Mid Cap CD Employee 67,873 66,010 68,725 2.8 -1.2 Raw...

ICICI Securities Ltd. | Retail Equity Research

August 22, 2017

Earnings Wrap Q1FY18

Oil & gas, metals outshine in Q1 earnings…

Sensex companies (ex-banks) reported a tepid Q1FY18

performance primarily depicting the impact of the transition period

towards the new indirect tax regime i.e. GST. Majority of the

companies witnessed muted business activity amid de-stocking of

channel inventory and emerging clarity over input tax credits. The

key up-tick, however, was seen in sales & profitability of oil & gas

and metal sectors given the rebound in commodity prices amid

stable demand/supply outlook in China. In Q1FY18, sales of Sensex

companies grew 5.4% YoY to | 427,390 crore. EBITDA in Q1FY18,

was at | 87,823 crore, down 3.3% YoY. Corresponding EBITDA

margins came in at 20.5%, down 185 bps YoY. The decline in

EBITDA margins was largely on account of an increase in raw

material costs (up 266 bps), which was partly compensated by

operational efficiencies realised through reduction in employee

costs (40 bps) and other operating expenses (41 bps). Consequent

PAT for Q1FY18 grew a modest 0.5% YoY to | 48,928 crore

On the sectoral front, in Q1FY18, overall auto volumes grew 7%

YoY, mainly driven by 2-W volume (up 8.6% YoY), backed by

scooter volume up 19.5% YoY. In the banking space, operating

earnings of the banking system increased steadily at 6.9% YoY led

by healthy other income (treasury gains) owing to 17 bps fall in G-

sec yields. Further, with provisions being flat YoY, the system saw

highest PAT of | 11,376 crore in the last several quarters. Pharma

sector witnessed subdued performance with steep fall in

profitability in Q1FY18. Going forward, with a smooth transition by

domestic businesses to GST amid greater emphasis over NPA

resolution for the Indian banking system and pick-up in infra

activity, we revise our Sensex EPS estimates over FY17-19E. We

expect robust earnings recovery for Sensex companies and pencil

in a double digit earnings CAGR of 15.7% in FY17-19E

#Data based on 24 companies (excluding banks, NBFCs)

Exhibit 1: Sensex aggregate # (| crore)

Jun-17 Jun-16 Mar-17

YoY (%)

change

QoQ (%)

change

Sales 427,390 405,515 472,995 5.4 -9.6

Total Expenses 339,567 314,693 379,767 7.9 -10.6

Raw material 157,545 138,706 172,149 13.6 -8.5

Employee 67,873 66,010 68,725 2.8 -1.2

Other expenses 114,149 109,977 138,893 3.8 -17.8

Expenses (% of sales)

Total Expenses 79.5 77.6 80.3 185 bps -84 bps

Raw material 36.9 34.2 36.4 266 bps 47 bps

Employee 15.9 16.3 14.5 -40 bps 135 bps

Other expenses 26.7 27.1 29.4 -41 bps -266 bps

Operating Profit 87,823 90,822 93,228 -3.3 -5.8

OPM% 20.5 22.4 19.7 -185 bps 84 bps

Other Income 16,178 10,969 15,606 47.5 3.7

Interest 11,104 10,556 10,241 5.2 8.4

Depreciation 26,795 24,765 28,246 8.2 -5.1

PAT 48,298 48,048 50,417 0.5 -4.2

PAT margin % 11.3 11.8 10.7 -55 bps 64 bps

Source: Capitaline, ICICIdirect.com Research

BSE Sensex (ex-banks, NBFC)

| crore Jun-17 Jun-16 Mar-17

Sales 427,390 405,515 472,995

EBITDA 87,823 90,822 93,228

Net Profit 48,298 48,048 50,417

Indices performance (% return) in Q1FY18

-8.3

-4.0

-3.4

-2.7

0.3

3.2

4.3

5.4

5.9

6.9

11.9

27.2

-4.3

-20.0 -10.0 0.0 10.0 20.0 30.0

IT

Healthcare

Metals

Oil & Gas

Power

CG

Mid Cap

CD

Small Cap

Auto

Banks

FMCG

Real Estate

(%)

