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ICICI Securities Ltd. | Retail Equity Research
February 20, 2018
Earnings Wrap Q3FY18
Encouraging earnings recovery under way…
Sensex companies (ex-banks) posted a robust Q3FY18
performance partly due to low base due to demonetisation in base
quarter i.e. Q3FY17 and adapting of trading channel to the new
GST regime. Quarterly results are encouraging thereby depicting
upbeat domestic economic sentiment (also depicted by
November-December 2017 IIP numbers) thereby reinforcing our
view of a smart earnings recovery being under way. On topline
front, oil & gas, metals space continued to benefit from the surge in
commodity prices while capital goods, auto space saw strong
growth on bottomline front. In Q3FY18, net sales were at | 476,015
crore, up healthy 11.9% YoY (best in last four quarters). EBITDA for
the quarter was at | 103,944 crore with corresponding EBITDA
margins at 21.8% (highest in last eight quarters), up 100 bps YoY.
Companies continue to see pressure on gross margins (down 180
bps) on account of a rise in commodity prices, which was more
than compensated by operating leverage benefits (up 280 bps) on
account of better capacity utilisation levels (sweating of assets).
PAT in Q3FY18 was at | 50,548 crore, up a healthy 9.7% YoY
At a broader level, for the entire listed universe, double digit sales
& PAT growth on a YoY basis at 11.1% & 13.3%, respectively, is
encouraging. Critical analysis of the same depicts growth led by
large cap companies’ vis-à-vis small cap & midcap domain. It also
aids our belief to be cautious while investing in small & midcap
companies and sticking to more quality names that exhibit capital
efficiency and have sustainable growth prospects
On the sectoral front, in Q3FY18, the auto space continued the
positive momentum with overall 16% volume growth on a YoY
basis. The key surprise was upbeat M&HCV sales (up 37% YoY). In
the banking space, asset quality concerns surfaced with 20% YoY
growth in GNPA in the PSU banking space. Going forward, with
government’s focus on “ease of living”, thrust on augmenting farm
income and pick-up of investment cycle under way, we expect
Sensex earnings to record impressive 21.6% CAGR in FY18-20E
#Data based on 23 companies (excluding banks, NBFCs)
Exhibit 1: Sensex aggregate # (| crore)
Dec-17 Dec-16 Sep-17
YoY (%)
change
QoQ (%)
change
Sales 476,015 425,381 457,236 11.9 4.1
Total Expenses 372,070 336,641 358,835 10.5 3.7
Raw material 178,130 151,517 177,102 17.6 0.6
Employee 69,676 64,802 68,776 7.5 1.3
Other expenses 124,264 120,322 112,957 3.3 10.0
Expenses (% of sales)
Total Expenses 78.2 79.1 78.5 -98 bps -32 bps
Raw material 37.4 35.6 38.7 180 bps -131 bps
Employee 14.6 15.2 15.0 -60 bps -40 bps
Other expenses 26.1 28.3 24.7 -218 bps 140 bps
Operating Profit 103,944 88,739 98,402 17.1 5.6
OPM% 21.8 20.9 21.5 98 bps 32 bps
Other Income 11,131 12,508 12,590 -11.0 -11.6
Interest 12,732 10,860 13,038 17.2 -2.3
Depreciation 30,806 25,687 28,472 19.9 8.2
PAT 50,548 46,098 49,941 9.7 1.2
PAT margin % 10.6 10.8 10.9 -22 bps -30 bps
Source: Capitaline, ICICIdirect.com Research
BSE Sensex (ex-banks, NBFC)
| crore Dec-17 Dec-16 Sep-17
Sales 476,015 425,381 457,236
EBITDA 103,944 88,739 98,402
Net Profit 50,548 46,098 49,941
Indices performance (% return) in Q3FY18
9.4
6.8
8.0
8.9
9.7
9.7
10.1
10.6
11.4
13.4
15.5
19.3
26.3
29.2
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0
FMCG
Banks
Power
Sensex
Oil & Gas
Healthcare
Metals
Auto
CG
IT
Mid Cap
Small Cap
Real Estate
CD
(%)
CG: Capital Goods
CD: Consumer durables
Small Cap: BSE Small Cap
BSE Sensex – Heat Map (% Return) in Q3FY18
RILAirtel SBI Maruti M&M
22.0% 19.8%
HUL Infosys ONGC ICICI Bank
13.5%
17.9%
Sun Pharma
16.5% 15.8% 14.2%
36.0% 22.1%
13.5%
Tata Steel Wipro TCS Axis Bank L&T
NTPC
12.2%
Adani Ports Tata Motors Bajaj Auto
3.8%
10.2%
Cipla
10.9% 10.8%12.1%
7.7% 7.6% 7.2% 5.7%
-12.7%
2.4%3.7%
HDFC Bank Dr. Reddy Asian Paints ITC Kotak Bank
0.3% -1.8% -2.9% -5.0%
Hero Moto HDFC Coal India
0.8%
LupinPower Grid
1.9%3.7%
Aggregate Summary
Sales Net profit Sales Net profit
Nifty 7.7 8.8 12.6 15.6
BSE midcap 2.9 3.9 4.0 -1.0
BSE smallcap 6.0 172 12.6 2.2
All Co's (2246 cos) 5.6 11.1 11.1 13.3
QoQ growth (%) YoY growth (%)
Positive surprises & Buys
NRB Bearing
TCI Express
NCC
Sun TV
KEC International
Heidelberg Cement
Indian Hotel
Contact for feedback and comments
research@icicidirect.com
ICICI Securities Ltd. | Retail Equity Research
Page 2
Exhibit 2: Sensex EPS at | 322/share in Q3FY18
332
346 347
339
314
364
345
328
339
360
330
352
322
280
290
300
310
320
330
340
350
360
370
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2016 2017 2018
EPS
Source: Bloomberg, Reuters, ICICIdirect.com Research
@ for calculation of EPS we have considered standalone profit for Bajaj Auto, Cipla, HDFC, HDFC Bank, Hero
MotoCorp, Hindustan Unilever, ITC, L&T, M & M, Maruti Suzuki, NTPC, ONGC and Reliance Industries while for
the rest of the companies, consolidated profit has been considered
Exhibit 3: Sensex aggregate quarterly revenue, operating profit & net profit trend
420,121401,047
417,199 425,381
468,742
423,660457,236
476,015
88,127 86,140 88,437 88,739 88,083 86,564 98,402 103,944
49,421
43,619
47,359
46,098
49,590
46,545
49,94150,548
40,000
42,000
44,000
46,000
48,000
50,000
52,000
0
100000
200000
300000
400000
500000
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2016 2017 2018
| crore
| crore
Net Sales (LHS) Operating Profits (LHS) PAT (RHS)
Source: Capitaline, ICICIdirect.com Research
#Data is based on 23 companies (excluding banks, NBFCs)
Exhibit 4: Sensex aggregate quarterly revenue & profitability growth trend (%)
10.0
-11.3
8.4
1.23.9
-4.4
3.9
2.0
-9.6
7.9
-3.3
18.8
7.9
-2.7
6.9
-6.1
-15
-10
-5
0
5
10
15
20
25
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2016 2017 2018
(%
)
Sales growth QoQ (%) Net profit growth QoQ (%)
Source: Capitaline, ICICIdirect.com Research
#Data is based on 23 companies (excluding banks, NBFCs)
On a YoY basis, in Q3FY18, ex banks, the Sensex topline
increased convincingly at double digits at 11.9% YoY (highest
in recent past). EBITDA growth, for the quarter, came in at
17.1% YoY thereby exceeding topline growth primarily tracking
100 bps expansion in EBITDA margins to 21.8%. The margin
improvement was factoring in lower overhead costs mainly
employee (60 bps) and other expenses (220 bps), which was
partly compensated by an increase in raw material costs (180
bps) on account of an increase in commodity prices. PAT in
Q3FY18 was up a healthy 9.7% YoY
On a QoQ basis, carrying the positive current underway from
the last quarter the performance of Sensex companies was
largely flat. Sensex companies witnessed topline growth of
4.1% QoQ with EBITDA growth at 5.6% YoY with 30 bps
expansion in EBITDA margins (21.8% in Q3FY18 vs. 21.5% in
Q2FY18). PAT in Q3FY18 was up marginally 1.2% YoY. PAT
growth was a laggard following a decline in other income and
corresponding increase in depreciation on a sequential basis
EPS for the quarter i.e. Q3FY18 was at | 322/share, down
4.9% YoY (| 339/share in Q3FY17). Resurgent asset quality
concerns in the banking space (especially public sector banks)
weighted on overall index earnings with weighted average
Sensex EPS witnessing de-growth on a YoY basis despite ex-
