q4fy19 sensex p&l (ex-banking space) sensex earnings...

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June 7, 2019

Ex-banks, earnings growth takes breather in Q4FY19

Q4FY19

Sensex earnings (ex-financials) took a breather in Q4FY19 from a higher

double digit growth trajectory in the past three quarters with modest

~8-9% growth in topline and bottomline. Ex-banks at the index level,

topline was up 8.8% YoY to | 6.0 lakh crore, EBITDA was up 7.9% YoY

to | 1.1 lakh crore with corresponding EBITDA margins at 18.5%. In

Q4FY19, companies witnessed a decline in raw material costs (down 20

bps YoY) and employee costs (down 80 bps YoY) while other expenses

increased disproportionally (up 110 bps) leading to a marginal decline

in EBITDA margins (15 bps YoY). Ensuing PAT in Q4FY19 was up 8.3%

YoY to | 0.6 lakh crore. On a full year basis, in FY19, net sales were up

19% YoY, which coupled with ~50 bps decline in EBITDA margins led

to 12% growth in earnings. Lower PAT growth in FY19 was primarily on

account of lower other income and higher interest outgo

The banking space is the clear outlier as far as corporate earnings is

concerned for Q4FY19. It was led by a structural decline in the NPA

cycle. As far as other sectoral performances are concerned, volume

growth was negative in the auto space due to a bloated retail inventory.

In the FMCG space, volume growth came in lower at ~7% YoY vs.

~10% in the last few quarters. In the cement domain, volume growth

was healthy at ~7%. In the capital goods domain, execution remained

robust with healthy gains in the order book. In the pharma space, US

market recovery continued while in the IT space healthy double digit

growth in the digital domain acted as a silver lining

On aggregate basis, in Q4FY19, integrating results of all listed entities,

topline growth stayed healthy at ~10% YoY. However, bottomline

growth was higher (>15%) driven by the recovery in the banking space

On the macroeconomics front, Q4FY19 GDP growth came in muted at

5.8% YoY while inflation reading largely remained unchanged on an

MoM basis. WPI, CPI for April 2019 were at 3.1%, 2.9%, respectively

Going forward, with a strong political mandate at the Centre, thrust on

creating infrastructure & stimulating the rural economy amid a recovery

being witnessed in the banking space, we expect corporate earnings to

stage a smart recovery in excess of 20% CAGR in FY19-21E

Exhibit 1: Sensex aggregate (| crore)

Mar-19 Mar-18 Dec-18YoY (%)

change

QoQ (%)

change

FY19 FY18YoY (%)

change

Sales 602,687 553,990 593,387 8.8 1.6 2,304,854 1,940,425 18.8

Total Expenses 490,946 450,445 472,983 9.0 3.8 1,841,836 1,541,824 19.5

Raw material 232,002 214,200 238,688 8.3 -2.8 908,923 740,109 22.8

Employee 80,771 78,643 79,046 2.7 2.2 311,672 279,501 11.5

Other expenses 178,173 157,602 155,249 13.1 14.8 621,241 522,214 19.0

Expenses (% of sales)

Total Expenses 81.5 81.3 79.7 15 bps 175 bps 79.9 79.5 45 bps

Raw material 38.5 38.7 40.2 -17 bps -173 bps 39.4 38.1 129 bps

Employee 13.4 14.2 13.3 -79 bps 8 bps 13.5 14.4 -88 bps

Other expenses 29.6 28.4 26.2 111 bps 340 bps 27.0 26.9 4 bps

Operating Profit 111741 103545 120405 7.9 -7.2 463018 398601 16.2

OPM% 18.5 18.7 20.3 -15 bps -175 bps 20.1 20.5 -45 bps

Other Income 20,666 23,946 17,562 -13.7 17.7 64,683 66,272 -2.4

Interest 19,071 14,592 17,917 30.7 6.4 72,323 53,996 33.9

Depreciation 35,012 32,102 34,766 9.1 0.7 136,198 119,199 14.3

PAT 61333 56651 59422 8.3 3.2 229294 204854 11.9

PAT margin % 10.2 10.2 10.0 -5 bps 16 bps 9.9 10.6 -61 bps

Sensex P&L (ex-banking space)

Source: Capitaline, ICICI Direct Research

Sensex Earnings Summary (ex-financials)

| crore Mar-19 Mar-18 YoY (%) Dec-18 QoQ (%)

Sales 602,687 553,990 8.8% 593,387 1.6%

EBITDA 111,741 103,545 7.9% 120,405 -7.2%

Net Profit 61,333 56,651 8.3% 59,422 3.2%

Sensex Earnings Summary (ex-banks)

Aggregate Summary

Sales Net profit Sales Net profit

Nifty 10.1 16.1 -0.1 2.8

BSE Midcap 7.7 233.0 -1.4 -48.9

BSE Smallcap 9.9 19.9 5.0 -249.9

All Co's (3500 cos) 9.7 54.8 1.7 -23.6

QoQ growth (%)YoY growth (%)

Positive surprises & Buys

Brigade Enterprises

Elgi Equipments

State Bank of India (SBI)

Thermax Limited

Timken India

Research Analyst

Pankaj Pandey

Head Research

[email protected]

ICICI Securities | Retail Research 2

ICICI Direct Research Earnings Wrap Q4FY19

Exhibit 2: Sensex aggregate quarterly revenue, operating profit & net profit trend)

430,875

467,180

488,379

553,990

537,448

571,332

593,387

602,687

88,885

99,910

106,261

103,545

112,959

117,914

120,405

111,741

46,50749,798

51,899

56,651

51,699

56,84159,422

61,333

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

0

100000

200000

300000

400000

500000

600000

700000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2018 2019

| crore

| crore

Net Sales (LHS) Operating Profits (LHS) PAT (RHS)


Exhibit 3: Sensex aggregate quarterly EBITDA margin trend

20.6

21.4 21.8

18.7

21.0

20.620.3

18.5

16

17

18

19

20

21

22

23

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2018 2019

%

EBITDA Margin


Exhibit 4: Sensex aggregate quarterly revenue & profitability growth trend (%)

1.2

8.4

4.5

13.4

-3.0

6.3

3.9

1.6

-3.3

7.1

4.2

9.2

-8.7

9.9

4.53.2

-10

-5

0

5

10

15

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2018 2019

(%

)

Sales growth QoQ (%) Net profit growth QoQ (%)


Ex-banks at the index level, topline was up 8.8%

YoY to | 6.0 lakh crore, EBITDA was up 7.9% YoY

to | 1.1 lakh crore with corresponding EBITDA

margins at 18.5%. Ensuing PAT in Q4FY19 was up

8.3% YoY to | 0.6 lakh crore

In Q4FY19, companies witnessed a decline in raw

material costs (down 20 bps YoY) and employee

costs (down 80 bps YoY) while other expenses

increased disproportionally (up 110 bps) leading to

marginal decline in EBITDA margins (15 bps YoY)

On a QoQ basis, ex-financials, Sensex topline and

bottomline growth were at 1.6% and 3.2%,

respectively. QoQ growth was muted due to decline

in economic activity as a precursor to General

Elections 2019



Industry wise revenue & profit movement

Topline growth among Sensex constituents was led by oil & gas space

(up 17.4% YoY) with outperformance also seen across the capital goods

(up 10.5% YoY), IT (up 19.3% YoY) and FMCG pack (up 11.4% YoY)

Exhibit 5: Industry wise aggregate revenue (Sensex Companies) (| crore)

Mar-19 Mar-18 Dec-18 YoY change (%) QoQ change (%)

Oil & Gas 165,417 140,885 184,091 17.4 -10.1

Auto 137,197 139,755 124,929 -1.8 9.8

Metals 94,438 87,883 87,569 7.5 7.8

Capital goods 44,934 40,678 35,709 10.5 25.8

Power 30,440 30,915 32,602 -1.5 -6.6

FMCG 21,937 19,684 20,786 11.4 5.5

IT 75,539 63,336 74,437 19.3 1.5

Pharma 7,164 6,977 7,740 2.7 -7.4

Others 25,620 23,878 25,525 7.3 0.4

Aggregate 602687 553990 593387 8.8 1.6


In the capital goods domain, the healthy topline performance was on

account of improved execution (Kalpataru, KEC and Thermax). In the IT

space, on the revenue front, Tier-I IT companies reported an average

sequential growth of 2.3% in constant currency terms. Revenues from

digital segment witnessed growth of 30-40% YoY while deal signings

also witnessed an improved trajectory in FY19 over FY18 indicating

better revenue visibility. In the FMCG pack, volume growth of ~5-8%

coupled with calibrated price hikes in the range of ~2-4% resulted in

double digit topline growth for Q4FY19

On the profit front, outperformance was led by the metals space (up 56%

YoY) led by robust results at Coal India (PAT of ~| 6,000 in Q4FY19 vs.