CG: Capital Goods

CD: Consumer durables

Small Cap: BSE Small Cap

BSE Sensex – Heat Map (% Return) in Q1FY18

ITCMaruti HUL Hero Moto HDFC Bank

15.0%

Tata Steel ICICI Bank Airtel Kotak Bank Power Grid

18.9% 17.3% 15.6% 15.3%

12.3% 11.3%

Wipro

7.3%

Adani Ports HDFC M&M Axis Bank

11.1% 9.1%

Bajaj Auto

6.1%

L&T Asian Paints RIL

1.9%

Dr. Reddy

4.8% 3.3%5.3%

1.6% 1.2% 0.4% 0.3% -2.0%

-3.5%

TCS NTPC

-2.0%

Cipla

-8.0% -15.3% -17.2% -19.7%

SBI Infosys

-26.1%

-6.3% -6.7% -7.3%

LupinSun PharmaTata Motors ONGC Coal India

Aggregate Summary

Sales Net profit Sales Net profit

Nifty -6.3 0.7 9.0 0.6

BSE midcap -4.1 101.9 5.1 -24.5

BSE smallcap -2.9 -47 6.4 -59.9

All Co's (2632 cos) -4.8 10.0 7.7 -7.9

QoQ growth (%) YoY growth (%)

Positive surprises & Buys

Phillips Carbon Black

Jammu & Kashmir Bank

Sagar Cement

Transport Corporation of India

Gujarat GAS

Tata Steel

Kansai Nerolac [[

Contact for feedback and comments

[email protected]


Exhibit 2: Sensex EPS at | 330/share in Q1FY18

341

332

346 347

339

314

364

345

328

339

360

330

280

290

300

310

320

330

340

350

360

370

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2015 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

396,860 408,587424,318

405,515424,535 429,988

472,995

427,390

75,025 80,385 89,442 90,822 88,198 90,065 93,228 87,823

50,750

42,229

50,16948,048 47,864 46,741

50,41748,298

0

100000

200000

300000

400000

500000

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2016 2017 2018

| c

rore

0

10,000

20,000

30,000

40,000

50,000

60,000

| c

rore

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


#Data is based on 24 companies (excluding banks, NBFCs)

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

1.3

18.8

-4.2

1.2

3.0

3.9

-4.4

4.710.0

-9.6

-3.3

-16.8

-4.2

-0.4

-2.3

7.9

-20

-15

-10

-5

0

5

10

15

20

25

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2016 2017 2018

(%

)

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



On a YoY basis, in Q1FY18, ex banks, the Sensex topline

increased 5.4% YoY. EBITDA, however, de-grew 3.3% primarily

tracking the 185 bps reduction in EBITDA margin. Muted

margins for the quarter were on account of an increase in raw

material costs partly compensated by a decline in employee

costs and other operating expenses. Consequently, PAT in

Q1FY18 was up 0.5% YoY largely accounting for robust growth

in other income (up 48% YoY)

On QoQ basis, the performance of Sensex companies was

muted in Q1FY18 and is not truly appropriate for comparison

given the highest economic activity witnessed in the last

quarter of the fiscal year (Q4FY17). However, one notable point

was the recovery of the EBITDA margin trajectory to 20%+

levels from 19.7% in Q4FY17. EBITDA margins in Q1FY18 came

in at 20.5%, up 84 bps QoQ

EPS for the quarter i.e. Q1FY18 came in muted at | 330/share

down 4.4% YoY (| 345/share in Q1FY17). Sensex EPS for

Q1FY18 also incorporates the change in constituent from Gail

(exclusion) to Kotak Mahindra Bank (inclusion)

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


Exhibit 5: Sensex aggregate quarterly EBITDA margin

18.9

19.7

21.1

22.4

20.8 20.9

19.7

20.5

17

18

19

20

21

22

23

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2016 2017 2018

%

EBITDA Margin



Industry wise revenue & profit movement

Exhibit 6: Industry wise aggregate revenue (Sensex companies) ( | crore)

Jun-17 Jun-16 Mar-17 YoY change (%) QoQ change (%)

Auto 101,029 104,137 118,488 -3.0 -14.7

Capital goods 23,811 21,727 36,619 9.6 -35.0

FMCG 18,484 18,181 19,339 1.7 -4.4

IT 60,288 59,686 61,158 1.0 -1.4

Oil & Gas 102,545 82,775 106,537 23.9 -3.7

Metals 48,718 43,248 57,068 12.6 -14.6

Pharma 16,937 19,619 18,584 -13.7 -8.9

Power 27,061 25,183 27,129 7.5 -0.3

Others 28,518 30,960 28,074 -7.9 1.6

Aggregate 427,390 405,515 472,995 5.4 -9.6

Source: Capitaline, ICICIdirect.com Research;

On the revenue front, the oil & gas and metals space witnessed

healthy double digit growth in topline. The topline for the metals &

mining sector in Q1FY18 benefited from higher volumes and

realisations. On the oil & gas front, majority of oil marketing

companies reported a good set of numbers. Core GRMs remained

strong in Q1FY18 but inventory losses in the current quarter vs.

inventory gains in corresponding quarter last year pulled back

overall reported GRMs. On the other hand, IT sector reported a

muted Q1FY18 numbers (1% top line growth & 3% bottom line de-

growth) while Pharma space witnessed one of the worst quarterly

performances ever (14% top line de-growth & 63% bottom line de-

growth). On the pharma front, US sales came in muted due to a

higher base, lack of meaningful approvals and sharp generic price

erosion owing to client consolidation and increased competition.