banking space witnessing close to double digit growth (up
9.4% YoY)
On a YoY basis, in Q4FY16, ex banks and commodity space,
the Sensex topline increased 12.4% YoY to | 307583 crore in
Q4FY16 while EBITDA came in at | 63694 crore with
corresponding EBITDA margins at 20.7%. Margins came in
higher by 230 bps YoY on account of 78 bps savings in raw
material costs and 90 bps savings in other operating expenses
as companies realised operating leverage benefits. PAT for the
quarter was at | 35161 crore, up 27.9% YoY
During Q4FY16, the Sensex topline increased 9.5% QoQ while
the bottomline expanded 17.4% QoQ primarily on the back of a
136 bps increase in EBITDA margins largely on account of
lower raw material and employee costs
ICICI Securities Ltd. | Retail Equity Research
Page 3
Exhibit 5: Sensex aggregate quarterly EBITDA margin
21.0
21.5
21.2 20.9
18.8
20.4
21.5
21.8
17
18
19
20
21
22
23
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2016 2017 2018
%
EBITDA Margin
Source: Capitaline, ICICIdirect.com Research
#Data is based on 23 companies (excluding banks, NBFCs)
Industry wise revenue & profit movement
Exhibit 6: Industry wise aggregate revenue (Sensex companies) ( | crore)
Dec-17 Dec-16 Sep-17 YoY change (%) QoQ change (%)
Auto 118,692 103,324 119,584 14.9 -0.7
Capital goods 28,747 26,110 26,447 10.1 8.7
FMCG 18,362 16,953 18,623 8.3 -1.4
IT 62,367 60,696 61,531 2.8 1.4
Oil & Gas 122,806 99,422 110,446 23.5 11.2
Metals 55,090 48,152 50,612 14.4 8.8
Pharma 14,401 15,296 14,293 -5.8 0.8
Power 28,281 26,026 26,952 8.7 4.9
Others 27,268 29,401 28,748 -7.3 -5.1
Aggregate 476,015 425,381 457,236 11.9 4.1
Source: Capitaline, ICICIdirect.com Research
Topline growth for the quarter was again led by the commodity
space, which includes oil & gas (up 23.5% YoY) and metals (up
14.4% YoY) and consumer driven auto space (up 14.9% YoY). IT
and pharma continued their underperformance with topline growth
of 2.8% & -5.8% respectively. Bottomline growth, on the other
hand, witnessed a divergence. Growth was led by capital goods
(up 48% YoY, L&T) and metals (up 33% YoY) followed by auto (up
29% YoY, Tata Motors) and oil & gas (up 22% YoY). IT & pharma
reported de-growth at the PAT level
During the quarter, in the capital goods domain, all EPC companies
reported robust execution trends and record order inflows. In the
IT space, Tier-I companies reported a dollar revenue growth of
1.2% QoQ and 9% YoY. Constant currency (CC) revenues grew an
average of 1.5% QoQ in a seasonally weak quarter. In the pharma
space, the challenging environment in the US generic space
continues to impact pharma universe growth
Exhibit 7: Industry wise aggregate net profit (Sensex companies) (| crore)
Dec-17 Dec-16 Sep-17 YoY change (%) QoQ change (%)
Auto 6,048 4,688 8,522 29.0 -29.0
Capital goods 1,618 1,090 2,020 48.4 -19.9
FMCG 4,003 3,685 3,916 8.6 2.2
IT 12,172 12,637 12,376 -3.7 -1.6
Oil & Gas 14,460 11,876 13,228 21.8 9.3
Metals 4,141 3,115 1,387 32.9 198.6
Pharma 1,583 2,599 1,742 -39.1 -9.1
Power 4,402 4,399 4,580 0.1 -3.9
Others 2,122 2,008 2,172 5.7 -2.3
Aggregate 50,548 46,098 49,941 9.7 1.2
Source: Capitaline, ICICIdirect.com Research,
#Data is based on 23 companies (excluding banks, NBFCs)
In Q3FY18, EBITDA margins continued their uptrend largely
factoring in operating leverage benefits following better
capacity utilisation levels (sweating of assets). Margins for the
quarter were at 21.8%, up 30 bps QoQ & 100 bps YoY. Raw
material as a percentage of sales came in at 37.4% vs. 35.6%
in Q3FY17, up 180 bps while employee and other operating
expense was at 40.7% vs. 43.5% in Q3FY17
Interest costs increased ~32% YoY for Sensex companies in
Q2FY14. Interest cost as a percentage of EBITDA has also seen
an uptrend to 8.2% in Q2FY14 from 7.2% in Q2FY13 mainly due
to a sharp rise in interest outgo
Industry wise revenue contribution (%)
Dec-17 Dec-16 Sep-17
Auto 24.9 24.3 26.2
Capital goods 6.0 6.1 5.8
FMCG 3.9 4.0 4.1
IT 13.1 14.3 13.5
Oil & Gas 25.8 23.4 24.2
Metals 11.6 11.3 11.1
Pharma 3.0 3.6 3.1
Power 5.9 6.1 5.9
Others 5.7 6.9 6.3
Source: Capitaline, ICICIdirect.com Research
Industry wise net profit contribution (%)
Dec-17 Dec-16 Sep-17
Auto 12.0 10.2 17.1
Capital goods 3.2 2.4 4.0
FMCG 7.9 8.0 7.8
IT 24.1 27.4 24.8
Oil & Gas 28.6 25.8 26.5
Metals 8.2 6.8 2.8
Pharma 3.1 5.6 3.5
Power 8.7 9.5 9.2
Others 4.2 4.4 4.3
Source: Capitaline, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 4
Key notable surprises and stock calls
This section of Earnings Wrap includes the key surprises witnessed in the
earnings of coverage companies and our take post analysis of results.
The above companies posted a strong set of earnings in Q3FY18, which
we believe are more fundamental and sustainable in nature, going
forward. We have a positive view on these companies.
Exhibit 8: Key surprises and stock calls (Q3FY18)
CMP
(|)
NRB Bearing Positive
NRB Bearings reported stellar Q3FY18 numbers. Revenues, EBITDA and PAT grew 25.4%, 103.4% and
178.5%, respectively, led by growth in its key segments such as auto and exports. Going forward, its after-
market segment is also likely to pick up, given the GST related issues are almost over. Accordingly, we expect
all three segments – auto, after-markets and exports to grow at a healthy rate of 12.7%, 13.2%, 13.8%,
respectively. Accordingly, we estimate topline and bottomline growth of 13% and 22.8% CAGR over FY17-20E.
Given its inexpensive valuations in the peer set; we recommend BUY, valuing NRB at 21x FY20E earnings to
arrive at a target price of | 215 per share
160 215 Buy 34
TCI Express Positive
In addition to the seasonally strong quarter (Q3), TCI Express' margins pleasantly surprised us in the current
quarter. Revenues continued their growth momentum with growth of 22% YoY (12% QoQ) to | 229 crore.
However with a margin expansion of 270 bps YoY (up 82 bps QoQ) to 10.5%, absolute EBITDA grew 64% YoY
(up 22% QoQ) to | 24.1 crore. Higher utilisations on the back of improved tonnage coupled with improved
macro environment (GST and eway bill) provides growth visibility. Industry leading growth rates and return
ratios affirms our BUY rating on the company, assigning P/E of 30x on FY20E EPS of | 22
500 660 Buy 32
NCC Positive
NCC reported strong Q3FY18 results. NCC’s topline de-grew 2.8% YoY to | 1850.7 crore due to adjustment of
indirect taxes and GST. EBITDA margins expanded significantly by 460 bps YoY to 13.8% due to bonus claims
worth | 73 crore for UP expressway. Hence, PAT grew robustly by 72.2% YoY to | 100.4 crore. NCC has
witnessed healthy order inflows to the tune of | 21614 crore in 9MFY18, significantly exceeding its initial
FY18E guidance of | 12000 crore. Hence we expect a robust pick-up in execution leading to revenue growth
of 26.2% CAGR to | 12413 crore in FY18-20E. We have a BUY rating with TP of | 160
125 160 Buy 28
Sun TV Positive
Sun TV reported heathy ad and broadcasting revenues growth of 18.9% (core ad growth of 21.6% YoY) in
Q3FY18, reflecting the monetisation of improved share in Malayalam and Telugu markets. The subscription
growth was healthy owing to continued improvement in realisations. Going forward, we factor in 12.5% CAGR
in ad revenues in FY17-20E to | 1850 crore, driven by lower base and strong traction in non-Tamil markets.
