3.7

27

1.5

3.3

-0.2

93

8

Larsen & Toubro

459

6.0

60

13.5

33

1.2

4.0

-0.2

13

1

Bajaj Auto

65

-11.8

11

-8.7

11

0.3

1.3

0.0

17

1

Negative PAT Gr.

5,461

-17.6

867

-25.7

241

-56.9

29.7

156.0

16

-2

HDFC

34

6.8

33

8.9

24

-2.4

3.0

0.3

99

2

TCS

401

5.4

108

4.8

80

-4.4

9.8

1.8

27

-0

Wipro

154

2.5

31

0.7

24

-5.5

2.9

0.7

20

-0

ONGC

205

-23.5

99

-20.0

38

-6.1

4.7

1.2

48

2

Axis Bank

63

10.7

52

4.6

14

-7.0

1.7

0.5

83

-5

NTPC

178

-20.6

57

-2.9

29

-7.5

3.6

1.2

32

6

Titan Company

50

1.5

5

7.7

3

-7.6

0.4

0.1

10

1

Hero MotoCorp

62

-21.1

9

-19.4

6

-13.7

0.8

0.5

14

0

Hindalco

300

-12.0

36

-3.9

11

-20.2

1.3

1.3

12

1

GAIL

156

-16.8

20

18.0

11

-22.9

1.4

1.6

13

4

Adani Ports

33

6.5

24

20.6

10

-24.5

1.2

1.5

72

8

Tech Mahindra

96

7.7

15

-7.1

9

-24.8

1.0

1.4

16

-3

Eicher Motors

22

-12.3

5

-26.7

4

-27.5

0.5

0.7

23

-5

Cipla

43

-2.2

8

-19.7

4

-29.3

0.4

0.7

18

-4

Maruti Suzuki

187

-12.8

17

-23.6

12

-30.9

1.5

2.7

9

-1

JSW Steel

178

-20.5

30

-31.7

7

-55.5

0.8

4.1

17

-3

M&M.

86

-37.6

10

-47.3

4

-60.8

0.5

3.1

11

-2

Coal India

257

-10.0

57

-45.5

22

-63.0

2.8

18.6

22

-14

Grasim Industries

42

-21.3

4

-56.2

2

-68.0

0.2

1.8

9

-7

Vedanta

196

-16.6

46

-25.6

5

-82.4

0.6

10.6

23

-3

IndusInd Bank

29

31.9

23

12.9

1

-82.9

0.1

1.5

79

-13

Bharti Airtel

233

12.9

101

52.1

-4

Loss

-0.5

-4.0

43

11

Tata Motors

612

-29.2

35

-55.7

-34

PL

-4.1

27.0

6

-3

Tata Steel

306

-27.8

40

-46.2

0

PL

0.0

12.1

13

-5

IOC

937

-25.7

-2

PL

-30

PL

-3.7

44.8

-0

-8

BPCL

601

-18.7

3

-92.7

-10

PL

-1.2

20.0

1

-6

Nifty Universe

9,329

-9.9

2,103

-8.7

812

-20.1

100

100

23

0

Note: For Financials, Sales represents Net Interest Income, and EBITDA represents Operating Profit; Consensus estimates are used for Adani

Ports and Bajaj Finserv

Sales

April 2020

18

India Strategy | Tough battle on!

EARNINGS FY21

FY21: Another year of weak earnings

Earnings cut sharp as COVID-19 impacts economic activity







MOFSL earnings growth estimated at -3% for FY20, 4% for FY21:

We estimate

FY20 revenue for our MOFSL Universe to decline by 1% YoY while FY21 revenue is

likely to stay flattish (v/s 14.5% CAGR over FY16-19) as the extraordinary impact

from COVID-19 related lockdown causes both supply and demand-side concerns.

Given the unprecedented situation confronting both global as well as the Indian

economy, we expect the uncertainty to prevail, and therefore, corporate earnings

estimates should remain volatile until we see a semblance of normalcy returning

on the ground. We, therefore, remain conservative with our earnings estimates to

factor in the uncertainty. We expect economic activity to remain subdued as the

focus would remain on containing the virus and protecting livelihoods.

What can change our outlook on the upside/downside?

We expect revenue

decline for Metals, Auto, Oil & Gas and Cement in FY21. Sectors where we

estimate double-digit growth in top line are Telecom/Financials/Healthcare at

18%/10% /10%. We expect EBITDA margins for our MOFSL Universe (ex-OMCs,

Financials) to remain flat at 18.1% in FY21. However, major uptick is expected in

the Telecom sector where we estimate EBITDA margins to increase to 40.9% from

36.7%. For FY21, we expect profits to grow 4% YoY with major contribution to

incremental earnings coming from the Financials and Healthcare space along with

reduction in losses in Telecom, which would benefit aggregate earnings. Despite

the sharp earnings cut, Financials are still estimated to contribute more than

100% of incremental FY21 earnings. Metals and Autos would drag earnings and

are expected to decline by 55%/25% YoY. We expect MOSL universe to report a

3% YoY decline in FY20 earnings. For FY21, we estimate MOFSL Universe’s

sales/EBITDA/PAT to post growth of 1%/5%/4%.

Nifty profits to decline by 2% in FY20; to stay flattish in FY21:

Nifty sales

growth is expected to decline by 2% YoY in FY20, while for FY21, we expect it to

stay flat. Nifty EBITDA is likely to remain flat YoY in FY20 while PAT should

decline 2% YoY. For FY21, we estimate EBITDA/PAT to grow 5%/2%.