On the IT front, Tier-I IT companies’ constant currency (CC)

revenues average growth remains at 1.6% QoQ while dollar

revenue growth witnessed growth of 2.8% QoQ in Q1FY18.

Exhibit 7: Industry wise aggregate net profit (Sensex companies) (| crore)

Jun-17 Jun-16 Mar-17 YoY change (%) QoQ change (%)

Auto 7,273 6,629 8,352 9.7 -12.9

Capital goods 1,028 683 3,180 50.6 -67.7

FMCG 3,844 3,559 3,852 8.0 -0.2

IT 11,506 11,797 12,480 -2.5 -7.8

Oil & Gas 12,964 11,310 12,393 14.6 4.6

Metals 3,883 3,429 2,008 13.2 93.4

Pharma 1,361 3,642 2,042 -62.6 -33.3

Power 4,671 4,140 3,996 12.8 16.9

Others 1,769 2,859 2,114 -38.1 -16.3

Aggregate 48,298 48,048 50,417 0.5 -4.2

Source: Capitaline, ICICIdirect.com Research,


The EBITDA margin in Q1FY18 came in at 20.5%, down 185

bps YoY but up 84 bps QoQ. Raw material as a percentage of

sales came in at 36.9% vs. 34.2% in Q1FY17, up 266 bps while

employee + other operating expense was at 42.6% vs. 43.4%

in Q1FY17

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 (%)


Auto 23.6 25.7 25.1

Capital goods 5.6 5.4 7.7

FMCG 4.3 4.5 4.1

IT 14.1 14.7 12.9

Oil & Gas 24.0 20.4 22.5

Metals 11.4 10.7 12.1

Pharma 4.0 4.8 3.9

Power 6.3 6.2 5.7

Others 6.7 7.6 5.9


Industry wise net profit contribution (%)


Auto 15.1 13.8 16.6

Capital goods 2.1 1.4 6.3

FMCG 8.0 7.4 7.6

IT 23.8 24.6 24.8

Oil & Gas 26.8 23.5 24.6

Metals 8.0 7.1 4.0

Pharma 2.8 7.6 4.0

Power 9.7 8.6 7.9

Others 3.7 6.0 4.2



Key notable surprises and stock calls

From this edition of Earnings Wrap we will also include the key surprises

witnessed in the earnings of coverage companies and our take post

analysis of their quarterly performance.

The above companies posted a strong set of earnings in Q1FY18, which

we believe are more fundamental and sustainable in nature, going

forward. We hold a positive view on these companies with the

aforementioned target prices with an investment horizon of 12-18 months.

Exhibit 8: Key surprises and stock calls (Q1FY18)

CMP Target Price Rating

(|) (| )

Phillips

Carbon

Black

Positive

Phillips Carbon Black (PCBL) reported a robust performance in Q1FY18 on the back of operational

efficiencies and absence of DTA provisioning. The company reported highest ever EBITDA/tonne of |

9439/tonne with consequent PAT at | 48.2 crore, quadrupling vis-à-vis the base quarter (Q1FY17).

Going forward, we expect the strong operational performance to sustain primarily tracking strong

product demand amidst impressive brownfield expansion. We value PCBL at | 825, i.e. 12.0x P/E on

FY19E EPS of | 68.8/share.

610 825 Buy 35

Jammu and

Kashmir

Bank

Positive

Jammu & Kashmir Bank reported profit of | 30 crore in Q1FY18 compared to our estimate of loss,

led by improvement in margin and sequential decline in GNPA. With the management’s focus on

strengthening balance sheet, substantial proportion of pain has been recognised. Hence, we expect

slippages to moderate, a pick up in credit growth (14.3% CAGR in FY17-19E) and improvement in

margins. Factoring in fundamental strength and capital infusion of | 282 crore by J&K government,

we assign a BUY recommendation to the stock with a target of | 105/ share, valuing the stock at