Moreover likely digitisation in Tamil Nadu would provide much needed fillip to subscription growth. We expect
17.5% CAGR in subscription revenues over FY17-20E. We maintain our BUY recommendation with a target
price of | 1150, valuing it at 27x FY20E P/E
913 1150 Buy 26
KEC
International
Positive
KEC reported strong Q3FY18 results. The beat was in terms of order inflow & backlog, execution trend,
EBITDA margins and finance costs. The company is one of key beneficiaries of revival of domestic capex cycle
and is witnessing healthy order inflows. The order inflows of 9MFY18 were at |11,300 crore, up 31% YoY,
coupled with L1 status of |4,000 crore. Robust growth in order backlog backed by strong order wins, massive
scale up in new business, consistency in margin expansion and improvement in balance sheet matrices will
drive the ROCE of the business to 21.4% by FY20. This will be aided by 20% PAT CAGR over FY19E-20E. We
value the company at 18x FY20E EPS to arrive at a fair value of | 450/share and assign a BUY rating
380 450 Buy 18
Heidelberg
Cement
Positive
Heidelberg Cement reported strong Q3FY18 results. Revenues increased 24.8% YoY to | 483.9 crore on the
back of 16.5% YoY growth in volumes. Further, EBITDA/tonne increased 65.5% YoY to | 620/t led by decline in
power cost and operating leverage benefit. Going forward, with higher government spending and improved
availability of sand in the company’s area of operation we expect revenues to grow at a CAGR of 11.0% over
FY17-19E. Also, we expect the EBITDA margin to improve 290 bps in FY17-19E mainly led by operating
leverage benefit and cost efficiency. Further, steady cash flow is expected to help reduce debt in FY17-19E.
Hence, we have a BUY rating on the stock with a target price of | 180 (i.e. valuing at 12.5x FY19E EV/EBITDA,
$142/tonne on capacity of 5.4 MT)
157 180 Buy 15
Indian Hotels Positive
Indian Hotels reported strong Q3FY18 results. Consolidated revenues increased 5.8% YoY to | 1,197.3 crore
mainly led by 8.8% YoY increase in domestic revenue. In addition, the company’s domestic segment continues
to outperform in terms of margins (which increased 28 bps YoY to 30.3%). Going forward, we expect domestic
segment to continue to gain traction led by higher occupancy, limited capacity addition and rise in spending
by domestic travelers. In addition, debt reduction through rights issue and divestment or turnaround of loss
making international subsidiaries remain key positive triggers for the long term. Hence we have a BUY rating
on the stock with a target price of | 155/share (i.e. valuing at EV/room of | 2.5 crore/room)
138 155 Buy 12
Potential
Upside (%)Company Quarterly Performance & Outlook
Q3FY18
Result Rating
Target
Price (|)
Source: ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 5
Sector specific takeaways from quarter
Auto & auto ancillary
Overall auto volumes reported strong volume of 16% YoY mainly due
to the low base of last year, which was impacted by demonetisation. In
terms of segments, 2-W reported healthy growth of 16.6% YoY, driven
by both scooters & motorcycle that were up 20% YoY & 17% YoY
respectively. CV volumes witnessed a noteworthy pick-up (increased
29.6% YoY) driven by robust M&HCV volumes, up 36.8% YoY mainly
due to pre-buying on account of mandatory norm of air ventilation
system in trucks sold after December 31, 2017. On the flip side, PV
segment remained subdued up 3.2% YoY. MSIL, the market leader in
the PV space, continued to outperform, registering 11% YoY growth.
Thus, the overall revenue of I-direct auto universe (Ex Tata Motors -
TML) grew ~25% YoY, with OEM and ancillary revenue growth at
~23% and ~28% YoY, respectively
The EBITDA margin of our universe (ex-TML) declined 33 bps YoY to
~14.6% and was impacted by higher input cost & other expense.
Average prices of key input moved up – steel, aluminum, lead, rubber
increased 8.1%, 17.7%, 11.4%, 3.7% YoY, respectively. Thus, PAT of
the I-direct universe (ex-TML) increased 9% YoY, with OEM’s PAT up
11% YoY while ancillary PAT increased marginally by 2% YoY
Among our coverage OEM universe, TML’s results were below our
estimates, as a ramp up of Velar & Discovery volumes was offset by
run out of higher margin 17 Model Year Range Rover & Range Rover
Sport impacting JLR’s performance. Its domestic business witnessed a
significant turnaround. MSIL revenue and margin were in line with our
expectations. However, lower other income impacted PAT
On the ancillary front, Apollo Tyres and JK Tyre reported strong
volume driven revenue growth (post dumping duty on import of TBR
tyres) & reported QoQ margin expansion. Balkrishna Industries
margins were impacted by one-off events. The battery players, Exide &
Amara reported healthy revenue growth. However, the continued
escalation in lead price impacted their margins. The integration of PKC
group lifted Motherson Sumi’s revenue - up 35.8% YoY but the margin
across its businesses was impacted by higher input cost, start-up cost
& other expenses
We expect the growth momentum to continue in FY19E after 1) the
government’s focus on rural economy aids demand for 2-W players, 2)
A buoyant outlook on infrastructure spending & restriction on over-
loading may catalyse M&HCV growth & 3) positive consumer sentiment
& new launches will drive demand for the PV segment
Exhibit 9: Q3FY18 volume growth YoY (%)
Industry, 16
HMCL, 16
BAL, 18
TVS, 15
HMSI, 25
Maruti, 11
TML, 29
Hyundai, 2
ALL, 42
0 12
+ve
-ve
+ve
-ve
Source: Company, ICICIdirect.com Research
October 2017 was subdued but November & December
made up for the growth in Q3. The traditional year-end
discount/offers also resulted in higher demand for vehicles.
The 3-W saw strong demand revival as volumes grew
52.4% YoY, after domestic & export grew 51.2% YoY &
54.5% YoY, respectively
Further lower other income (due to lower yield on
investments) impacted the profitability of the companies.
Bajaj Auto’s margins were impacted by higher CSR spend
of | 28 crore resulting in higher other expense. Eicher
Motors’ PAT was impacted due to lower other income and
higher depreciation during the quarter. The results of Ashok
Leyland were largely in-line with our estimates.
Bharat Forge reported strong all-round performance.
Wabco’s revenue was driven by strong traction in exports
& domestic M&HCV volumes. However, higher input cost
impacted its margins.Bosch’s revenue & margin came in
above our estimates mainly driven by strong growth in its
mobility segment
The pace of electric vehicle (EV) adoption & BS VI
implementation by 2020 is expected to lead to huge
investments & partnership in R&D
ICICI Securities Ltd. | Retail Equity Research
Page 6
Banking
Asset quality witnessed pressure in Q3FY18 post seeing a fall in
slippages in Q2FY18. Absolute GNPA of PSU banks increased 20%
YoY (6% QoQ) to | 777,266 crore while that of private banks increased
2.1% QoQ to | 108,522 crore. The reasons for rise in slippages include
NPAs from second list referred to NCLT, NPA divergences largely by
SBI and recognition of a large telecom account in Q3FY18
Except for Axis Bank, most private banks saw a QoQ rise in GNPA.