~| 1,300 crore in Q4FY18). It was well supported by FMCG (up 17%

YoY), power (up 17% YoY) and IT space (up 15% YoY). The dampener

for the quarter was the auto space with aggregate PAT decline of nearly

18% for index constituents. The auto segment performance was muted

tracking lower volumes, negative operating leverage and limited pass

through of softened commodity prices

Exhibit 6: Industry wise aggregate net profit (Sensex Companies) (| crore)

Mar-19 Mar-18 Dec-18 YoY change (%) QoQ change (%)

Capital goods 3,418 3,167 2,042 7.9 67.4

Metals 10,867 6,971 7,812 55.9 39.1

Auto 5,901 7,209 5,401 -18.2 9.2

Oil & Gas 14,407 15,353 18,514 -6.2 -22.2

FMCG 5,020 4,284 4,653 17.2 7.9

Others 580 564 722 2.9 -19.6

Power 5,754 4,936 4,718 16.6 22.0

IT 14,750 12,824 14,319 15.0 3.0

Pharma 636 1,343 1,242 -52.6 LP

Aggregate 61333 56651 59422 8.3 3.2


In the cement space, in terms of margins, lower freight cost coupled with

stable power costs helped expand margins by 150 bps YoY, 341 bps

QoQ to 18.9% during the quarter. In the FMCG space, majority of the

companies reported strong growth in EBITDA led by cost optimisation

measures, supply chain benefits and premiumisation. In the oil & gas

space, OMCs reported a good quarter in terms of profits due to better

marketing margins and inventory gains. However, operational refining

performance continued to remain weak



Key notable surprises and stock calls

This section of Earnings Wrap includes key surprises witnessed in the

earnings of coverage companies and our take post analysis of results.

Exhibit 7: Key surprises and stock calls (Q4FY19)

CMP

(|)

Brigade

Enterprises

Positive

Brigade Enterprises’ (BEL) sales volumes grew 2.2x YoY to 0.96 msf and clocked pre-sales worth

2.2x YoY to | 519.8 crore (16.6% QoQ growth)in Q4FY19. On leasing front, it leased 1.2 msf new

office space in FY19, estimated to yield rentals worth | 90.0 crore. On the financial front, overall

revenues grew 75.3% YoY to | 760.0 crore in Q4FY19. Overall, PAT grew 3.3x YoY to | 59.3 crore in

Q4FY19. Expecting BEL's leasing portfolio to expand from 2.6 msf to 8.9 msf over next two to three

years, we anticipate BEL's share of lease income will grow at 20.6% CAGR to | 560.1 crore in FY18-

23E. Also, with the management planning to launch ~6.5 msf projects, it is aiming at ~4 msf sales

volume in FY20E. We believe BEL’s current valuation is attractive (1.3x FY20E P/BV). Hence, we

maintain our BUY recommendation on the stock with an SoTP-based target price of | 330/share

235 330 Buy 40

Elgi

Equipments

Positive

Elgi Equipments reported a robust performance in Q4FY19. Topline, EBITDA, PAT recorded growth of

14.2%, 19.3%, 31.6%, respectively, YoY. Air compressor grew 16.3% YoY mainly led by India and

direct exports growth, up 12.0% YoY. Foreign subsidiaries recorded robust growth of ~20-25% YoY

continuing to benefit from solid demand in key international markets such as the US and Europe.

Automotive equipment segment slightly de-grew 2.1% YoY to | 51.2 crore. EBITDA margin improved

~50 bps YoY to 11.6% during Q4FY19. Margins are likely to remain solid over the near to medium

term despite the company carrying out upfront costs to expand in international market. Elgi is coming

out with newer products that have the potential to disrupt the overall air compressor market and

result in significant market share gains. Factoring in the robust performance, we expect revenues

and earnings CAGR at 18% and 29%, respectively, for FY19-21E with a target price of | 350

271 350 Buy 29

State Bank of

India (SBI)Positive

Higher provisions for legacy stress coupled with slow credit growth in the past two years impacted

operational performance in past. However, SBI reported a healthy revival in growth with credit offtake

at 13% YoY in Q4FY19, led by traction in retail segment. Moderation witnessed in slippages at | 7505

crore coupled with higher recovery at | 22976 crore, led to significant improvement in asset quality.

Going ahead, SBI, given the improving overall credit growth and a possible shift of business from

NBFCs, is best placed to ride this opportunity. Therefore, we expect advances growth at 12.3%

CAGR in FY19-21E. Anticipated resolution in major NCLT accounts and moderation in incremental

slippages will limit credit cost, thereby improving return ratios. Consequently, we expect FY20E &

FY21E PAT at | 25981 crore & | 32122 crore, respectively, from | 900 crore in FY19

337 400 Buy 19

Thermax

Limited

Positive

Thermax reported standalone revenues at | 1889.6 crore registering robust growth of 44.2% YoY (on

a proforma basis) while consolidated revenues grew 43.7% to | 2073.7 crore on a YoY basis. EBITDA

came in at | 175.7 crore, up 17.2% YoY. PAT came in at | 112.9 crore, which grew 31.7% YoY while

adjusted PAT grew 55.7% to | 133.5 crore. With expected uptick in domestic order inflows and

recovery in international order inflows through geographic diversification, order backlog is expected to

improve further. Thermax may continue growth momentum on revenue front with expected CAGR of

10.3% in FY19-21E. Consequently, with expected margin recovery in medium term and normalization

of tax rate, PAT is expected to grow at a CAGR of 21.6% over FY19-21E

1030 1170 Buy 14

Timken India Positive

Timken India (TIL) reported a stellar performance on the back of over 2x growth in railways segment

and exports segment that grew in strong double digits during the quarter; overall topline came in at |

448 crore, up 16.4% QoQ. EBITDA margins improved to 22.6% in Q4FY19. Going forward, the company

is poised to benefit from the ongoing capex from the railways and demand from the exports

segment. TIL is planning a capex of | 35-40 crore at its Bharuch facility that will help to produce

‘Timken brand’ bearings for its exports market. Access to new markets/geographies along with

operational synergies from the merged entity are key monitorables for the future. Overall, we expect

revenue, EBITDA and PAT to grow at CAGR of 12.1%, 14.5%, 18.5%, respectively, in FY19-21E. We

have a BUY recommendation on the stock with a target price of | 830

687 830 Buy 21

Potential

Upside (%)

Company Quarterly Performance & OutlookQ4FY19

Result

RatingTarget

Price (|)

Source: ICICI Direct Research

The above companies posted a strong set of earnings in Q4FY19, which we

believe are more fundamental and sustainable in nature.



Sector specific takeaways from quarter

Auto & auto ancillary

Q4FY19 was a muted quarter for the Indian auto industry. Volumes in

Q4FY19 were marred by continued overall weakness in retail demand

offtake as OEMs struggled with persistently high channel inventory levels

amid a strong base quarter (Q4FY18). Subdued sentiments and a general

slowdown in discretionary spending hurt the PV & 2-W segments while

the CV space continued to suffer from excess capacity caused by revised

axle load norms and lack of ready liquidity from NBFCs. Trends on the

margin front were mixed, with the lack of a broad based revival in gross

margins across companies despite softer average raw material prices

during the quarter (steel, aluminum, rubber, lead & others)

Overall auto industry volumes in Q4FY19 were at 70.5 lakh units, down

6.1% YoY. Domestic volumes were at 59.6 lakh units, down 7.7% YoY,

while export volumes were at 11.0 lakh units, up 3.2% YoY. Domestic PV

segment volumes in Q4FY19 dipped 2.0% YoY at 8.4 lakh units, led by

4.7% YoY decline in PC volumes to 5.3 lakh units. Domestic 2-W

segment declined 9.1% YoY to 46.5 lakh units, led by 16.0% contraction

in scooter category. CV segment was flat YoY at 2.8 lakh units

In the auto OEM space, Maruti reported a subdued operational

performance among PVs. Revenues were up 1.4% YoY although

volumes dipped 0.7% YoY. EBITDA margins staged a mild recovery of 70

bps QoQ to 10.5%. In the 2-W segment, Hero MotoCorp’s numbers

disappointed on all fronts with revenues down 7.9% YoY tracking a steep

11.5% YoY decline in volumes while broad-based cost pressures shrunk

EBITDA margins by ~40 bps QoQ to 13.6%. Bajaj Auto outperformed,

delivering ~9% revenue increase (total volumes up 14% YoY) with

margins intact QoQ at 15.7%. PAT was up 20.9% YoY, aided by a one-off

exceptional gain on duty reversal. CV segment player Ashok Leyland

reported flattish revenue growth while margin improvement to 11.1%

was aided by control over other expenses

Tata Motors reported a healthy operational performance in Q4FY19.