1.4x FY19E ABV

81 105 Buy 30

Sagar

Cement

Positive

Sagar Cement (SCL) reported a strong set of Q1FY18 numbers mainly led by improving realisation in

its key markets and capacity expansion. The EBITDA/tonne rose 50% YoY to | 666/t. PBT rose by

13.5x to | 17 crore. Going forward, the company is planning to increase its capacity by 28% to 5.8

MT by FY19E leading to revenue CAGR of 16.9% over FY17-19E. Further, we expect cost

rationalisation through installation WHR, cost rationalisation at BMM and acquisition of grinding unit

to help improve margins. We value SCL at | 1025/share, i.e.13.1x EV/EBITDA on FY19E EBITDA and

EV/tonne of US$72/t

811 1025 Buy 26

Transport

corporation

of India

Positive

TCI continues to derive growth across all its segments. Freight segment (50% of overall revenues)

grew 12% YoY. Also, seaways and supply chain (SCS) division grew 15% and 45%, respectively. The

benefits of GST could further lead to better efficiencies for logistics companies. The multi-modal

capabilities enables TCI to provide cost effective solutions and remain one of the preferred logistics

partner. Given the improved outlook we upgrade the stock to Buy

276 335 Buy 21

Gujarat Gas Positive

Gujarat Gas reported a strong Q1FY18 performance led by higher gross margins due to lower spot

LNG prices and a stronger rupee. Revenues increased 20.7% YoY to | 1478 crore with volume

growth of 19.1% YoY at 6.1 mmscmd. PAT increased 37.5% YoY to | 75.9 crore mainly driven by

higher gross margins. Going forward, we believe lower gas prices will continue to drive growth from

price sensitive industrial sectors and city gas distribution sector. We value Gujarat Gas at 20x FY19E

EPS of | 44.5./share

770 890 Buy 16

Tata Steel Positive

Tata Steel for Q1FY18 reported a good set of numbers driven by healthy operating performance at

domestic and European operations. The consolidated EBITDA registered a growth of ~53% YoY. The

EBITDA/tonne from the Indian operations stood at | 10786/tonne, while from the European

operations stood at US$80/tonne. The integrated operations with access to captive raw materials

enables company to realise superior EBITDA compared to its domestic peers. Supportive

government policies and increased infrastructure spend augurs well for the company as a whole. We

value Tata Steel's domestic operations at 6.5x FY19E EV/EBITDA and overseas operations at 5x

FY19E EV/EBITDA to arrive at a target price of |700/share

622 700 Buy 13

Kansai

Nerolac

Positive

Kansai Nerolac (KNL) reported strong Q1FY18 numbers with strong volume growth of ~9% amid de-

stocking of inventory at dealer's level before implementation of GST. KNL managed to pass on the

higher raw material cost under decorative segment (unlike market leader Asian Paints wherein

margin declined ~450 bps YoY during Q1) and recorded a strong EBITDA margin of 17.7% in

Q1FY18. With sustainable revenue growth, improving margins, higher free cash flows and expanding

return ratios, KNL would continue to command premium valuation multiples compared to its historic

averages. We value KNL at 40x FY19 EPS of | 12.3/share

460 495 Buy 8

Potential

Upside (%)Company Quarterly Performance & Outlook

Q1FY18

Result

Source: ICICIdirect.com Research


Sector specific takeaways from quarter

Auto & auto ancillary

Q1FY18 was an aberrant quarter for the auto sector as it was impacted

by two key events viz. transition to BS IV emission norms &

implementation of GST. The inventory adjustment & pricing action by

the dealers (due to above events) impacted OEM demand eventually

impacting ancillary players. Overall auto volumes grew 7% YoY in

Q1FY18. Growth was mainly driven by 2-W volume (up 8.6% YoY),

backed by scooter volume up 19.5% YoY. Thus, overall revenue of I-

direct auto universe (ex Tata Motors) grew ~10.6% YoY, with OEM &

ancillary revenue growth at 8.6% YoY & 14.3% YoY, respectively

The EBITDA margin of our universe (ex-TML) declined 198 bps YoY to

~12.9%. This is after average prices of key input moved upward -

steel, aluminium, plastic, natural rubber (NR) increased 15% YoY, 2.5%

YoY, 4.5% YoY & 0.4% YoY, respectively. Gross margin of tyre players

declined sharply as they had high cost raw material inventory. There

was also a one-off impact of compensation to dealers (as transition to

GST), which impacted margin of OEMs like MSIL (| 88 crore), HMCL

(| 50 crore), BAL (| 32 crore) and M&M (| 80 crore & | 64 crore for its

tractor & automotive segment, respectively)

Among our coverage OEM universe, TML’s results were below our

estimates, as JLR’s margin was impacted by 1) continued variable

marketing expense and 2) higher material & operating cost. MSIL’s

revenues grew 17.4% YoY, backed by volume growth of 13.2% YoY.