Overall system GNPA & RA remained >12% of loans
Rise in slippages and G-sec yields entailed higher provisions in
Q3FY18, which increased 17% QoQ to | 76,618 crore. This was led by
PSU banks, which saw an increase of 23.9% QoQ to | 66,484 crore
Other income was subdued (down 16.7% YoY, 26.8% QoQ) as
treasury earnings were muted. A sustained rise in yields allowed lower
prospects for any trading gains
NII growth was healthy across banks at 14.8% YoY to | 85,714 crore
(13.7% YoY for PSU banks) mainly led improved traction in loans at
>10% YoY (albeit on a lower base last year due to demonetisation)
As two major line items in P&L (i.e. other income & provisions)
worsened, the sector saw a loss of | 6,943 crore led by PSU banks
Exhibit 10: Financial summary of PSU banks
(| Crore) Q3FY18 Q2FY18 Q1FY18 Q4FY17 Q3FY17 Q2FY17 Q1FY17 YoY (%) QoQ (%)
NII 53652 51860 43918 53983 47190 51816 49085 13.7 3.5
Growth YoY (%) 13.7 0.1 -10.5 10.3 -2.0 4.1 6.6
Other income 23291 35517 26342 32361 30641 28689 23448 -24.0 -34.4
Growth YoY (%) -24.0 23.8 12.3 16.8 61.5 47.9 48.7
Total operating exp. 40220 39206 33897 38931 40082 41115 36860 0.3 2.6
Staff cost 22560 21363 21560 20940 24283 23201 22003 -7.1 5.6
Operating profit 36723 48171 36362 47413 37749 39390 35673 -2.7 -23.8
Growth YoY (%) -2.7 22.3 1.9 26.3 21.4 11.3 14.2
Provision 66484 53678 36697 63115 37348 37589 38116 78.0 23.9
PBT -29760 -5507 -335 -15701 401 1801 -2443 NM NM
PAT -18097 -4284 -307 -10008 -191 308 -1926 NM NM
Growth YoY NM NM NM NM NM -95.9 NM
GNPA 777266 733974 733136 684733 646199 630320 592247 20.3 5.9
Growth YoY 20.3 16.4 23.8 26.8 59.7 100.6 113.3
NNPA 415705 397441 417175 383088 376792 370115 351576 10.3 4.6
Growth YoY 10.3 7.4 18.7 21.5 59.1 107.2 120.2
Source: Capitaline, ICICIdirect.com Research
Exhibit 11: Financial summary of private banks
(| Crore) Q3FY18 Q2FY18 Q1FY18 Q4FY17 Q3FY17 Q2FY17 Q1FY17 YoY (%) QoQ (%)
NII 32062 30948 29987 29780 27455 24132 23219 16.8 3.6
Growth YoY 16.8 28.2 29.1 7.0 15.0 31.6 4.7
Other income 14927 16672 15535 14678 15249 19098 13105 -2.1 -10.5
Growth YoY -2.1 -12.7 18.5 3.4 19.9 80.2 23.8
Total operating exp. 20942 20331 20156 19626 18683 15352 14274 12.1 3.0
Staff cost 7569 7725 7590 7028 7386 7319 6531 2.5 -2.0
Operating profit 26047 27290 25366 24833 24021 27878 22050 8.4 -4.6
Growth YoY 8.4 -2.1 15.0 29.7 11.3 48.3 20.1
Provision 10135 11843 8843 9513 9493 13144 7046 6.8 -14.4
PBT 15872 15407 16484 15283 14490 14701 14911 9.5 3.0
PAT 11154 10506 11683 10565 9651 10501 10314 15.6 6.2
Growth YoY 15.6 0.0 13.3 -2.7 -14.0 0.6 6.3
GNPA 108522 106275 96201 92102 86409 74524 61613 25.6 2.1
Growth YoY 25.6 42.6 56.1 77.4 92.8 103.0 77.0
NNPA 53573 55082 49838 47084 40894 36903 31208 31.0 -2.7
Growth YoY 31.0 49.3 59.7 89.6 103.6 142.2 117.3
Source: Capitaline, ICICIdirect.com Research
Around 16 out of the 21 PSU banks reported losses in Q3FY18.
Bank of India and SBI reported highest losses of | 2341 crore &
| 2416 crore, respectively
ICICI Securities Ltd. | Retail Equity Research
Page 7
Capital goods
On an overall basis, revenues for capital goods companies grew 12.4%
YoY in Q3YF18 backed by robust execution trends across all EPC
companies. EBITDA margins were flattish YoY at 10% given high input
costs were cushioned by a pick-up in execution. PAT for the coverage
universe grew 9.9% YoY
On the order inflow front, L&T announced order wins in to the tune of
| 48,000 crore with strong order wins in the domestic market. We
believe given a pick-up in tendering in the domestic market L&T will be
able to report positive YoY growth in order inflows for FY18E. In the
midcap space, KEC was key performer as order inflows for 9MFY18
were at ~| 11,300 crore mark coupled with strong revenue growth of
26% YoY and margin expansion of 20 bps. Kalpataru Power also
reported strong 9MFY18 order wins with a backlog of | 10,000 crore
thereby ensuring it can grow at a CAGR of >15% in FY18-20E
Bearing companies like SKF, Timken, NRB reported healthy topline,
EBITDA, PAT growth of 11.9% YoY, 38.7% and 35.2%, respectively.
Strong topline numbers were mostly due to improved demand across
user industries – auto, steel, cement, etc and pick-up in exports
Cement: healthy volume growth; high energy costs dent margins
Cement companies under our coverage reported healthy volume
growth of 21.3% YoY (ex-Ambuja) mainly led by low base in the last
year (due to demonetisation). Realisations for the quarter were up
3.6% YoY (down 1.4% QoQ). Consequently, total revenue of the sector
increased 25.7% YoY. In terms of margins, higher power cost (led by
ban on pet coke and sharp rise in pet coke prices) and freight cost (due
to increase in diesel prices and adherence to overloading in north
region) has led to fall in margins (down 190 bps to 16.2% in Q3FY18)
In Q3FY18, realisation for our coverage increased 3.6% YoY mainly
due to change in sales mix (from ex-factory to FOR) and better pricing
in the northern and central region. Players like Heidelberg, Shree
Cement and JK Lakshmi registered realisation growth of 7.1%, 10.1%
& 8.5%, respectively. On the volume front, ACC, Heidelberg reported
volume growth of 27.0%, 16.5%, respectively. UltraTech reported
volume growth of 33.2% YoY mainly led by merger of Jaypee
EBITDA/t in our coverage universe declined 6.9% YoY to | 763/t led by
rise in power and freight cost. Among the coverage universe, ACC and
Heidelberg reported an increase of 28.3% YoY and 65.5% YoY mainly
led by operating leverage benefit and low base last year
Overall, despite healthy revenue growth, profitability was impacted by
increase in cost. Key short-term concerns are RERA compliance, sand
mining, lack of private capex and subdued urban housing demand
Exhibit 12: Cement volumes & capacity utilisation trends
36.8
41.8 40.4
34.931.9
43.8 42.8
34.6
38.7
0.0
10.0
20.0
30.0
40.0
50.0
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
0.0
20.0
40.0
60.0
80.0
100.0
Cement Volumes (In MT) - LHS
Capacity Utilisation (%) - RHS
Source: Company, ICICIdirect.com Research
Exhibit 13: Realisations & margins trend
4,4
86
4,3
15
4,4
79
4,6
42
4,5
38
4,4
61
4,7
57
4,7
67
4,7
00
711
835
985
928
819
747
1008
912
763
0
1,000
2,000
3,000
4,000
5,000
6,000
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
0.0
5.0
10.0
15.0
20.0
25.0
Realisation/tonne - LHS EBITDA/tonne - LHS
Margin (%) - RHS
Source: Company, ICICIdirect.com Research
Product based companies saw robust margin expansion on
account of operating leverage and better product mix
On account of support to the EPC value chain, interest costs
were up 7.4% but lower than revenue growth of the universe,
which is commendable
Bhel also reported decent order wins to the tune of | 12,100
crore in Q3FY18 but management commentary suggests that
they will be able to clock orders more than that they did in
FY17. The key takeaway was the conversion of L1 orders into
final awards and 47% YoY growth in executable backlog
Thermax also maintained its consistency in wining orders as it
managed to bag orders to the tune of | 1,297 crore coupled
with improved management commentary in terms of bouncing
back to growth in FY19E
Other product companies like Grindwell and Greaves Cotton
also reported a healthy Q3FY18 performance
Excluding UltraTech (which had merged Jaypee in current
quarter) volume growth was up 14.8% YoY mainly led by
increase in government spending on infrastructure activities
and capacity expansion
In terms of regional performance, regions like Bihar, Tamil
Nadu and Kerala were impacted by sand availability issues
and poor demand while north and central regional players
witnessed healthy demand from infrastructure
Ramco Cement reported volume growth of 14.7% YoY
mainly led by higher sales in the eastern region. However,
India Cements reported 1.9% YoY decline in volumes mainly
led by sand mining issue in Tamil Nadu. JK Cement
reported volume growth of 20.4% YoY mainly led by 21.7%
YoY growth in grey cement.
However, Ramco reported EBITDA/t decline of 25.4% YoY
due to absence of low cost pet coke inventory in the current
quarter. Further, Mangalam and JK Cement reported 66.6%
YoY and 17.1% YoY in EBITDA/t due to a ban on pet coke in
the company’s area of operations
ICICI Securities Ltd. | Retail Equity Research
Page 8
Consumer Durables
I-direct consumer discretionary universe recorded sales growth in line
with our estimate of ~15% supported by same amount of volume
growth. Volume growth was largely on account of low base
(demonetisation), launch of new products and inventory build-up at
dealer’s level (prior to change in energy norms). As expected, piping
and air conditioner majors recorded strong volume growth of 21% (led
by Astral Poly Technik) and ~23% (led by Voltas) YoY, respectively
On the margin front, raw material prices such as titanium di-oxide and
copper prices witnessed northward movement (up 7% and 29%,
respectively), which put pressure on gross margin of paint companies
(down in the range of ~150 bps) and selective electrical goods
companies (remain flat in Q3FY18). However, the impact of flattish to
negative gross margin was largely negated by higher operating
leverage, which finally translated into a marginal increase in I-direct
universe EBITDA margin (up ~60 bps YoY)
With GST related issues subsiding, going forward, we believe the trade
channel across India would start building inventory at pre-GST level.