While subdued demand conditions in key China market continue to

hinder JLR, a key positive development was a 250 bps YoY expansion in

subsidiary’s EBITDA margins to 9.8% with consequent FCF generation of

£1.4 billion. Consolidated net sales were at | 86,422 crore, down 5.3%

YoY, with consolidated EBITDA margins up 120 bps QoQ to 10.5%

In the ancillary space, both battery players i.e. Exide and Amara Raja

witnessed sequential EBITDA margin expansion although gross margin

trends were not secular. Among the tyre pack, JK Tyre was the standout

performer, delivering strong volume-led topline growth of 18.5% YoY

with no deterioration in margin profile. Apollo Tyres and Balkrishna

Industries, on the other hand, reported single digit revenue growth

accompanied by a sequential margin decline

Elsewhere, Mahindra CIE’s consolidated revenues grew 10% YoY.

However, weakness in European operations dragged consolidated

margins down from earlier 14%+ trajectory. Forgings player Bharat

Forge reported healthy 13.8% YoY revenue growth led by exports and

steady 31% margins. At Motherson Sumi, topline growth was aided by

the healthy performance at subsidiary SMP although the muted margin

trajectory at overseas subsidiaries led to a sharp PAT decline. For Bosch,

feeble automotive segment performance dragged revenues and margins

were hurt by a spike in all cost elements. Wabco reported a dismal

performance on both revenue (down 15.5% YoY) and margins (down

148 bps QoQ to 12.9%) fronts, culminating in 32.5% YoY drop in PAT

Going forward, with a strong political mandate at the Centre and easing

of base effect, we expect OEMs to start reporting healthy growth from

Q2FY19 onwards

Source: Company, ICICI Direct Research

Elevated discounting levels could not lift consumer

sentiment decisively, with Federation of

Automotive Dealers Associations (FADA)

estimating dealer inventory levels at an average of

40-50 days of sales across PV, CV and 2-W

segments as of March 2019.

Utility vehicle volumes were flat YoY while the van

segment grew by 13.7% YoY to 56,267 units.

M&HCV space witnessed a volume decline of 4.4%

YoY to 1.1 lakh units while LCV space witnessed

growth of 4.2% YoY to 1.7 lakh units.

At Eicher Motors, higher realisations prevented

entire pass-through of 13.5% YoY volume decline

into topline while consolidated margins were down

164 bps QoQ to 27.4%

Tractor maker Escorts’ revenues were impacted by

lower realisations tracking adverse product mix

while margins were down 50 bps QoQ to 11.6%

Key players volume growth for Q4FY19 (%)

-11.0

14.2

-0.4

-5.6

1.3

-13.6

6.7

-1.0

-5.3

-1.7

12.4

36.0

0.9

(2.4)

HMCL

BAL

Maruti

TML

ALL

Eicher - RE

Escorts

YoY QoQ



Banking sector

Banking credit growth moderated to 12% towards Q4FY19 post

momentum of 14-15% in previous quarter. However, lower interest

reversal and lower fresh slippages supported strong NII growth of 21%

YoY to | 102887 crore, highest in several quarters. Moderate treasury

income led to operating earnings growth at ~9.7%YoY to | 68973 crore

Asset quality is now moving into a positive territory. Fresh slippages

were lower and led by write-offs, absolute GNPA declined 3%

sequentially and down 9.4% YoY to | 928470 crore. Provisions by banks

was high particularly on NCLT large cases of steel and power (| 13,000-

14,000 crore), a new aviation account and raising ILFS cover

Overall provisions grew 63%QoQ to | 107584 led by above asset and

investment write back was also non-existent. Hence, a substantial decline

of ~30% QoQ was seen in NNPA to | 359629 crore

Exhibit 8: Financial summary of banking industry (Private + Public)

(| crore) Q4FY19 Q3FY19 Q2FY19 Q1FY19 Q4FY18 Q3FY18 YoY (%)QoQ (%)

NII 102887 99136 92132 94144 84835 85714 21.3 3.8

Growth YoY 21.3 15.7 11.3 27.4 1.3 14.8

Other income 49070 41299 37019 37110 47391 38218 3.5 18.8

Growth YoY 3.5 8.1 -29.1 -11.4 0.7 -16.7

Total operating exp. 76093 71463 64068 64525 69366 61162 9.7 6.5

Staff cost 36478 35995 32749 32053 34342 30128 6.2 1.3

Operating profit 75864 68973 65084 66730 62860 62771 20.7 10.0

Growth YoY 20.7 9.9 -13.8 8.1 -13.0 1.6

Provision 107584 65837 70471 77236 148276 76618 -27.4 63.4

PBT -31720 3136 -5437 -10552 -85460 -13888 NM NM

PAT -21535 -197 -4404 -7130 -55648 -6943 NM NM

Growth YoY NM NM NM NM NM NM

GNPA 928470 961129 997247 1002682 1024586 885788 -9.4 -3.4

Growth YoY -9.4 8.5 18.7 20.9 31.9 20.9

NNPA 359629 417837 463082 485181 517775 469278 -30.5 -13.9

Growth YoY -30.5 -11.0 2.3 3.9 20.4 12.4


Exhibit 9: Financial summary of banking industry (Public)

(| Crore) Q4FY19 Q3FY19 Q2FY19 Q1FY19 Q4FY18 Q3FY18 YoY (%)QoQ (%)

NII 62,258 59,900 56,079 59,930 51,627 53,652 20.6 3.9

Growth YoY (%) 20.6 11.6 8.1 36.5 -4.4 13.7

Other income 31,021 23,018 21,506 20,527 29,068 23,291 6.7 34.8

Growth YoY (%) 6.7 -1.2 -39.4 -22.1 -10.2 -24.0

Total operating exp. 49,039 45,965 40,827 42,192 46,813 40,220 4.8 6.7

Staff cost 27,015 26,979 24,362 23,817 26,407 22,560 2.3 0.1

Operating profit 44,240 36,952 36,758 38,265 33,882 36,723 30.6 19.7

Growth YoY (%) 30.6 0.6 -23.7 5.2 -28.5 -2.7

Provision 89,275 53,190 57,746 63,010 128,699 66,484 -30.6 67.8

PBT -45,034 -16,238 -20,988 -24,746 -94,817 -29,760 NM NM

PAT -31,008 -11,687 -14,716 -16,615 -62,681 -18,097 NM NM

Growth YoY NM NM NM NM NM NM

GNPA 797,186 829,745 868,812 874,071 896,601 777,266 -11.1 -3.9

Growth YoY -11.1 6.8 18.4 19.2 30.9 20.3

NNPA 308,335 366,433 408,279 426,435 454,473 415,705 -32.2 -15.9

Growth YoY -32.2 -11.9 2.7 2.2 18.6 -99.5


Higher write-offs led to lower taxes, particularly for PSU banks. Hence, in

spite of higher PBT loss of | 45034 crore, final losses came in at | 31008

crore, far higher than loss of~| 11687 crore in Q3FY19. Private banks

continued their outperformance with earnings of | 9473 crore. Yes Bank

reported a loss while Indusind Bank’s meagre profit impacted private

sector PAT growth. Overall net loss was | 21535 crore for the industry

(Q4FY19)

In provisions, both private and public sector saw

growth of 44% (led by Indusind and Yes) and 68%

respectively, improving coverage ratio (PCR). In

NCLT list 1 &2 bankers are 80-100% provided

Going ahead, expected resolutions in large NCLT

accounts & stressed power sector are expected to

reduce industry GNPA ratio by 150-200 bps from

9.8% (Q3FY19-~10.3%)

Seventeen banks reported losses with only one

private bank, Yes Bank reporting a loss. The highest

loss of | 6581 crore was reported by Corporation

Bank



Worries about a media group, large conglomerate group and aviation

account continued to cloud the sector in 2019. Factoring in lower

slippages and resolution, we expect overall provision moderation to

increase profits for most banks particularly corporate banks like Axis, SBI

Exhibit 10: Financial summary of banking industry (Private)

(| Crore) Q4FY19 Q3FY19 Q2FY19 Q1FY19 Q4FY18 Q3FY18 YoY (%)QoQ (%)

