With Q2 results starting soon, we released a report, as summarized in this issue, on the outlook for key sectors, as has emerged from management concalls during Q1 results.
Some key Outlook highlights are provided below:
Q1 history: Revenue growth was muted due to weak credit growth, consumption and commodity prices, picked up for roads and railways. EBITDA growth was above expectations due to a host of sector-specific reasons covered in the report, and generally by lower RM prices. Overall earnings didn’t have too many surprises and aggregate estimate changes was minimal. As things always happen in the markets, while TAMO, PSBs and Resources dragged overall earnings, the stock TAMO performed outstandingly!
Consumption: Monsoon withdrawal delayed to first week of Oct vs today, to be normal, somewhat mitigating South Indian reservoir deficiencies. High moisture level leading to early winter season sowing or an additional short-duration crop. This, along with DBT in rural, and Pay commission/ OROP awards in Urban India imply a better domestic demand outlook for FMCG. However, with all this being discounted, and a defensive premium due to slow capex recovery, our select Buy is Britannia. Pax autos will chug along. Sugar prices are set to move up as the sugar year starting October augurs a demand-supply deficit.
Banking: Q2 to see major treasury gains and some moderation in credit costs; but credit demand to remain weak: SBI, Canara Bank, OBC (not covered) are major beneficiaries of treasury gains. ICICI a value-pick.
Oil & Gas: Recovering refining margins would help all OMCs – HPCL, BPCL. Domestic gas demand to increase as spot LNG prices weak (higher supplies), helping GAIL and Petronet LNG.
Pharma: Domestic acute businesses to do well: Buy Alkem, Ipca. Among exporters, as regulatory pressures ease, we prefer Cipla, Lupin, Aurobindo.
Mixed outlook in different pockets: Engineering and Power: Tata Power should gain from reduced debt costs and rising global coal prices (as Chinese and Australian mines started closing). Engg/ EPC order flow recovery is being pushed back, except in roads, renewables (Buy Inox Wind), BTGs (BuyThermax).