We believe organised players would also benefit from implementation
of GST in terms of gaining market share due to a shift in demand from
the unorganised to organised category
FMCG
FMCG companies witnessed strong growth in the December quarter
led by robust volume growth on account of the low base of the
corresponding quarter impacted by demonetisation. The previous two
quarters were impacted by GST related trade disruption mainly due to
large wholesale network de-stocking and difficulty in coping up with
the new indirect tax regime
However, in Q3FY18 except small de-growth in canteen store
department (CSD) most general trade has returned to normal. Our
coverage universe reported 5.7% growth in sales. However, on a
comparable basis (net of excise in base quarter), sales witnessed
double digit growth. With the further cut in GST rate on detergents,
malt based beverages and other FMCG products, companies have
passed on the benefits in terms of price cuts during the quarter
In our coverage universe, HUL, Dabur, GSK and Marico witnessed
17%, 18%, 20% & 15% comparable sales growth, respectively, led by
robust volume growth. Most companies have not taken any price
increase mainly due to anti profiteering clause under GST. However,
due to a sharp increase in copra prices, Marico has passed on some of
this increase in terms of price hikes
Our coverage universe has seen a 230 bps expansion in operating
margins. Led by higher EBITDA, net profit of our coverage universe
companies has seen healthy growth of 22%. FMCG behemoth HUL
and ITC have seen net profit growth of 27% & 17%, respectively
Despite a commodity price increase, FMCG companies have been able
to further expand their already elevated margins with the reduction in
advertisement expenditure due to a shift towards digital advertisement
and GST related input cost benefits
Quarterly sales growth (%)
10.5
5.0
-0.3
-1.0
0.6
4.9
6.46.1
0.7
5.1
2.6
5.4
6.2
-2
0
2
4
6
8
10
12
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Source: Company, ICICIdirect.com Research
On the other hand, paint industry volume growth was largely
driven by Kansai Nerolac whereas Asian Paints volume
growth remains at lower single digit (~5% YoY). Though
selective counters witnessed realisation growth in Q3FY18
(due to a change in product mix), the I-direct CD realisation
growth remain muted
Under our coverage universe, Pidilite, Essel Propack and V-
Guard recorded an increase in EBITDA margin by 252 bps, 223
bps and 136 bps YoY, respectively
ICICI Securities Ltd. | Retail Equity Research
Page 9
Hotel: Improving occupancy, ARR keeps revenues buoyant
This being a seasonally strong quarter, occupancy and average room
revenues (ARR) improved in business and leisure destination.
Occupancy levels and ARR in business destination increased 2.0% and
1.0%, respectively, while occupancy and ARR in leisure destination
increased 1.0% and 2.0%, respectively
TajGVK reported a good set of Q3FY18 numbers. The key highlight of
the quarter was the turnaround in the company’s JV Taj Santacruz,
which reported a net profit of | 39 lakh for the first time since its
commissioning. Further, the company’s consolidated topline increased
14.4% YoY while margins improved 376 bps led by lower power cost
and operating leverage benefit
Indian Hotels (IHCL) reported a 5.8% YoY increase in consolidated
revenues mainly due to 8.8% YoY rise in domestic revenues. However,
IHCL’s EBITDA margin declined 16 bps YoY to 23.4% led by 174 bps
YoY decline in international margins at 11.4% while domestic margins
improved 28 bps YoY to 30.3%
Exhibit 12: Occupancy trend
73
77
6769
78
68
75
70
55
74
63
74
63
7370
55
76
61
77
60
40
50
60
70
80
90
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
(%
)
Business Destinations Leisure Destinations
Source: Company, ICICIdirect.com Research
Exhibit 13: ARR trend
8392
6635
6766 8083
8077
6944
6915
8163
8517
9108
5333
5910
9533
6850
5583
9825
8065
9636
0
2000
4000
6000
8000
10000
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
(|
)
Business Destinations Leisure Destinations
Source: Company, ICICIdirect.com Research
Information Technology
Tier-I IT companies reported dollar revenue growth of 1.2% QoQ and
9% YoY growth in Q3FY18. Constant currency (CC) revenues grew an
average of 1.5% QoQ in a seasonally weak quarter
Analysing growth trends across geographies suggests Europe leading
the growth for most Tier-I IT companies while US witnessed a
slowdown in momentum. Among verticals, energy saw good growth
while retail is witnessing early signs of a recovery. BFSI segment
continued to see pressure and is yet to see any recovery although
insurance is going steady. Digital offerings with 20-30% contribution to
overall revenues is witnessing healthy double digit growth
In terms of revenue outlook for FY18E, Infosys, HCL Tech maintained
its revenue guidance of 5.5-6.5% and 10.5-12.5% in CC terms with HCL
expecting to meet the lower end of the revenue guidance
For Tier-I companies, EBIT margins for the quarter were largely flat
sequentially. Wipro IT services margins declined 250 bps QoQ to
14.8% on account of one-off. However, barring a one-off, margins
were flat QoQ. In terms of EBIT margin trajectory for FY18E, Infosys
(23-25%) and HCL Tech (19.5-20.5%) retained their margin guidance
while TCS continues to target its EBIT margin band of 26-28% (in CC
terms) for FY18E but will be watchful on increased local hiring and
demand for investments in digital. Notably, for mid-tier IT companies,
a healthy recovery on EBITDA margins front was seen in the quarter
Dollar revenue growth trend
0.7
3.2
2.9
(1.4)
1.5
3.1
3.2
1.0
4.1 3.7 2.3
3.1
2.7
0.8
2.2
(0.7)
-5
0
5
10
Q4FY17
Q1FY18
Q2FY18
Q3FY18
%
Infosys TCS
HCL Tech Wipro
Source: Company, ICICIdirect.com Research,
EIH’s reported revenues were flat YoY but margins declined
282 bps YoY due to increase in employee cost
Management commentaries are indicative of a better FY19E
owing to better client commentary and in anticipation of a
better performance compared to FY18E
ICICI Securities Ltd. | Retail Equity Research
Page 10
Infrastructure, building material and real estate
Infrastructure
Our construction universe top line de-grew 3.8% YoY to | 4,532.2
crore mainly due to GST transition related issues. On the operational
front, there was a 240 bps YoY expansion in EBITDA margins to 11.1%
on account of exceptionally high margins for NCC. Consequently, the
bottomline of our universe grew robustly by 37.7% YoY to | 193.3
crore owing to 72.2% YoY PAT growth of NCC. Overall, with a strong
order book and anticipated improvement in working capital cycle and
debt reduction, execution our construction universe is expected to pick
up from FY19 onwards
Strong opportunities lie ahead with NHAI looking to bid out EPC and
HAM projects worth ~| 1.3 lakh crore over the next few months. Also,
strong awarding momentum should continue with the government
looking to construct 83,677 km of roads over the next five years with a
total outlay of | 6.92 lakh crore under the Bharatmala Pariyojana. We
believe this programme could provide a huge fillip to road awarding
activity over next few years benefiting our road & construction
universe companies
Building materials
Our building material coverage universe companies posted decent
performance across product categories given the low base as Q3FY17
was impacted by demonetisation. Also, de-stocking continued in the
first half of Q3FY18 as dealers maintained minimum inventory amid
possibilities of a GST rate cut from 28% to 18% for several building
material products. Now, with the GST rate cut across product
categories to 18%, we expect a faster unorganised to organised sector
shift, benefiting our building material universe companies
However, passage of the e-way bill would play a critical role for faster
movement of unorganised players to organised sector. The deferral of
e-way bill implementation may hinder their growth prospects in the
near term
In Q3FY18, our tiles universe posted volume growth of 8.4% YoY to
29.4 MSM. However, revenues grew 3% YoY to | 1046.8 crore as
realisations softened during the quarter
Further, EBITDA margins contracted 160 bps YoY to 13.3% due to
higher fuel costs. Hence, the bottomline of our tiles universe declined
significantly by 8.8% YoY to | 68.6 crore