PAT grew 4.7% and was impacted by one-off events like 1) GST

compensation to dealers and 2) higher deferred tax provision. HMCL’s

results were below our estimates on all parameters. Ashok Leyland &

Bajaj Auto reported a weak operational performance with EBITDA

margin down 396 bps YoY & 322 bps YoY, respectively

On the ancillary front, tyre companies’ revenues remained muted on

lower vehicle production & lower off take by dealers ahead of GST. In

the battery space, higher lead price & slowing industrial demand

partially impacted Exide & Amara Raja’s performance. The change in

product mix (higher share of traded goods) impacted the profitability

of Bosch (EBITDA margins at 16.6%, down 133 bps YoY)

With industry passing through two key events (BS IV & implementation

of GST) in Q1FY18, we believe the demand scenario is likely to

improve from here on. The one-offs with respect to transition will also

be normalised resulting in better profitability. A positive consumer

sentiment supported by normal monsoon & upcoming festive season

will supplement volume growth in coming months

Exhibit 9: Q1FY18 volume growth (%) YoY

Industry, 7

HMCL, 6

BAL, -11

TVS, 12

HMSI, 21

Maruti, 13

TML, -11

M&M, -4

Hyundai, -4

ALL, -9

0 12

+ve

-ve

+ve

-ve

Source: Company, ICICIdirect.com Research

Exhibit 10: Auto RM Index

RM Auto Index

105

82

96

70

80

90

100

110

120

Aug-12

Jan-13

Jun-13

Nov-13

Apr-14

Sep-14

Feb-15

Jul-15

Dec-15

May-16

Oct-16

Mar-17

Aug-17


The PV segment took a breather as volumes grew 6.1%

YoY, supported by UVs (up 9.6% YoY) & partly by export

(volume up 13.8% YoY). The CV volume declined 12.5% YoY,

as M&HCV volume declined 28.8% YoY (due to supply

constraint of fuel pump). The 3-W volume declined 8.9%

YoY, as strong growth in export was offset by de-growth in

the domestic market

Subsequently, PAT of I-direct universe (ex-TML) declined

~9.4% YoY, with OEM & ancillary PAT down 2.5% YoY &

28% YoY, respectively

Eicher Motors continued with its good set of results, with

VECV margin coming in above our estimates

Motherson Sumi integrated its newly acquired PKC group,

thereby lifting its overall revenue up 25.6% YoY. Among the

MNC pack, Wabco’s results were primarily supported by

strong export growth and higher contribution from new

products


Banking

In Q1FY18, operating earnings of the banking system increased

decently at 6.9% YoY to | 61,729 crore mainly led by healthy other

income (treasury gains) owing to 17 bps fall in G-sec yields. Further,

with provisions being flat YoY (down 37% QoQ) to | 45,540 crore, the

system saw highest PAT of | 11,376 crore in last several quarters

However, there was no respite from asset quality concerns especially

for PSU banks. Due to slippage from RA, loan waiver, impact of

demonetisation & 12 accounts referred to NCLT, the sector’s GNPA

increased | 52,501 crore to | 829,336 crore with the bulk amount of

| 48,403 crore coming from PSU banks

Though private banks witnessed stress with 4.5% QoQ rise in GNPA to

| 96,201 crore, increase in absolute terms was lower than previous

quarters. Stress accretion stayed higher for corporate focused banks

GNPA along with RA for the sector remained >12% of loans

Negative earnings for PSU banks continued but the QoQ fall in losses

was significant. Private banks, on the other hand, continued to report

healthy PAT of | 11,683 crore (up 13.3% YoY), led by healthy credit

traction & controlled asset quality

Exhibit 11: Financial summary of PSU banks

(| Crore) Q1FY18* Q4FY17* Q3FY17 Q2FY17 Q1FY17* Q4FY16 Q3FY16 YoY (%) QoQ (%)