NII 40,629 39,237 36,053 34,214 33,209 32,062 22.3 3.5

Growth YoY 22 22 16 14 12 17

Other income 18,050 18,281 15,513 16,584 18,323 14,927 -1.5 -1.3

Growth YoY -1.5 22.5 -7.0 6.7 24.8 -2.1

Total operating exp. 27,055 25,497 23,240 22,333 22,553 20,942 20.0 6.1

Staff cost 9,464 9,016 8,387 8,236 7,935 7,569 19.3 5.0

Operating profit 31,624 32,021 28,326 28,465 28,978 26,047 9.1 -1.2

Growth YoY 9.1 22.9 3.8 12.2 16.7 8.4

Provision 18,309 12,647 12,726 14,226 19,577 10,135 -6.5 44.8

PBT 13,315 19,374 15,551 14,193 9,357 15,872 NM NM

PAT 9,473 11,490 10,312 9,485 7,033 11,154 NM NM

Growth YoY 34.7 3.0 -1.8 -18.8 -33.4 15.6

GNPA 131,284 131,384 128,435 128,611 127,985 108,522 2.6 -0.1

Growth YoY 2.6 21.1 20.9 33.7 39.0 25.6

NNPA 51,294 51,404 54,803 58,746 63,302 53,573 -19.0 -0.2

Growth YoY -19.0 -4.0 -0.5 17.9 34.4 -99.8


Capital Goods

Overall, our capital goods coverage companies delivered a steady

performance with revenues, EBITDA and PAT growing 11.3%, 6.7% and

11.9%, respectively. The healthy topline performance was on account of

improved execution (Kalpataru, KEC, Thermax). Operating profits

remained steady with a change in execution mix and higher input costs

during the quarter

On the order inflow front, Bhel reported good order inflows of | 6630

crore for the quarter and | 23860 crore for FY19, mainly led by power

segment. Bharat Electronics also reported strong inflows ~| 6929 crore

in Q4FY19, taking the order backlog to an all-time high of | 51,798 crore

T&D companies like Kalpataru Power, KEC International received orders

worth | 2206 crore, | 4659 crore, respectively, mainly from T&D, railways

and infra segment. Thermax’ consolidated order inflow came in at | 1157

crore owing to muted capex in several sectors

T&D companies (KEC, Kalpataru) reported a reasonable performance

with revenue, EBITDA growth of 13.2%, 14.9%, respectively, owing to an

uptake in execution across railways, civil and infra businesses. Thermax

reported robust standalone revenue, EBITDA growth of 44.2%, 17.2%

respectively, with some pressure on margins

Product companies like SKF and NRB reported weak numbers due to a

slowdown in the auto OEM segment. The topline grew muted at 2.4%

YoY whereas operating profit declined 7.5%. However, Timken turned

out to be an exception due its high exposure to railways, process

industries and synergies of merger (ABC Bearings) kicking in. Thus,

topline, EBITDA for the company grew 29.7%, 119.8% YoY respectively

Going forward, we expect accelerated revenue and profitability growth in

this space on the back of a strong order backlog. Order inflows are

expected to be slightly sluggish in H1FY20 due to stability of the new

government. We expect inflows to pick up from H2FY20

Engineering companies like Bharat Electronics, EIL

and Cochin Shipyard reported a healthy

performance with topline and EBITDA growing 12%

YoY and 16.9% YoY, respectively, on the back of

higher execution coupled with a change in

execution mix for the quarter

Other product companies like Elgi and AIA reported

robust performance (consolidated revenue and

EBITDA growth of 17.3% and 16.2%, respectively)

led by strong demand in both domestic and

international markets and pick-up across user

industries – auto, steel, cement, mining, etc



Cement: Healthy volumes, improved realisations drive PAT

Cement companies under our coverage reported healthy volume growth

of 9.9% YoY (though slower than growth in Q3FY19, which was at

10.8%), led by strong demand from the institutional side, steady rural

demand and improvement in sand availability. In terms of regional

performance, the south region witnessed an average price hike of 4.5%

(QoQ) while realisations of other regions improved 1-2% (QoQ)

Cement realisations for coverage companies grew 2.9% YoY to | 4,811/t,

despite strong realisations growth of mid-single-digit in the southern

region, dragged lower by weak realisations in the north and eastern

regions. The pricing environment in the southern region remained

strong, with realisations rising anywhere between 7% and 12% QoQ

Total volumes reported by coverage companies were at 57.8 MT, 9.9%

growth YoY with strong volume growth being delivered by Sagar

Cement (22.5%), Ramco Cement (20.4%) and JK Lakshmi (32%). Volume

growth of UltraTech also remained healthy at 10.8% led by capacity

expansions whereas ACC and Ambuja’s volume growth remained in low

single digit due to capacity constraints

On the profitability front, EBITDA margins improved 150 bpsYoY and 341

bps QoQ bps on an overall basis. Although on a QoQ basis margins of all

the major companies expanded led by healthy pricing and controlled

cost environment, Companies like Ambuja and Star reported a drop in

margins on a YoY basis. Margins of Ambuja Cement were down 190 bps

YoY mainly on account of higher inventory cost and other costs, margin

of Star Cement were impacted by cessation of transport subsidy

Based on interaction with the management, general elections and the

upcoming monsoon would cause a short term blip in demand, which

may also hinder cement consumption. However, these effects are

expected to wane off within five to six months from the end of elections

Exhibit 11: Cement volumes and capacitiy utilisation trend

44.9 44.140.6

45.9

52.6 51.9

46.450.9

57.8

0.0

20.0

40.0

60.0

80.0

100.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Cement Volumes (In MT) - LHS Capacity Utilisation (%) - RHS


Exhibit 12: Realisation & margin trend

4,531

4,728

4,722

4,667

4,675

4,669

4,767

4,787

4,811

795

1022

878

798

811

795

728

739

907

0.0

5.0

10.0

15.0

20.0

25.0

0

1,000

2,000

3,000

4,000

5,000

6,000

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Realisation/tonne (|/tonne) - LHS EBITDA/tonne (|/tonne)- LHS

Margin (%) - RHS


Total revenue of our coverage universe increased

13.1% YoY, 14.3% QoQ to | 27,829 crore. In terms

of margins, lower freight cost coupled with stable

power costs helped expand margins by 150 bps

YoY, 341bps QoQ to 18.85% during the quarter

Sagar Cement reported realisation growth of 12%

QoQ in AP and Telangana region. Other south based

companies like India Cement and Ramco Cement

also reported 5.7% and 5.5% QoQ growth,

respectively

Midcap cement player Heidelberg reported volume

de-growth of -4.6% led by plant shutdown amid

capacity constraint challenges

On an EBITDA/t basis level, coverage companies

reported 11.8% YoY increase in EBITDA/t to | 907/t

with Mangalam Cement reporting lowest EBITDA/t

of | 257/t and Star Cement reporting the highest at

| 1,551/t (down 15.5% YoY due to expiry of

transport subsidy). On an absolute level, EBITDA

was 22.8% higher YoY at | 5,246 crore for Q4FY19.

Ambuja Cement and Star Cements reported 8.6%

and 11.5% de-growth in EBITDA, respectively



Consumer Durables

I-direct CD universe recorded sales growth of 9% YoY below our

estimates of ~14%, as demand was impacted by NBFC crisis,

unfavourable weather and relatively higher base of same period last year

In the paint section, while decorative paint demand continuously

remained high at double digit (though the mix was largely skewed

towards economic product categories) industrial paint demand was

impacted by sluggishness in the automotive industry

In fast moving electrical goods (FMEG) segment, performance of Havells,

Symphony, Voltas were below our estimate largely impacted by NBFC

crisis, unfavourable weather condition for cooling product category

In the piping segment, PVC pipes majors such as Supreme Industries

faced inventory losses owing to a sharp decline in PVC prices in March.