The plywood segment reported strong numbers in Q3FY18. While
Greenply’s (GIL) plywood volumes grew 13.1%, Century Plyboards
(CPIL) reported volume growth of 3.8%. Consequently, the topline of
our plywood universe grew moderately by 16.0% YoY to | 909.2 crore
led by 20.6% YoY growth in CPIL’s revenues to | 509.9 crore as the
MDF division has started contributing to the topline
Real estate
The demand scenario in the real estate sector continued to remain
subdued in Q3FY18. Furthermore, new launches could pick up from
FY19E onwards with several companies planning to launch a few new
projects. Going forward, over the long term, with RERA
implementation, a consolidation in the industry is expected, which
would ultimately benefit organised players like Mahindra Lifespace,
Sobha, Oberoi Realty & Sunteck Realty of our coverage universe
On the volume front, Sobha’s volumes grew 8.4% QoQ to 9.33 lakh sq
ft (lsf) while Mahindra Lifespace’s sales volumes grew 13.6% QoQ to
2.5 lsf. However, Oberoi’s volumes de-grew 12.9% QoQ at 1.5 lakh sq
ft, given the absence of new launches and current market scenario
Tiles universe sales volume trend
15.9
19.3
16.4
17.4
17.6
11.2
15.6
9.3
12.5
11.8
4
8
12
16
20
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18E
(M
SM
)
Kajaria Ceramics Somany Ceramics
Source: Company, ICICIdirect.com Research,
On the road front, topline grew moderately by 3.0% YoY to
| 3,362.6 crore on account of moderate execution during the
quarter. Furthermore, EBITDA margins contracted 320 bps YoY
to 26.2%. However, the bottomline of our road universe
reported significant growth of 15.7% to | 412.0 crore due to
18.1% YoY growth in the PAT of PNC Infratech
Further, on operational front, EBITDA margins expanded 160
bps YoY to 16.5% led by 130 bps YoY expansion in CPIL’s
margins. Consequently, our plywood universe posted a robust
bottom-line growth of 35.0% YoY to | 82.7 crore
On the financial front, revenues of our real estate universe
grew 30.2% YoY to | 1394.3 crore mainly due to 144.0%
YoY growth in Sunteck’s topline (due to incremental
revenues from Sunteck City Avenue 1 & 2 at Goregaon
during Q3FY18). Consequently, the bottomline of universe
grew robustly at 51.6% YoY to | 245.3 crore
ICICI Securities Ltd. | Retail Equity Research
Page 11
Logistics
Robust container volume growth at major ports – Concor to benefit
The merchandise value of exports grew 12% in dollar terms and 7.7%
in rupee terms on a YTD basis (April-December FY18). Over the same
period, the value of imports grew 21.8% in dollar terms and 17% in
rupee terms. The resultant impact on port volumes of major ports
remained positive with robust growth of 7% on YTD basis (April to
December) handling 6.8 million TEUs compared to 6.3 million TEUs.
Q3FY18 volumes at major ports reported highest ever growth rate
(since FY15) of 8% handling 2.3 million TEUs compared to 2.1 million
TEUs in Q3FY17
Exim rail volumes followed the trend with 12% YTD growth (up 15%
for Q3FY18) to 31.8 million tons (MT) (10.5 MT in Q3FY18) compared
to 28.4 MT over YTDFY17 (9.1 MT in Q3FY17). Container rail volumes
(Exim + domestic) for the quarter (Q3FY18) was at 13.3 MT (up 14%
YoY) compared to 11.6 MT
For Concor, total volumes for the quarter demonstrated robust growth
of 12% YoY to 867408 TEUs. Throughput volumes for Exim and
domestic grew 12% and 10% YoY to 739472 TEUs and 127936 TEUs,
respectively. Following the improvement in volumes, revenues grew
10.6% YoY to | 1453.6 crore with domestic revenues at | 288.7 crore
(up 18% YoY) and Exim revenue (excluding SIES income) at | 1133.2
crore (up 7% YoY). Revenue growth was lower than volume growth on
the back of a decline in lead distances as the traffic shifted to Mundra
and eastern regions
Commencement of the fourth terminal at JNPT coupled with Mundra
aggressively chasing container traffic has resulted in numbness for
Gujarat Pipavav Port volume growth. However, with support extended
from parent APM Maersk, volumes for Q3FY18 container volumes
grew 4% YoY to 173000 TEUs. The port reported handling of highest
ever liquid volumes (up 39% YoY) to 320000 MT. Moreover, volumes
from Ro-Ro activity grew 11% YoY to 30000 cars
Express players: Seasonality boost to surface players
The current quarter (Q3) remains seasonally strong quarter for surface
logistics players. TCI pack, which includes Transport Corporation of
India (TCI) and TCI Express (TCIEL) led the growth in I-direct surface
logistics universe. TCI and TCIEL revenues grew 24.5% and 22.4% YoY
to | 555.3 crore and | 229 crore, respectively. TCI’s growth was mainly
driven by supply chain division, which grew 26% YoY to | 236.4 crore
(42% of overall revenues) and shipping, which grew 66% YoY to | 66
crore (now 12% of overall revenues). Freight segment continued its
growth momentum for a third consecutive quarter (up 16% YoY) with
revenues at | 258.6 crore. Also, high year-end volumes coupled with
addition of capacity in shipping provides growth momentum to supply
chain and shipping verticals
BlueDart’s revenues were impacted by higher base in Q3FY17, which
resulted in de-growth of 2% YoY to | 704.6 crore. However, on
account of write-back of employee provision, EBITDA margins slightly
improved (up 82 bps YoY) to 11.4% with EBITDA growth of 5.4% YoY
to | 80.5 crore. Gati’s KWE revenue during the quarter showed signs of
revival with growth of 12% YoY to | 304.5 crore. However, despite a
sequential revival, EBITDA margins continue to tread down for a
seventh consecutive quarter (down 61 bps YoY) to 5.4% with an
absolute EBITDA de-growth of 5% YoY to | 24.1 crore
Major ports – Volume recovery on upward trend
693
705
690
707
630
791
752
755
744
758
775
731
729
742
784
4.1
9.6
1.01.9
-6.4
6.3
9.6
6.9
2.5
5.6
8.4
7.75.2
5.2
13.6
500
550
600
650
700
750
800
850
Oct-16
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
('0
00 T
EU
s)
-10.0
-5.0
0.0
5.0
10.0
15.0
% g
row
th Y
oY
Source: Bloomberg, ICICIdirect.com Research,
During the quarter, GPPL added two new services (Maersk
and Cosco & Wan Hai), which could provide a revival in
volumes from next quarter. Lower utilisation levels (~50% of
capacity) coupled with pricing pressures continues to impact
the operational performance resulting in a decline of 350 bps
in EBITDA margins to 58.2% with an absolute EBITDA of
| 94.7 crore (down 9% YoY)
Higher capacity utilisation for TCI Express (88-89%) firms up
the 22% YoY growth in revenue, which was at | 229 crore.
Given robust revenue growth improved operational leverage
resulted EBITDA margins expansion for TCI and TCIEL by 270
bps and 120 bps YoY to 9.5% and 10.5%, respectively
Overall I-direct logistics universe grew 9% YoY (up 5% QoQ)
to | 3869 crore. TCI, TCIEL and BlueDart aided the
profitability growth of the universe, which led the EBITDA,
PAT of the universe to grow 3%, 37% YoY to | 598.6 crore,
| 457.9 crore, respectively
ICICI Securities Ltd. | Retail Equity Research
Page 12
Media
This quarter witnessed a strong revival in the broadcasting sector,
reflecting the waning impact of the after effects of GST and RERA. In
contrast, the print sector continued to suffer from these legislations and
their continued impact on the localised ad market, which is likely to take
some time to recover. Multiplexes continued to report strong ad growth
given the star studded movies slate. In the broadcasting segment,
subscription revenues continued it double digit growth run rate.
In broadcasting segment, the ad revenue growth (25.7% YoY for
Zee, ~21.6% for TV Today and 4% YoY for Sun TV) was strong on
account of strong volume numbers for FMCG companies (one of
the biggest clients for TV broadcasters). Subscription revenues for
Zee declined 15.5% YoY owing to exclusion of sports business. On
a like-to-like basis, domestic subscription grew 7.5% YoY.
Subscription revenues for Sun TV grew 16.5% YoY
Multiplex: Ad revenues for the quarter continued to report strong
numbers for multiplexes. Ad revenues for Inox grew 33.3% YoY
while that of PVR grew 10.6% YoY. On account of strong content
slate in the base (Dangal, MS Dhoni, Ae Dil Hai Mushkil) and
relatively weak content performance this quarter except Tiger
Zinda Hai and Golmaal Again, footfall for the quarter declined for
multiplexes (decline of 2.7% YoY for Inox and 2.8% YoY for PVR).