NII 48,012 53,983 47,190 51,816 49,085 48,929 48,137 -2.2 -11.1

Growth YoY (%) -2.2 10.3 -2.0 4.1 6.6 5.6 6.3

Other income 26,342 32,361 30,641 28,689 23,448 27,712 18,971 12.3 -18.6

Growth YoY (%) 12.3 16.8 61.5 47.9 48.7 14.1 12.0

Total operating exp. 37,991 38,931 40,082 41,115 36,860 39,106 36,004 3.1 -2.4

Staff cost 21,560 20,940 24,283 23,201 22,003 22,996 21,805 -2.0 3.0

Operating profit 36,362 47,413 37,749 39,390 35,673 37,535 31,103 1.9 -23.3

Growth YoY (%) 1.9 26.3 21.4 11.3 14.2 0.5 0.6

Provision 36,697 63,115 37,348 37,589 38,116 72,211 45,126 -3.7 -41.9

PBT -335 -15,701 401 1,801 -2,443 -34,675 -14,024 NM NM

PAT -307 -10,008 -191 308 -1,926 -23,033 -11,417 NM NM

Growth YoY NM NM NM -95.9 -121.8 -386.2 -270.4

GNPA 733,136 684,733 646,199 630,320 592,247 539,955 404,667 23.8 7.1

Growth YoY 23.8 26.8 59.7 100.6 113.3 106.3 60.0

NNPA 417,175 383,088 376,792 370,115 351,576 315,335 236,871 18.7 8.9

Growth YoY 18.7 21.5 59.1 107.2 120.2 109.9 55.1


Exhibit 12: Financial summary of Private banks

(| Crore) Q1FY18* Q4FY17* Q3FY17 Q2FY17 Q1FY17* Q4FY16 Q3FY16 YoY (%) QoQ (%)

NII 29,987 29,780 26,612 23,333 23,219 27,844 23,868 29.1 0.7

Growth YoY 29.1 7.0 11.5 27.2 4.7 33.8 21.1

Other income 15,535 14,678 14,733 18,519 13,105 14,200 12,714 18.5 5.8

Growth YoY 18.5 3.4 15.9 74.7 23.8 18.7 23.0

Total operating exp. 20,156 19,626 18,073 14,780 14,274 22,905 14,999 41.2 2.7

Staff cost 7,590 7,028 7,070 7,055 6,531 6,577 5,870 16.2 8.0

Operating profit 25,366 24,833 23,272 27,073 22,050 19,139 21,583 15.0 2.2

Growth YoY 15.0 29.7 7.8 44.0 20.1 1.4 24.8

Provision 8,843 9,513 9,225 13,072 7,046 6,972 5,540 25.5 -7.0

PBT 16,484 15,283 14,047 14,000 14,911 12,141 16,043 10.6 7.9

PAT 11,683 10,565 9,651 10,024 10,314 10,541 11,218 13.3 10.6

Growth YoY 13.3 0.2 -14.0 -4.0 6.3 4.6 13.2

GNPA 96,201 92,102 82,537 71,030 61,613 51,915 44,813 56.1 4.5

Growth YoY 56.1 77.4 84.2 93.5 77.0 60.3 47.7

NNPA 49,838 47,084 39,505 35,494 31,208 24,830 20,081 59.7 5.8

Growth YoY 59.7 89.6 96.7 133.0 117.3 89.0 68.2


Pace of GNPA accretion among some PSU banks continued at a

higher rate. This included banks like IDBI Bank, IOB, Uco Bank,

Central Bank, Dena Bank and Bank of Maharashtra. Within

private banks, corporate focused banks like Axis Bank reported

weak asset quality trends owing to slippages from the watch list

exposures. HDFC Bank & IndusInd Bank reported better

performances, which were on expected lines

Around eight PSU banks reported losses in Q1FY18 led by IDBI

Bank, Uco Bank, Central Bank and IOB


Capital goods

On an overall basis, revenues of capital goods companies grew 9.9%

in Q1YF18 taking into account the impact of GST, which has had an

impact on revenues of product based companies. EBITDA margins

declined 70 bps during Q1FY18 on account of higher input costs,

which impacted gross margins. Interest costs were also up 18% mainly

on account of reclassification of certain items on account of Ind-As.

Despite margin compression and higher interest costs, PAT grew

marginally by 0.6% YoY for Q1FY18. The key takeaway was the pickup

in domestic execution of EPC based companies, robust outlook on

ordering pipeline & consistent improvement in working capital cycle

On the order inflow front, L&T announced order wins to the tune of

| 26,000 crore with strong order wins in the domestic market. The

company has maintained its order inflow guidance of 12-14% YoY in

FY18E with segments such as power T&D, transportation, heavy civil,

hydrocarbon and defence segment. In the midcap space, KEC was the

key performer as order inflows for Q1FY18 were at ~| 2800 crore

coupled with a robust pipeline for FY18. Thermax, at last, managed to

bag $157 million order in the export market. The management

commentary suggests that order wins would pick up pace for them in

H2FY18 particularly in the captive power segment. VA Tech won

orders over ~| 700 crore in Q1FY18 coupled with its guidance for

FY18 being pegged at | 4200-4500 crore

Cement: Capacity expansion, higher pricing drive revenues

Despite a decline in utilisation (down 80 bps YoY to 77.8%), volumes

for Q1FY18 increased 5.9% YoY mainly led by capacity expansion.