However, Astral’s performance was relatively better owing to favourable

product mix (CPVC prices relatively stable as compared to PVC). Further,

the performance of packaging product majors like Essel Propack and

Time Technoplast was slightly better than estimates owing to better-

than-expected demand and low base

Our CD universe EBITDA margin declined 260 bps YoY to 13%, driven by

inventory losses, change in product mix and negative operting leverage

FMCG

After five consecutive quarters of robust volume led growth, our FMCG

coverage companies witnessed a moderation in volume growth during

Q4FY19. Most of our FMCG coverage companies posted volume growth

in the range of 5-8% on account of a slowdown in rural incomes (low

wage rates and food prices) in addition to high base effect. However, our

coverage universe companies took measured price hikes of 2-4% in

recent months to mitigate rising input cost inflation in addition to new

product launches/re-launches across segments. This resulted in 10.3%

topline growth in Q4FY19

In our coverage universe, HUL, Nestlé, Marico, GSK Consumer and

Dabur witnessed 9.3%, 8.9%, 9%, 8.7% and 4.7% volume led sales

growth, respectively

Led by higher EBITDA, net profit for our coverage universe companies

has seen healthy growth of 17.5%. Adjusting for one-offs in Marico, net

profit growth for our FMCG universe is 14.3%. FMCG behemoth HUL &

ITC have seen a net profit growth of 13.8% & 18.7%, respectively

Majority of the companies reported strong growth in EBITDA led by cost

optimisation measures, supply chain benefits and premiumisation.

However, higher commodity costs impacted margins as our coverage

companies took fewer price hikes and chose volume growth over margin

expansion. This led to flat gross margins, operating margins, respectively

We believe the slowdown in rural incomes is temporary and should

rebound in coming quarters on the back of government initiatives such

as assured income support under PM Kisan scheme, higher MSP for

crops such as wheat, barley, safflower followed by normal monsoon this

year, which should add further impetus to the rural economy

Besides this, rising premiumisation trend, higher disposable income and

secular trends of young population should provide an uptick in urban

sales as well. Modern trade, the key channel for companies to sell

innovative & premium products, continues to outpace traditional

channels

Under our coverage, Supreme Industries recorded a

sharp decline in EBIDTA margin (by 600 bps YoY)

mainly due to inventory losses. In addition to this,

cooling product companies such as Symphony and

Voltas also recorded a sharp margin contraction

(536 bps and 217 bps YoY, respectively) owing to

higher fixed cost. However, V-Guard’s EBITDA

margins expanded 481 bps YoY on the back of a

high base (owing to one-time promotional expenses

into base period)

Rural sales, which had been growing stronger than

urban sales, increased on par with urban sales

growth during the quarter. As a result, wholesalers

who work with larger inventory have been affected

by tightening liquidity, which may take a hit for a

couple of months to be cleared from shelves

4.9

6.46.1

0.7

5.1

2.6

5.4

6.2

4.8

11.7

10.9

12.5

10.3

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Q4FY16

Q2FY17

Q4FY17

Q2FY18

Q4FY18

Q2FY19

Q4FY19

Quarterly sales growth (%)




Hotels: Stable operating performance with some minor hiccups

Average occupancy and average room revenues (ARR) continued their

upward trend with occupancy & ARR growth of 150 bps YoY (79%) and

2.4% YoY (| 9,124), respectively, leading to healthy RevPAR growth of

4.5% during the quarter. In busines destinations, occupancy improved

by 120 bps YoY whereas occupancy levels of leisure destinations

remained healthy during Q4 with over 80% occupancy. This resulted in

average ~2.4% increase in ARRs during the quarter

From our coverage perspective, Taj GVK and Indian Hotels (domestic

segment) reported healthy financials led by improved RevPAR on a YoY

basis. However, on a QoQ basis, the performance remained broadly flat

due to high base led by higher MICE activities during Q3. In our coverage

universe, TajGVK reported upbeat Q4FY19 numbers led by a strong

operating performance while performance of EIH got impacted due to

one major one-offs

TajGVK reported upbeat Q4FY19 numbers led by a strong operating

performance. The reported numbers were a beat on all parameters. The

topline witnessed growth of 9.6% YoY to | 93.5 crore (broadly in-line

with I-direct estimates of | 91.7 crore). Profitability improved during the

quarter with EBITDA margins improving 540 bps to 28.5% (above I-direct

estimate of 24.3%) driven by enhanced efficiency. Net profit soared

35.6% YoY to | 12.9 crore for Q4FY19. This was supported by a better

operational performance and improved profitability of the JV of Taj

Santacruz that exhibited a turnaround, ending FY19 on a profitable note

EIH’s performance witnessed a speed-breaker during Q4FY19. Revenues

remained flat YoY at | 430.9 crore while they corrected 2.9% sequentially

due to hit in its F&B segment. The quarter also saw | 84.75 crore being

written-off, being receivables of flight catering business. This led to a

sharp reduction in PAT that declined 79.3% YoY to | 11.6 crore

Exhibit 13: Occupency trend

77

7068

7377

70 7074

78

77

6063

75

80

64 65

7680

40

50

60

70

80

90

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

(%

)

Business Destinations Leisure Destinations

Source: Crisil, ICICI Direct Research

Exhibit 14: ARR trend

8049

7031

6915

8067

8238

7379

7087

8293

8435

9833

6698

5583

9517

9583

7075

5723

9783

9813

0

2000

4000

6000

8000

10000

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

(|)

Business Destinations Leisure Destinations

Source: Crisil, ICICI Direct Research

For Indian Hotels, the quarter witnessed healthy

domestic RevPAR growth along with a turnaround

in the international segment. RevPAR of domestic

hotels grew 6% YoY while the same for

international network grew 9.3% YoY. Consolidated

EBITDA margins expanded 145 bps YoY to 22.8%



Informational Technology

Tier-I IT companies saw healthy revenue growth led by TCS, Infosys and

HCL Tech while Wipro lagged on account of pressure in traditional

revenues. Digital continues to be the growth driver along with another

quarter of strong deal wins. Revenues from digital segment witnessed

growth of 30-40% on a YoY basis while deal signings also witnessed an

improved trajectory in FY19 over FY18 indicating better revenue

visibility. TCS TCV was healthy at $21.9 billion, Infosys deal TCV grew 2x

YoY in FY19 and HCL Tech signed 78 deals vs. 63 in FY18

On the revenue front, Tier-I IT companies reported an average sequential

growth of 2.3% in constant currency terms. HCL Tech’s revenue grew

3.3% QoQ (in constant currency) driven by infrastructure services (up

7.3% sequentially). Growth was followed by TCS (2.4%) and Infosys

(2.4%) while Wipro lagged (1% QoQ)

From an operating margin perspective, margins slipped for all Tier-I IT

companies due to higher sales cost, rupee appreciation and salary

increments in some cases. The outlook on the same front has been

lowered by most companies. Among mid-tier, Persistent reported a

sharp drag of 450 bps QoQ on account of IP weakness and one-offs.

Tech M and NIIT Tech also reported a margin decline

On account of a healthy deal pipeline and accelerating digital trajectory,

Infosys has guided for 7.5-9.5% revenue growth in constant currency for

FY20E while HCL Tech has guided for 14-16% (7-9% organic) for the

same period. Though, deal wins enhance the revenue visibility, it is

mixed with limited scope of margin expansion due to continuous

investments for growth and increasing employee cost in the wake of

elevated attrition levels, acquiring new skill set & increasing localisation

Infrastructure, building material and real estate

Building materials

Our building materials (BM) coverage universe posted a strong

operational performance in Q4FY19. Stability in crude prices and

improvement in product mix was an advantage on financials front. Also,

managements of companies have commented on increasing compliance

towards interstate e-way bills showing some benefits. The anticipated

shift from unorganised to organised players has not met our

expectations till now. On financials front, our building materials universe

revenues remained flattish YoY at | 3,049.1 crore on account of 18.6%

YoY de-growth in Shankara Building Product’s revenues to | 619.7 crore

in Q4FY19. EBITDA margins contracted 170 bps to 10.7% on account of

sharp 449 bps YoY decline in Shankara’s EBITDA margins to 2.7% in

Q4FY19. Overall, PAT de-grew 17.3% YoY to | 152.9 crore in Q4FY19

Despite overall ceramic tiles industry growth remaining flattish, our tile

universe reported a strong operational performance in Q4FY19. Our

universe reported sales volume growth by 14.5% QoQ to 37.9 MSM on

account of gain in market share from unorganised players especially as

the Morbi cluster has come under corrective mode following NGT ban on

coal-based plants. Results were strong even on financial front. Revenues

grew at a better rate of 12.4% QoQ to | 1,330.1 crore as realisations

improved following price hikes across companies’ product portfolios.