However, because of star studded movies, multiplexes could raise
ATPs and it grew 6% YoY for Inox and 6.6% YoY for PVR.
Consequently, on account of ATP growth, the box office
collections were relatively strong
Print: In the print segment, we witnessed a mixed set of numbers.
HMVL reported 5% YoY ad revenue growth while DB Corp and
Jagran reported 5.8% YoY and 3.8% YoY decline in ad revenues,
respectively. Circulation revenues grew 1.4%,6.1% YoY for Jagran
and DB Corp, respectively
In radio segment, ENIL reported 1.5% YoY de-growth in ad
revenues. However, adjusting for one client issue, ad revenues
would have grown 4.6% YoY, which was similar to peer’s ad
growth for the quarter
Metals
Q3FY18 for the metals and mining sector was marked by healthy
volume growth and strong realisations. The topline of the coverage
universe increased 20% YoY and 13% QoQ to | 86,154 crore. The
aggregate sector EBITDA was at | 22,219 crore registering growth of
25% YoY and 39% QoQ. Corresponding EBITDA margins came in at
25.8% (vs. Q3FY17: 24.7% and Q2FY18: 21%).
The ferrous space reported outperformance on the back of increased
volumes and strong realisations. JSW Steel’s domestic operations
reported healthy volume of 4.0 MT for the quarter. The company’s
consolidated topline increased 27.5% YoY, 6.2% QoQ to | 17,861
crore on the back of higher than anticipated realisations. Consolidated
EBITDA came in at | 3,851 crore (up 34.3% YoY, 26.8% QoQ).
Resultant consolidated EBITDA margin was at 21.6%. Standalone
operations reported a strong EBITDA/tonne of | 9,000/tonne
Graphite electrode majors reported another upbeat performance for
Q3FY18 driven by higher realisations. Graphite India (GIL) reported a
strong set of Q3FY18 numbers wherein the topline came in at | 933.1
crore (up 176.4%YoY, 102.0% QoQ). The EBITDA came in at | 518.6
crore (implying EBITDA margin of 55.6%). HEG reported a robust
performance for the quarter. The operating income came in at | 842.7
crore (up 256.2% YoY, 105.8% QoQ). The company reported EBITDA
of | 557.5 crore with strong EBITDA margin of 66.2%)
Footfalls – PVR & Inox
18.517.9 18.2
21.0
18.7
19.7
12.7 12.513.0
15.8
12.8
15.3
10
15
20
25
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
(m
illion)
PVR Inox
Source: Company, ICICIdirect.com Research
Going ahead, we expect broadcaster to continue with
strong ad growth momentum owing to budget 2018-19
emphasis on doubling rural income (augurs well for FMCG,
one of the biggest clients for TV segment). The momentum
of strong ad growth is expected to continue for Multiplexes
in the next quarter as well while Print is likely to witness a
rather gradual recovery vis-à-vis other mediums.
During Q3FY18, the entire non-ferrous pack witnessed a
healthy uptick both YoY and QoQ. During the quarter,
average zinc prices were up 28.6% YoY and 9.1% QoQ to
US$3232/tonne. Average lead prices were up 16.4% YoY
and 6.8% QoQ to US$2489/tonne. During the quarter,
aluminium prices increased 23.0% YoY and 4.7% QoQ to
US$2104/tonne while copper prices increased 29.3% YoY
and 7.4% QoQ to US$6822/tonne
On the back of healthy prices of non ferrous metals and
crude, Vedanta reported a steady performance for Q3FY18,
wherein the topline increased 25.5% YoY and 12.8% QoQ to
| 24,361 crore. The EBITDA grew 15% YoY, 19.3% QoQ to |
6,763 crore. The corresponding EBITDA margin stood at
27.8%. The company reported a PAT of | 2,173 crore.
ICICI Securities Ltd. | Retail Equity Research
Page 13
Oil & gas
Crude oil prices in Q3FY18 increased sharply QoQ by 19.1% to
US$61.6/bbl from US$51.7/bbl in Q2FY18. On account of the same,
realisations of upstream oil companies reported QoQ improvement
and were reflected in the topline, which was largely in line with our
estimates. However, oil & gas production numbers were slightly below
our estimates. While EBITDA increased ~20% QoQ, profitability
declined ~2% QoQ and came in below our estimates on higher
expenses related to exploratory costs and DD&A
Oil marketing companies reported a mixed performance on the
operational front with lower-than-expected operational GRMs. On the
marketing front, product sales were largely in line with our estimates
and reported an average growth indicating consistency despite
increased competition from private players. The profitability increased
~50% QoQ mainly on account of higher than estimated inventory gain
Pharmaceuticals
In line with expectations, the challenging environment in the US
generic space continues to impact the pharma universe growth.
Domestic formulations growth also came lower-than I-direct estimates
mainly due to slow recovery post GST implementation. Revenues of
the I-direct universe were at | 39,781 crore, growth of 2% YoY
US sales (select pack) declined 15% YoY to | 10,309 crore due to
persisting pricing pressure owing to client consolidation and increased
competition, lack of meaningful approvals and high base. Domestic
formulations grew 10% YoY to | 8,612 crore. Domestic inventory
holding period at distributor level has come down to 30-35 days
compared to historical level of 40-45 days. Management commentary
suggests inventory holding period is likely to remain at current level
On the revenues front, eight out of 19 companies under coverage
registered negative or muted growth during the quarter due to
continued pricing pressure in the US and slower-than-expected
domestic recovery in some companies after GST implementation and
changes in reporting pattern (new reporting norm ex-excise). Bucking
the trend, Jubilant Life registered 39% YoY growth (reported robust
growth across portfolio) while Cadila registered 38% YoY growth
mainly due to exclusivity for gLialda (ulcerative colitis)
EBITDA for the universe declined ~12% YoY to | 8,541 crore mainly
due to pricing pressure in the US. However, an improvement in
domestic margins, cost rationalisation and curb in R&D spending
restricted further fall in margins. Net profit declined 32% YoY to | 3900
crore due to lower operational performance, one-off
Impairment/amortisation charges and additional tax provisions due to
re-measurement of deferred tax assets post the change in US tax rate
Exhibit 14: Sharing of gross under-recoveries (| crore)
Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18
Upstream 0 0 0 0 0
Downstream 0 0 0 0 0
Government 4297 7604 6319 3239 7892
Total 4297 7604 6319 3239 7892
Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18
Upstream 0.0 0.0 0.0 0.0 0.0
Downstream 0.0 0.0 0.0 0.0 0.0
Government 100.0 100.0 100.0 100.0 100.0
Total 100.0 100.0 100.0 100.0 100.0
Sharing of gross under-recoveries (%)
Sharing of gross under-recoveries (| crore)
Source: Company, ICICIdirect.com Research
Sales from US & India (| crore)
(| crore) Q3FY18 Q3FY17 Var. (%) Q2FY18 Var. (%)
Ajanta 155.0 149.0 4.0 172.0 -9.9
Alembic 314.1 294.0 6.8 346.5 -9.4
Biocon 156.1 123.3 26.6 175.9 -11.3
Cadila 916.8 796.8 15.1 894.5 2.5
Glenmark 578.5 516.9 11.9 710.7 -18.6
Indoco 155.9 144.2 8.2 188.2 -17.2
Ipca 382.9 343.0 11.6 424.7 -9.9
Lupin 1,068.8 991.2 7.8 1,159.3 -7.8
Cipla 1,601.0 1,398.0 14.5 1,646.0 -2.7
Dr Reddy's 612.6 594.7 3.0 637.0 -3.8
Sun Pharma 2,085.0 1,969.4 5.9 2,221.0 -6.1
Torrent 586.0 503.0 16.5 607.0 -3.5
Total 8,612.7 7,823.4 10.1 9,182.8 -6.2
India
(| crore) Q3FY18 Q3FY17 Var. (%) Q2FY18 Var. (%)
Aurobindo 1,909.6 1,745.1 9.4 2,098.9 -9.0
Cadila 1,583.8 886.9 78.6 1,643.6 -3.6
Cipla 650.0 662.0 -1.8 617.3 5.3
Glenmark 735.9 1,230.8 -40.2 727.1 1.2
Lupin 1,432.1 2,175.5 -34.2 1,361.1 5.2
Dr Reddy's 1,607.3 1,659.5 -3.1 1,431.8 12.3
Sun Pharma 2,124.2 3,419.3 -37.9 1,986.2 6.9
Torrent 266.0 310.0 -14.2 255.0 4.3
Total 10,308.8 12,089.1 -14.7 10,121.0 1.9
US
Source: Company, ICICIdirect.com Research
Key parameters in Q3FY18
Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18
Singapore
GRMs ($/bbl) 6.7 6.4 6.7 8.3 7.4
Crude oil
($/bbl) 50.1 54.6 50.1 51.7 61.6
APM gas
(NCV)
($/mmbtu) 2.7 2.7 2.7 2.7 3.2
Source: Bloomberg, Reuters, ICICIdirect.com Research
On the gas utility companies front, the performance continued
to show QoQ and YoY improvement due to robust volume
growth with financials coming in line with our estimates. The
volume growth was mainly contributed by city gas distribution
sector with increased conversion of CNG vehicles and
additions of PNG houses. The relatively lower domestic APM
gas prices and suitable price hikes augured well for margins in
Q3FY18
ICICI Securities Ltd. | Retail Equity Research
Page 14
Power
Regulated utilities reported a below expected performance in terms of
revenue and profitability. However, the only silver lining was decent
capacity addition by both regulated utilities. NTPC reported ~4200 MW
of capacity addition in 9MFY18 while the target for FY19E seems
encouraging in terms of capacity addition. On the Q3FY18
performance, the generation growth at 10% YoY was in line but
EBIDTA was below estimates as higher employee expenses (non-pass
though portion) dented profitability
CESC reported of results as energy sold grew 12% YoY, in line with
estimates. However, higher cost of power purchase was a dampener.