Region-wise, cement demand in the north and west remained subdued

mainly due to shortage of sand availability. However, cement demand

in the east remained healthy mainly due to increased government

spending in the infrastructure space and revival in rural market.

Further, better pricing scenario across regions kept realisation healthy

(up 6.3% YoY). Consequently, total revenue of the sector increased

12.5% YoY to | 19,621 crore. However, higher pet coke prices and

increase in freight cost led to a marginal decline in EBITDA margins

(down from 21.1% in Q1FY17 to 20.1%) in Q1FY18

The improvement in pricing was across regions. Players like UltraTech,

ACC and Ambuja registered realisation growth of 6.4%, 6.2% and

6.3%, respectively. EBITDA/t was broadly flat YoY at | 972/t led by rise

in power and freight cost. Among the coverage universe, ACC and

UltraTech reported an increase of 8.6% YoY and 9.7% YoY while

Heidelberg Cement, Mangalam Cement and India Cement reported a

decline of 20.3% YoY, 19.2% YoY & 18.8% YoY, respectively

Going forward, although higher pet coke prices are expected to dent

margins, we expect pick-up in infra activities to drive cement demand

Exhibit 13: Cement volumes & capacity utilisation trends

32.0 32.6

34.4

36.2

33.1

35.2

39.738.4

32.8

35.1

41.540.6

25

30

35

40

45

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

In M

T

50

60

70

80

90

(%

)

Cement volumes (In MT) -LHS Capacity utilisation (%) -RHS


Exhibit 14: Realisations & margins trend

4,6

36

4,5

89

4,6

60

4,4

73

4,6

64

4,5

27

4,3

61

4,5

44

4,6

84

4,5

96

4,5

34

4,8

29

695

622

851

662

687

673

800

961

830

743

727

972

0

1,000

2,000

3,000

4,000

5,000

6,000

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

(|

)

0

5

10

15

20

25

(%

)

Realisations/tonne - LHS EBITDA/tonne - LHS

Margin (%) - RHS


On the flip side, product based companies witnessed GST

led de-stocking for their B2C oriented business while higher

raw material price impacted the overall EBITDA margins

Bhel also reported dismal order wins to the tune of | 1800

crore in Q1FY18 but the management commentary

suggests they will be able to clock more orders than in

FY17. However, the recent bidding in some EPC orders

indicates fierce price competition, which may put a

question mark on the profitability of such orders by Bhel

On the volume front, JK Cement reported volume growth of

10.7% YoY mainly led by 12.7% YoY growth in grey cement

Further, Shree Cement and ACC registered volume growth

of 13.9% YoY and 10.1% YoY mainly due to capacity

expansion while UltraTech reported flat volumes in Q1FY18

India Cement reported robust volume growth of 15.1% YoY

mainly led by amalgamation of Trinetra Cements and Trishul

Concrete Products. However, on a like-to-like basis, India

Cement’s volumes remained broadly flat YoY due to sand

mining issue in Tamil Nadu

Key short-term concerns are RERA compliance, lack of

private capex and subdued urban housing demand


Consumer discretionary

The I-direct CD universe recorded better-than-expected sales growth

of 6% YoY (vs. I-direct estimate of ~1% YoY) during Q1FY18 led by

selective counters like Kansai Nerolac (up 12% YoY) and Havells India

(up 27% YoY). The volume growth of the CD universe remained muted

due to de-stocking of inventories at the dealer’s level before the

implementation of GST. Also, chaos among dealers owing to input tax

credit in old inventories has forced many consumer durable

companies to take a price hike. Paint industry recorded a muted

volume growth of ~4% led by Kansai Nerolac (volume up ~9% YoY)

