Q1FY18 results commencing next week should be viewed in the backdrop of two disruptive developments – Demonetization (fading impact) and GST. Impact of GST is expected to be visible in Q1 due to de-stocking in June, prior to the deadline. Our initial corporate checks suggest that channel inventory is dry and re-stocking is likely soon. It will be interesting to see how the interplay of government’s thrust on cashless economy and GST manifests in corporate India’s numbers going forward.
Our analysts forecast weak earnings growth of 4% YoY in June quarter for companies under our coverage, subdued revenue growth of 9% YoY and declining operating margin of ~100 bps YoY. Drag in earnings is mainly from key sectors like Pharma (channel destocking ahead of GST to impact volumes); Power (mainly Tata Power) and Telecom (continued competition in the sector). High double digit earnings growth expected in Engineering (+32%), Resources (+50%) and Retail (+29%).
EBITDA margin may see a YoY decline of ~100 bps – the sharpest in 4 years. Cement margins will be impacted due to higher costs; Pharma impacted by weak India business and continued R&D investments, while Telecom will be weighed down by accelerated data investments and higher network costs. Resources are expected to see margin expansion of ~115 bps YoY supported by higher commodity prices.
Expectation from Sensex companies: Q1 earnings expected to grow 8% YoY. Bulk of the contribution is from Tata Group (TAMO, Tata Steel), Dr Reddy’s and L&T. Highest YoY earnings growth: Tata Steel, HDFC Bank, Tata Motors and L&T; Sharpest YoY decline: ICICI Bank and Bharti Airtel. Our Sensex EPS estimate for Y18 currently stands at Rs 1,649 (14% growth) and FY19 at Rs 1,969 (19% growth).
India
NRI