PAT

(INR b)

FY21E

1,580

1,316

728

252

28

308

265

1,225

409

33

783

1,974

38

441

154

PAT Gr./

CAGR (%)

FY22E FY20E FY21E FY22E (FY19-21)

1,999

47

23

26

34

1,696

57

23

29

39

917

34

22

26

28

368

LP

105

46

LP

32

2

13

16

8

379

15

-5

23

4

302

12

21

14

16

1,425

7

1

16

4

464

17

3

13

10

39

4

0

18

2

922

2

0

18

1

3,181 -24

-5

61

-15

60

7

-8

58

-1

550

1

-2

25

-1

203

4

-8

32

-2

PAT Delta

Share (%)

(FY19-21)

2,513

2,266

1,009

1,158

14

85

247

306

260

5

42

-2,719

-2

-29

-24

Exhibit 27:

Expect Nifty PAT CAGR to be flat over FY19-FY21

Sales

EBIDTA

EBIDTA

CAGR (%) CAGR (%) Margin (%)

(FY19-21) (FY19-21)

FY21E

12

15

53.6

13

15

67.5

17

18

84.3

10

14

70.4

10

-1

3.5

10

11

83.2

10

14

21.8

5

4

23.5

5

7

25.3

3

-3

34.5

5

3

22.3

-2

-2

14.5

5

8

8.7

2

9

35.7

3

1

10.8

Sector

High PAT CAGR (>15%)

Financials (30)

Banks-PVT (11)

Banks-PSU (3)

Insurance (2)

NBFC (14)

Healthcare (18)

Medium PAT CAGR (0-15%)

Consumer (18)

Media (3)

Technology (13)

Negative PAT CAGR

Retail (9)

Utilities (8)

Cap. Goods (13)

FY20E

1,289

1,069

596

122

25

326

219

1,215

395

33

787

2,083

41

451

167

April 2020

19

India Strategy | Tough battle on!

Sales

EBIDTA

EBIDTA

PAT

PAT Gr./

CAGR (%) CAGR (%) Margin (%)

(INR b)

CAGR (%)

Sector

(FY19-21) (FY19-21)

FY21E

FY20E FY21E FY22E FY20E FY21E FY22E (FY19-21)

Cement (11)

-5

0

19.3

126

109

163

8

-13

49

-3

Oil & Gas (15)

-3

-6

10.4

897

957 1,421 -27

7

49

-12

Ex OMCs (12)

0

-5

14.1

802

710 1,094 -11

-11

54

-11

Others (22)

9

2

15.3

107

72

159

0

-32

120

-18

Auto (17)

-6

-11

10.7

216

161

338

-31

-25

109

-28

Infrastructure (3)

-7

-11

27.6

12

6

8

-15

-47

23

-33

Metals (9)

-7

-18

15.3

276

124

350

-42

-55

181

-49

Telecom (4)

14

43

40.9

-211

-90

-72

Loss Loss Loss

Loss

MOFSL (193)

0

3

20.1

4,586 4,779 6,604

-3

4

38

0

MOFSL Ex OMCs (190)

1

4

22.9

4,492 4,532 6,277

1

1

38

1

Nifty (50)

0

3

20.8

3,751 3,821 5,253

-2

2

37

0

Sensex (30)

3

6

26.3

3,042 3,111 4,117

9

2

32

6

Note: For Banks: Sales = Net Interest Income, EBIDTA = Operating Profits; Note: Sensex & Nifty Numbers are Free Float

PAT Delta

Share (%)

(FY19-21)

-27

-979

-700

-123

-548

-28

-1,251

292

100

NA

NA

NA

Exhibit 28:

Nifty ex-corporate lenders to show bigger 7% profit decline for FY20

Nifty-Ex Corporate Banks

15

16

Nifty-50

13

9

1

3

6

9

9

6

9

12

2

-2

-1

FY21E

FY14

FY15

FY16

FY17

FY18

FY19

-7

FY20E

Exhibit 29:

Nifty profits expected to decline by 2% in FY20

Profit (INR b)

Nifty (50)

Growth YoY (%)

Financials

Growth YoY (%)

Nifty - Ex Financials

Growth YoY (%)

Corporate Banks

Growth YoY (%)

Nifty - Ex Corporate Banks

Growth YoY (%)

Incremental Nifty PAT

Incremental Corp Banks PAT

Incremental Financials PAT

Incre. Financials PAT/ Incre. Nifty PAT (%)

Incre. Corp Bank PAT/ Incre. Nifty PAT (%)

FY17

3,243

9

476

-18

2,767

15

137

-55

3,106

16

267

-165

-104

-39

-62

FY18

3,424

6

417

-12

3,008

9

25

-82

3,399

9

182

-112

-59

-33

-62

FY19

3,819

12

578

39

3,240

8

103

314

3,715

9

394

78

162

41

20

FY20E

3,751

-2

900

56

2,852

-12

305

195

3,446

-7

-67

202

321

-476

-299

FY21E

3,821

2

1,077

20

2,744

-4

409

34

3,412

-1

70

104

177

254

149

MOFSL Universe earnings to grow 4% in FY21 aided by Banks, Healthcare





For the MOFSL Universe, we estimate PAT growth of 4% for FY21 (off a base of

3% decline in FY20), supported mainly by Financials and Healthcare. Financials’

profits are expected to grow 23% YoY while Healthcare should see profit growth

of 21% YoY. Consumer sector is expected to post 3% YoY profit growth in FY21.

Sectors that would drag earnings are Metals and Autos, where earnings are

expected to decline by 55% and 25% YoY in FY21. Cement/Oil (ex-OMCs)

/Retail/Capital Goods earnings should decline by 13%/11%/8%/8% YoY.

April 2020

20