With price hikes in place, stability in gas prices sequentially and

improving product mix, EBITDA margins expanded 137 bps QoQ to

14.5%. Consequently, PAT grew strongly by 36.2% QoQ to | 90.1 crore

Our plywood universe reported a mixed operational performance in

Q4FY19. Plywood division sales volumes growth was strong for

Greenply (23.9% YoY to 17.2 MSM), while Century Ply’s plywood sales

volumes declined 6.5% YoY to 62,349 CBM. However, sales performance

in the MDF division was strong for both the companies with Greenply

In vertical commentary, banking and financial

services momentum is expected to moderate

mainly led by some client specific issues and

softness in capital markets segment

Among midcaps, Persistent reported a decline in

revenues (down 2.1% QoQ) on the back of a dip in

IP led revenues while Tech Mahindra and NIIT Tech

also reported a below expected performance

Dollar revenue growth trend

2.3

4.2

2.7

2.4

4.13.7

1.8

2.4

2.7

3.0

5.6

3.3

0.1

2.8

2.4

1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Q1FY19 Q2FY19 Q3FY19 Q4FY19

%

Infosys TCS

HCL Tech Wipro


Tiles universe sales volume trend




reporting 61.5% YoY growth to 65,341 CBM, while Century Ply reported

29.9% YoY growth to 35,395 CBM. Topline of our plywood universe

grew 12.0% YoY to | 1,099.4 crore led by strong volume growth. With

the MDF market still facing a supply glut, realisations from this segment

have still been lower, causing EBITDA margins to contract 365 bps YoY

to 10.6%. Consequently, PAT de-grew by 10.5% YoY to | 61.2 crore

Construction & Infrastructure

Order inflows were upbeat for construction companies across verticals,

resulting in orderbooks of our construction universe companies

remaining strong. On the financial front, our universe reported a good set

of numbers wherein topline grew 17.5% YoY to | 7,314.2 crore in

Q4FY19. This was led by NCC, whose topline grew by 41.5% YoY to

| 3,388.9 crore, NBCC’s topline grew 8.9% YoY to | 2,377.6 crore due to

lower revenues growth from the PMC division in Q4FY19. However,

there was a 56 bps YoY contraction in universe EBITDA margins to

10.9%. Nonetheless, the bottomline of our construction universe grew at

a robust 37.6% YoY to | 376.5 crore led by strong topline growth. Going

ahead, with strong order orderbook position, execution of our

construction universe is expected to remain strong

There was a significant slowdown in awarding activity in H2FY19 due to

government working to overcome land acquisition hurdles & ensuring

land availability for already awarded projects. With the same party

retaining power at the Centre, managements of several companies in the

roads sector have indicated that project awarding should pick up from

June, 2019. The government’s plan to spend | 100 lakh crore in the next

five years towards infrastructure is expected to be a major boost. Nitin

Gadkari, in his recent media interaction, indicated at plans to spend | 15

lakh crore for construction of highways. NHAI has launched 86 national

highway projects (39 EPC, 47 HAM projects to be awarded in FY20E).

Going ahead, we expect awarding activity to pick up, which should lead

the order book of our coverage companies to remain strong

Real Estate

Though there are early signs of a recovery in residential market, the

sector is currently unable to tap its full potential due to the NBFC crisis.

Nonetheless, while managements of several real estate companies have

signalled towards consolidation in the sector, developers having healthy

execution record and comfortable financial position are poised to reap

the highest benefits

Our real estate coverage universe reported a strong operational

performance with pre-sales volume growth of 56.9% YoY to 31.6 lakh sq

ft (lsf) mainly led by Sunteck Realty and Brigade Enterprises that reported

volume growth of 2.4x & 1.3x YoY, respectively, to 2.8 lsf and 9.6 lsf.

Strong sales for Sunteck was on account of activation scheme launched

at Goregaon projects, while Brigade’s sales performance was led by new

launches in Q4FY19

As per an Anarock report, annual sales volumes in top seven cities

showed an increase in CY18 for the first time since CY15, rising 17.6%

YoY to 2,48,345 units during the year. This recovery further sustained in

Q1CY19, with sales volumes in the top seven cities rising 57.7% YoY

(12.4% QoQ) to 78,520 units during the quarter. With developers gaining

confidence from this trend, new launches have also been on the rise with

new 90.7% YoY jump in launches to 70,490 units in Q1CY19. Also, there

was a marked improvement in affordability index in top eight real estate

regions in India. Apart from this, reduction in GST rates by 7% to 5% for

all housing segments (special rate of 1% for affordable housing) will act

as a strong catalyst in further improving home buyer sentiment, which

could strongly revive the overall sector, going ahead

Order awarding for our road universe players

remained weak as there was no awarding from

NHAI & MoRTH in Q4FY19 on account of code of

conduct implemented for general election.

However, execution remained strong, with topline

of our road universe growing strongly by 35.6% YoY

to | 5,353.1 crore. Furthermore, EBITDA margins

contracted 170 bps YoY to 22.8%. Overall, PAT of

our road universe grew 2.9% to | 481.9 crore.

Lower PAT growth was on account of optical PAT

de-growth observed in PNC Infratech due to one-off

of | 65.8 crore tax rebate in Q4FY18

On the financial front, revenues of our real estate

universe grew 66.4% YoY to | 3,883.6 crore while

EBITDA margins declined 473 bps YoY to 29.3%.

Overall, the bottomline of universe grew 57.8% YoY

to | 626.6 crore

Sales volume (in lakh square feet)

10.2

0.0

10.3

9.1

11.3

1.3

2.9

2.4

1.5

1.5

3.6

3.0

4.0

3.5

6.5

0.8

0.9

7.2

3.3

2.8

4.3

4.3

8.0

7.8

9.6

0.0

3.0

6.0

9.0

12.0

Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19

Sobha Oberoi Realty

Mahindra Lifespace Sunteck Realty

Brigade Enterprises




Logistics: Economic slowdown subdues volume growth in Q4

We saw a slowdown in volume growth across Express, 3PL and CTOs,

on the back of subdued Q4 GDP numbers (5.8%, slowest in previous five

years), indicating a general slowdown in the wider economy and weak

exports. However, due to GST related operational efficiencies flowing in

for the organised sector, surface players such as Transport Corporation

of India (TCI), TCI Express and Gati showed strong margin expansion (up

100-230 bps range YoY), in spite of lower operating leverage and

unfavourable product mix in the case of TCI. BlueDart continued to

report a contraction in margins due to ongoing costs related to strategic

asset expansion (greater reach)

Gujarat Pipavav Port container segment reported 7% volume growth,

due to 9% growth in the Exim cargo (coastal and transhipment largely

remained flat). However, EBITDA margins declined 95 bps due to higher

fertiliser handling

Concor showed a blip in volume growth (2.5% vs. recent 11-15% levels),

mainly due to weakness in exports and impact of price hike taken in H1.

However, the management has corrected its course of action and

communicated to its clients that it will take no price hikes in FY20. Hence,

it expects to garner a higher market share in FY20

Overall I-direct logistics universe revenues grew 10% YoY to | 4126

crore, mainly led by higher Exim and domestic realisation growth in

Concor (42% of the logistics universe). Subsequently, the logistics

universe showed strong overall adjusted profitability growth (including

SEIS income for Concor), EBITDA, PAT for the universe grew 8%, 16% to

| 648 crore, | 490 crore, respectively

Media

Media sector for Q4FY19 witnessed a mixed bag performance across

segments. TV broadcaster’s revenue for the quarter were impacted by

hiccups related to New Tariff Order implementation (NTO) wherein

advertisement revenues were impacted by inventory cut by advertisers

while subscription revenues were impacted by a drop in reach. Multiplex

players reported best ever quarter, aided by strong box office collection,

which stimulated advertisement as well as F&B revenues. Revenues for

print players were aided by DAVP advertisement rate increase while

margin improvement took place on partial moderation of newsprint

prices. Radio players reported a mixed performance during the quarter

wherein radio revenue growth for ENIL was flat vs. high single digit

revenue growth reported by peers

Broadcasters: Zee Entertainment's domestic ad revenue grew 17.7% YoY

(vs. our expectation of 12% YoY growth) aided largely by Zee5.

Domestic ad growth witnessed some moderation from its earlier growth

numbers on account of issues related to New Tariff Order (NTO)

implementation. Overall ad revenue growth was 16% YoY (vs. our

expectation of 10%). On the subscription front, domestic subscription

growth was subdued at 3.4% YoY (largely in line) as NTO led disruption

led to a drop in overall reach & viewership. Sun TV’s advertisement

revenues were up mere 0.3% YoY owing to volume cut down by

advertisers ahead of NTO implementation uncertainty. Subscription

revenue growth was also muted at 3.5% YoY. Other revenues for Sun TV

were higher, aided by movies revenues of | 115 crore and partial IPL

revenues of | 58 crore. TV Today reported a weak set of numbers as the

dual impact of new tariff order (NTO) and pre-emptive volume cut to

improve ad volume led to a steep decline in TV broadcasting revenues of

11% YoY



Multiplex players: For Inox, net box office collections for the quarter

were up 49.9% YoY at | 284.0 crore, with 42.5% YoY growth in footfalls.