Also, higher base of demonetisation in Q3FY17 impacted SSG growth
at Spencer’s Retail while PLFs of Chandrapur were soft QoQ at 37% on
account of lower sales in the spot market
Retail
Q3FY18 turned out to be a mixed quarter for retail companies wherein,
on the one hand, various branded players reported steady topline
growth, while on the other, margin profile for various players
enhanced significantly. The boost in profitability can be attributed to, a)
sustained efforts towards cost optimisation and b) benefit of input tax
credit kicking in. Revenues of our retail coverage universe grew 7.2%
while EBITDA grew robustly by 30% YoY in Q3FY18
Shoppers Stop’s departmental store reported LTL sales growth of
mere 1.4% YoY. The subdued LTL growth was on account of the
recent downward revision of GST rates on various non-apparel
categories (37% of revenues) leading to lower MRP. On the balance
sheet front, efforts to improve the liquidity resulted in a debt reduction
by ~| 300 crore (HyperCity stake disinvestment) to | 237 crore as on
December 31, 2017 (Debt Equity down from 0.8x in FY17 to 0.2x)
Among specialty retail, Titan reported moderate revenue growth of
8.3% in Q3FY18 despite Dussehra falling in September this year.
Primary sales for Tanishq had been lower due to advance stocking
requirements by franchisees, which happened during the end of
Q2FY18. Going forward, the management remained upbeat on the
growth outlook for the jewellery division.
Textiles
Despite cotton prices cooling down ~4-5% to | 107/kg vs. | 112/kg,
margins for textiles players continued to remain under pressure on
account of a) high cost cotton inventory, b) constant rupee
appreciation and c) reduction in duty drawbacks. EBITDA margins for
Arvind’s textile division declined sharply by 330 bps YoY to 14%, while
EBITDA margins for Vardhman Textiles declined 740 bps YoY to 13.7%
On the revenue front, the apparel coverage universe reported healthy
growth of 15% YoY in Q3FY18. The growth can be attributed to
favourable base effect of demonetisation and normalisation in trade
channels settling in gradually post GST disruptions
Arvind’s revenues increased 16% YoY driven by strong performance
in branded segment, which grew 24% YoY, while the textile segment
rose 9.4% YoY. Innerwear companies, Page and Rupa reported robust
revenue growth of 18% and 35%, respectively. Kewal Kiran Clothing
(KKCL) revenues remained flattish as it refrained from giving away
heavy discounts. The management believes it would result in a dilution
of its brand image and have a negative impact on its profitability
LTL sales growth for departmental stores
17.4
5.9
5.5
2.2
6.4
19.8
1.4
(5.5
)
(1.1
)
(20)
(10)
-
10
20
30
40
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
%
Blended Stores > 5 years Stores < 5 years
Source: Company, ICICIdirect.com Research
Power Grid also reported strong assets in 9MFY18, which was
in excess of | 19,500 crore and is well on track to achieve its
guidance of | 31,000 crore of asset capitalisation. Revenues
and PAT were below estimates on account of below expected
telecom and consultancy revenues
Vardhman Textiles reported double digit topline growth of
12.3% YoY after many quarters with revenues from textile
segment and acrylic fibre segment growing at 11% and 21%,
respectively. Revenues for Siyaram grew 15.6% YoY, with a
sharp recovery being witnessed in the fabric division (20%
growth) while garmenting segment continued on its strong
trajectory (21% growth).
Among branded apparel players, Arvind (brands & retail
segment), Siyaram and Page reported margin expansion of
350 bps, 50 bps and 200 bps YoY, respectively.
Revenues for Aditya Birla Fashion and Retail (ABFRL) grew 9%
YoY, mainly led by steady growth in lifestyle brands (8.2%
growth) and Pantaloons (12% growth)
Trent Ltd, sustained its healthy revenue trajectory with a
growth of 18% YoY (the results also included revenues from
Zudio that was acquired by the company with effect from
October 1, 2017)
ICICI Securities Ltd. | Retail Equity Research
Page 15
Telecom
Telecom operators
Q3 for telecom operators was impacted by the dual impact of IUC cut and
down trading by subscriber to attractive bundled packages. This led to a
sharp erosion in ARPU, which percolated to EBITDA levels.
Subscriber addition: Jio continued to attract subscribers in the
marketplace owing to festive season coupled with continued disruption in
tariffs. It reported strong net additions of 21.5 million for the quarter,
followed by Airtel, which added 8.1 million subscribers during the quarter.
Net additions for Airtel were impacted due to regulatory issue with its
payment bank arm Airtel Money, during which (roughly 10 days)
subscriber addition process was halted. Vodafone and Idea added 11.4 mn
net subscribers on combined basis.
Revenues Performance: For Bharti, Indian mobility business revenues
were at | 10751 crore (decline of 22% YoY and 12.2% QoQ), with ARPU at
| 123 (down 15% QoQ). We note that Q3FY18 witnessed the full impact of
IUC cut resulting in a hit of | 1016.5 crore on gross revenues (| 16 on
ARPU). African revenues were higher at | 5129.3 crore vs. our estimate of
| 5037.4 crore. Idea’s revenues were lower at | 6509.6 crore (down
12.8%QoQ), due to the sharper impact of IUC cut (| 830 crore during the
quarter). Overall APRU at | 114 (down 13.6% QoQ, during the quarter
EBITDA margins: The margin performance continued to remain weak
given the topline pressures although Airtel’s margins weakness was offset
by superior Africa performance. For Airtel, the EBITDA margin came in
slightly higher at 36.6%, up 52 bps QoQ, with India mobility margin of
32.6% (down 170 bps QoQ) and African margins of 35.5% (up 300 bps
QoQ). For Idea, margins declined by 130 bps QoQ to 18.8%.
Others
In the tower space, Infratel witnessed the impact of gross exits of 8562
tenancies, reflecting the pressure of consolidation and exits of marginal
players. We also note that there remains further risk of tenancy exits as
Vodafone-Idea merger gets completed. Sterlite Tech continued to report
strong numbers, reporting ~14%, 43.5% growth in topline and operating
profits, respectively, driven by strong demand of OFC in the form of
exports, which grew 70% YoY. Sterlite remains a key beneficiary of 4G/5G
infrastructure backhaul led by optical fibre demand globally and in India.
Tata Communication’s Q3FY18 performance was marked by improved
margins owing to cost optimisation drive as well as strong growth in high
margin traditional data services
Exhibit 15: ARPU trend
172
158154
145
130
157
142 141
132
120
110
120
130
140
150
160
170
180
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
AR
PU
(|
)
Airtel Idea
Source: Company, ICICIdirect.com Research
RCom was the biggest loser amongst subscale operators as
they reported net loss of 39 mn owing to shutdown of their
wireless business. The marginal players (Telenor, Tata, Aircel
& Sistema) have cumulatively lost subscriber base of 19.7
million during the quarter, clearly reflecting that they are
facing the heat of subscriber churn towards Jio. Tata, Telenor,
Aircel have lost 8.2 mn, 4.1 mn and 3.8 mn subscribers,
respectively, during the quarter
Page 16 ICICI Securities Ltd | Retail Equity Research
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
Page 17 ICICI Securities Ltd | Retail Equity Research
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