F&B revenues grew 58.3% YoY to | 123 crore while ad revenues grew

29.5% YoY to | 43 crore, better than our expectations of 25% YoY

growth. PVR’s Q4FY19 performance was strong on account of healthy

box office collections as well as strong growth from F&B as well as

advertisement revenues. Net box office collections came in at | 451.3

crore, with footfalls at 27.5 mn. F&B revenues came in at | 231.9 crore.

Ad revenues grew 22.4% YoY to | 88.1 crore. EBITDA came in at | 160.8

crore, better than expectations on account of superior advertisement as

well as F&B growth

Print players: DB Corp’s overall revenues were up 5% YoY, driven by

print ad growth of 8.2% YoY and radio revenue growth of 7.7%. Print ad

revenue growth for the quarter was driven by government segment (that

grew 26% YoY, mainly a function of ~25% DAVP ad rate hike). Among

the non-government segment, education and real estate (up 10% YoY)

saw decent growth while auto remained weak. Circulation revenues

came in at | 127.3 crore (up 1.7% YoY) with growth being largely volume

led. Digital revenues, on the other hand, declined 24.1% YoY to | 9.9

crore, with the company focusing on building direct traffic to site and

doing away with low paying inventory

Radio players: ENIL reported 10.3% YoY revenue growth to | 175.8 crore

in Q4FY19. Overall revenue growth for the quarter, was largely aided by

non-radio business (grew 26% YoY to | 75.8 crore) while radio revenues

were flat at | 100 crore vs. high single digit growth recorded by peers

during the quarter. EBITDA growth of 21.8% YoY for the quarter was

aided by ~15.8% YoY decline in employee expenses (reversal of

provisions pertaining to variable pay, on non-achievement of certain

internal targets)

Metals & Mining

In the metals and mining space for Q4FY19, ferrous space reported

mixed performance wherein steel companies reported healthy volume

growth. However, realisation was impacted on account of subdued trend

in global steel prices. Non-ferrous companies continued to report a

subdued performance on the back of the decline in base metal prices, in

general. The topline of the coverage universe reported increase of 14.1%

YoY and 2.2% QoQ. The aggregate sector EBITDA registered growth of

20.2% YoY and 3.4% QoQ while corresponding EBITDA margins were at

24.0%, down 80 bps QoQ

Tata Steel reported a steady performance for Q4FY19. This was driven

by better-than-expected consolidated sales volumes. Standalone

operations reported sales volume of 3.58 million tonne (MT). Domestic

operations reported adjusted EBITDA/tonne of | 13619/tonne while

European operations reported adjusted EBITDA/tonne of US$67/tonne

JSW Steel’s sales volume also surprised positively during Q4FY19.

Consolidated sales volume was at 4.31 MT. Standalone EBITDA/tonne

was at | 10119/tonne (| 12060/tonne -Q3FY19 & | 11950/tonne -Q4FY18)

Coal India reported healthy Q4FY19 numbers. The better-than-expected

performance was primarily on the back of higher-than-expected fuel

supply agreement (FSA) realisations. FSA realisation during the quarter

was at | 1460/tonne (vs. | 1403/tonne during Q4FY18). Reported EBITDA

per tonne was at | 502.5/tonne (up 14.1% QoQ), higher than our estimate

of | 399/tonne. The ensuing PAT came in at | 6024 crore (up 32% QoQ),

higher than our estimate of | 4417.2 crore

Footfalls – PVR & Inox

19.0

22.723.4

25.7

27.5

12.6

15.6

13.7

15.3

18.0

10

15

20

25

30

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

(m

illion)

PVR Inox


Developments around the trade tussle between the

US and China continued to weigh on the global

trade flow, impacting global metal prices. During

Q4FY19, while non-ferrous prices are lower YoY,

they were higher QoQ (except aluminium). During

the quarter, the average price of zinc was

US$2707/tonne, down 21% YoY but up 3% QoQ.

Average price of copper was at US$6221/tonne,

down 11% YoY but up 1% QoQ. Average aluminium

prices were at US$1862/tonne, down 14% YoY and

5% QoQ while average lead prices were at

US$2034/tonne, down 19% YoY but up 3% QoQ



Oil & Gas

The quarter witnessed a mixed set of numbers from the oil & gas sector

with OMCs and gas utilities reporting good numbers while oil upstream

profitability declined. Domestic gas production continued to grow

steadily, however, oil production witnessed a YoY decline. The upstream

oil companies’ net realisations declined marginally following oil prices as

there was no subsidy burden on them. The profitability also declined

YoY on account of higher provisions, impairments and write-offs

OMCs reported a good quarter in terms of profits due to better marketing

margins and inventory gains. However, operational refining performance

continued to remain weak. Going forward, OMCs’ stability in marketing

margins and GRMs trend will be key to stock prices

Exhibit 15: Sharing of gross under-recoveries (| crore)

Q4FY18 Q3FY19 Q4FY19

Upstream 0 0 0

Downstream 0 0 0

Government 8248 13593 6567

Total 8248 13593 6567

Q4FY18 Q3FY19 Q4FY19

Upstream 0.0 0.0 0.0

Downstream 0.0 0.0 0.0

Government 100.0 100.0 100.0

Total 100.0 100.0 100.0

Sharing of gross under-recoveries (| crore)

Sharing of gross under-recoveries (%)


Pharmaceuticals

Excluding one-off inventory adjustment in Sun Pharma’s domestic’s

business, Q4 results were better than I-direct estimates on all front led by

robust growth in the US and efficient cost control measures. Adjusted

revenues of I-direct pharma universe grew 14.9% YoY to | 46,359 crore.

Overall US pie reported one of the best results in the recent past due to

1) volume gains 2) mitigating base business price erosion 3) new

launches and 4) certain one-time sales besides currency tailwinds. Indian

formulations has also reported decent growth despite soft season in

acute segment mainly led by price hikes

Most of the other geographies (excluding Brazil) reported decent growth

on the back of volume gains, new launches and favourable currency

movement. API segment across the universe has also reported strong

growth

US sales (select pack) grew 24.4% YoY to | 12,921 crore mainly due to

higher-than-expected one-time revenues in Sun Pharma, Lupin and Cipla.

Base business growth was driven by strong volume growth and new

launches. Adjusted domestic formulations grew 8.6% to | 8655 crore,

almost in line with I-direct estimates. API business grew 16.6% to | 4046

crore due to both volumes growth and improvement in realisation

Out of 19 companies under coverage, 12 reported double digit growth.

Company specific YoY growth, Biocon – 30.7% (US biosimilar launch),

Aurobindo – 30.7% (robust US revenues), Syngene – 30.5% (strong

growth across segments), Narayana – 18.3% (ramp up in new hospitals)

and Apollo Hospitals – 16.3% (aggressive new pharmacy addition). On

the flip side, Ajanta and Natco reported negative growth mainly due to

high base in the US and India

Adjusted EBITDA margins improved 84 bps to 21.2% YoY mainly due to

effective cost control measures and operational leverage. Adjusted

EBITDA for the universe grew 19.7% YoY to | 9849 crore. Adjusted net

profit grew 12.9% YoY to | 5616 crore. Delta vis-à-vis EBITDA was

mainly due to higher tax rate (22.2% vs. 17.3% in Q4FY18)

Key parameters in Q4FY19

Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19

Singapore

GRMs ($/bbl)

7.0 6.0 6.1 4.3 3.2

Crude oil ($/bbl) 67.0 74.5 75.3 67.7 63.1

APM gas (NCV)

($/mmbtu)

3.2 3.4 3.4 3.7 3.7

The gas utility sector continued its growth

momentum reporting steady volumes. On account

of earlier price hikes undertaken by the companies,

there was improvement in margins across gas

utilities. The profits showed solid growth YoY. The

economic competitiveness of CNG and PNG fuels

over higher petrol and diesel prices favoured the

city gas distribution (CGD) companies

Source: Bloomberg, Reuters, ICICI Direct Research

(| cr) Q4FY19 Q4FY18 % Q3FY19 %

Ajanta 144 141 1.9 160 -10.2

Alembic 309 274 13.0 355 -12.9

Biocon 133 149 -10.7 212 -37.3

Cadila 902 884 2.1 846 6.7

Glenmark 668 609 9.7 668 0.0

Ipca 356 323 10.2 422 -15.6

Lupin 1,053 965 9.1 1,190 -11.6

Cipla 1,500 1,353 10.9 1,585 -5.4

Dr Reddy's 651 614 6.0 674 -3.5

Sun Pharma1,101 1,963 -43.9 2,235 -50.7

Torrent 754 693 8.8 835 -9.7

Total 7,570 7,966 -5.0 9,181 -17.6

India

(| cr) Q4FY19 Q4FY18 % Q3FY19 %

Aurobindo 2,481 1,739 42.7 2,433 2.0

Cadila 1,795 1,642 9.3 1,934 -7.2

Cipla 1,143 676 69.0 849 34.6

Glenmark 770 700 10.0 856 -10.1

Lupin 1,741 1,499 16.1 1,417 22.8

Dr Reddy's 1,496 1,449 3.2 1,483 0.8

Sun Pharma3,123 2,372 31.7 2,606 19.9

Torrent 372 307 21.2 490 -24.1

Total 12,921 10,383 24.4 12,068 7.1

US

Sales from India & US (| crore)




Retail

After reporting a staggering performance in Q3FY19 (27% YoY growth),

revenue trajectory for the retail sector moderated in Q4FY19. Weak

consumer sentiments and preponing of EOSS from Q4FY19 to Q3FY19

impacted growth negatively. Our retail coverage universe reported

revenue growth of ~15% YoY, with Titan and Trent being the only

companies to report double digit topline growth. On the profitability

front, EBITDA margins for our retail coverage universe declined 30 bps

YoY to ~9% on account of higher marketing spends and negative

operating leverage

Despite headwinds, Titan’s jewellery division continued to gain market

share in Q4FY19 with robust revenue growth of 22% YoY (LTL sales

growth: 14%). Revenue trajectory for Titan’s watches division tapered

down in Q4FY19, with modest growth of 7.9% YoY

Bata’s revenue trajectory moderated in Q4FY19 (after reporting double

digit revenue growth in the past two quarters) with growth of 7.4% YoY

to | 679.4 crore. The management highlighted that retail sales (85% of

revenues) continued to witness healthy 11% revenue growth (SSSG:

~7%). However, absence of one-off institutional order worth ~| 20 crore

and subdued performance in e-commerce channel (due to regulatory

changes) impacted overall revenue growth

Driven by robust store additions and stable SSSG, Trent reported healthy

revenue growth of 26.5% YoY to | 669 crore. For FY19, ‘Westside’

continued to deliver superior performance with healthy revenue growth

of 18% YoY (SSSG: 9%). Trent added ~27 Westside stores on gross

basis

For ABFRL, Pantaloons division reported its weakest quarterly

performance with revenue de-growth of 1.2% YoY to | 633.0 crore.

According to the management, the sales growth was impacted on

account of advancement of EOSS and disruption in winter wear supply

Textiles

Q4FY19 witnessed a weak operational performance with a decline in

EBITDA margin for all companies in our apparel universe. Page

Industries’ performance in the quarter was the biggest let down with flat

topline growth (lowest ever volume growth) and PAT declining ~20%

Rupa and Company continued to report sluggish revenue growth and

subdued margins with a revenue de-growth of 2% while EBITDA margins

declined 217 bps to 14.7%

Kewal Kiran Clothing reported growth of 11 % YoY owing to 10%

volume growth. EBITDA margins for the quarter declined 120 bps YoY to

20.7% on account of higher cash discounts and rebates to the dealers

Vardhman Textiles’ (VTL) revenues for the quarter grew 16.8% YoY to

| 1763.4 crore, albeit on low base. Higher cotton prices dented gross

margins significantly (down 392 bps YoY to 45.1%)

Average cotton pricesin Q4FY19 rose 8% YoY to | ~120/kg, which

resulted in increased input cost for the companies. Going forward, cotton

prices are expected to remain elevated for cotton season 2018-19 on

account of an anticipated decline in cotton production by 14% to 31.5

million bales (1 bale= 170 kg) and sustained domestic demand

LTL sales growth for Shoppers Stop

(departmental stores)

(1.1)

19.8

(5.5)

1.4

(4.1)(1.2)

3.6

8.9

3.7

(10)

(5)

-

5

10

15

20

25

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19%




Telecom

Telecom Operators

Telecom operators undertook deleveraging efforts wherein the new

operator transferred its fibre and tower assets into two separate

companies (SPV) in order to monetise its infrastructure assets while

Bharti and Vodafone announced plans to raise | 25,000 crore each

through rights issue to pare debt burden during the quarter. This quarter

also marked the first quarter of India wireless revenue growth for Bharti

Airtel after ~12 quarters of decline (caused by pricing disruption led by

new operator). We note that Bharti Airtel reported India wireless revenue

growth in Q1FY19 but it was fuelled by Telenor acquisition

Vodafone Idea also reported revenue growth albeit muted at 0.1% QoQ,

impacted by steep decline of 53 mn subscribers during Q4FY19. The new

operator, on the other hand, continued its strong net additions trend and

added 26.6 mn subscribers which led to ~7% QoQ revenue growth,

despite some moderation in its ARPU to | 126 ( down ~3% QoQ)

Vodafone reports steep decline; steady for Bharti: The quarter witnessed

further decline of customer base of Vodafone Idea while its base was at

334 mn. The new operator, on the other hand, continued to attract

customers as it added 26.6 mn customers during the quarter, taking its

wireless base at 306.7 mn subscribers in FY19. We note that if the new

operator continues to add subscribers in the same pace, it may achieve

numero uno position in terms of biggest carrier by subscriber base in

next one or two quarters

Revenues improved by full impact of minimum ARPU plans: For Bharti,

India wireless revenue came in at | 10632.2 crore (up 4.3% QoQ) with

ARPU of | 123, up 4.2% QoQ. On India non wireless front, Digital TV

revenues grew by 1.7% QoQ, aided by strong sub additions of 391,000

during the quarter. EBITDA margins improved 40 bps QoQ to 37.4%.

Airtel business revenues declined 3.5% QoQ at | 3004 crore but margins

improved 20 bps QoQ to 31.9%. Vodafone Idea’s revenue growth was at

0.1% QoQ, with ARPU at | 104 (up ~16.9% QoQ), with steep loss of 53

mn subscribers during the quarter. New operator reported ~7% QoQ

improvement in revenues to | 11,106 crore

EBITDA margins improve on operating leverage: Bharti India wireless

reported an improvement of ~500 bps QoQ, albeit partly aided by lower

marketing costs (reversal of bad debt provisioning). The Africa business

continued to expand margins and reported EBITDA margins of 39.2%, up

210 bps sequentially. Consequently, on a consolidated basis, the

company reported 220 bps expansion in EBITDA margins at 32.2%. The

company reported 57% QoQ (~40% on an adjusted basis) to | 1785.3

crore, while EBITDA margins improved 350 bps QoQ to 15.2%, aided by

synergy benefits as well as one-off write backs of ~| 200 crore

Exhibit 16: Arpu trend

116

105101

118123

105

9288 89

104

85

95

105

115

125

135

145

155

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

AR

PU

(|)

Airtel Vodafone Idea


Revenue growth for Bharti’s India wireless business

could be attributed by full impact of minimum

ARPU recharge plans launched in the last quarter

and it was also aided by 13-20% tariff hike on

selected plans. Minimum ARPU plans had some

impact on subscriber additions as the company

reported 1.5 mn subscriber loss during Q4FY19

Bharti lost 1.5 mn subscribers during the quarter

and its base was at 282 mn. In terms of 4G subs

additions, new operator remained in leadership

position with 26.6 mn followed by Airtel with 9.8

mn 4G additions. Vodafone Idea’s 4G additions

remained subdued at 5.4 mn during the quarter.

In the tower space, Infratel witnessed a net decline

of 1,725 tenancies on a QoQ basis. Rental revenues

for the quarter were boosted by one-time exit

charge of | 99.7 crore. Sterlite Tech’s Q4FY19

performance was superior execution of Navy and

other services orders, which led to a beat at top

line, However, skewness towards services

segment (that has ~11% margins vs. ~26%

margins for products) led to a margin decline of

~440 bps YoY to 17.6% Tata Communication’s

topline beat (| 4243.5 crore vs. our estimate of

| 4184 crore) was mainly the function of higher

data segment growth (up 14.2% YoY at | 3343

crore, aided by growth services (up ~25%YoY in

rupee terms). Margins at 16.1% (vs. 15.6%

estimated) were higher due to one-time settlement

in voice segment



Pankaj Pandey Head – Research

[email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC

Andheri (East)

Mumbai – 400 093

[email protected]



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