supported by both decorative and industrial paint demand

On the margin front, the I-direct CD universe recorded a sharp decline

in EBITDA margin by ~315 bps YoY to 13% mainly due to inability to

pass on the higher raw material prices and passing on CST (central

sales tax) related benefit to dealers amidst GST

We maintain our positive stance on the CD universe amid strong

product demand and benefits accruing to organised players from

implementation of GST in terms of gaining market share due to a shift

in demand from the unorganised to the organised category

FMCG

Pre-GST sales loss, mainly in canteen stores (CSD) and wholesale

channel, impacted FMCG companies. Companies have indicated in

their respective statements post result declaration that sales were

impacted due to de-stocking by channel partners due to GST

transition. Wholesale channel was worst impacted and CSD stopped

any billing since the first week of June, leading to sales disruption

across companies depending on their exposure to these channels

Only companies to report sales growth in our coverage for the quarter

were HUL, ITC, Nestlé and Prabhat Dairy at 5.0%, 4.3%, 7.0% and

22.7% YoY, respectively. HUL’s revenue growth was driven by price

increase with volumes remaining flat. In contrast, Nestlé’s sales were

supported by volume growth in the domestic market. Among cigarette

companies, ITC witnessed flat volume in cigarettes whereas VST

reported decline. However, on the back of price hikes taken earlier this

year, ITC reported 6.6% growth in cigarette segment. However, due to

the volume decline, VST reported 4.1% YoY revenue decline. FMCG

segment of ITC continued to do well led by both volume and

realisation growth

In addition, pressure in international markets continued for Dabur and

Marico, resulting in revenue decline of 8.1% and 3.5% YoY,

respectively. Colgate, on the other hand, suffered from high wholesale

dependence and competition (lost 140 bps & 120 bps market share in

toothpaste & toothbrush category, respectively). TGBL, on account of

equal contribution from the international market, reported a marginal

decline of 1.8% YoY in revenue (supported by 2.5% YoY growth in tea

segment; coffee and unbranded segments witnessed decline in sales).

The worst hit among our coverage companies was Jyothy

Laboratories. It reports sales decline of 15.0% YoY on account of

heavy de-stocking amid industry volume decline by 17.0%

Commodity prices were elevated for the quarter, viz. copra (up 60%

YoY), Robusta (up 26% YoY), sugar (up 6.5% YoY), palm oil (up 6.0%)

and milk (up 5.5% reported by Prabhat). However, on account of price

hikes and volume decline, raw material cost for the universe declined

marginally by 1.5% YoY, contracted ~155 bps as a percent of sales.

Thus, EBITDA for the universe grew 4.1% YoY with a marginal

expansion in EBITDA margin

Consequently, PAT for the coverage universe also grew 4.6% YoY

Quarterly sales growth (%)

16.7

10.5

5.0

-0.3-1.0

0.6

4.9

6.4 6.1

0.7

5.1

2.6

-5

0

5

10

15

20

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Sale

s g

row

th (

%)


Though we were estimating flat sales, on account of better

than estimated performance, primarily in HUL, GSKCH,

Colgate and Nestle, the growth was above our estimate

Aided by capacity utilisation and higher realisation in the

consumer segment, Prabhat Dairy reported strong revenue

growth at 22.7% YoY in the quarter

Dabur, Marico and Colgate reported a volume decline in the

domestic market at 4.4%, 9.0% and 5.0%, respectively

Amid a sales decline and an unfavourable demand scenario,

many companies resorted to a cut in advertisement

expenses to maintain their margins. Marico, Dabur &

Colgate’s advertisement spend as a percent of net sales

contracted 239 bps, 171 bps and 71 bps, respectively

Cooling product segment (led by Voltas, Symphony)

recorded a muted performance due to unseasonal rains and

heavy discounts (as introductory offers on new launched

products).

On the other hand, as expected Havells recorded a strong

sales growth mainly due to consolidation of Lloyd’s

consumer durable business

Electrical good companies such as Symphony, V-Guard and

Havells recorded sharp contractions in EBITDA margin by

1068 bps, 574 bps and 440 bps YoY, respectively, in Q1


Hotel: Higher ARR, occupancy drive revenue growth

In Q1FY18, the hotel sector witnessed a visible improvement led by

higher occupancy and average revenue per room (ARR). Occupancy

levels in business destination and leisure destination increased 300

bps YoY and 483 bps YoY to 70% and 60%, respectively. In addition,

ARR in leisure destination increased 28.4% YoY, ARR in business

destination increased 4.6% YoY

EIH reported revenue growth of 3.9% YoY led by an increase in

occupancy and ARR but margins declined 50 bps YoY due to an

increase in employee cost. TajGVK also reported revenue growth of

2.2% YoY mainly led by higher occupancy. Further, TajGVK reported a

91 bps increase in margins mainly led by lower power cost. While on a

standalone basis, TajGVK reported net profit of | 1.9 crore, at the

consolidated level, net profit was | 14 lakh mainly due to loss of | 1.8

crore from the Mumbai property (Taj Santacruz)

Indian Hotels (IHCL) reported 10.4% YoY increase in domestic

revenues but international revenues declined 4.9% YoY

Information Technology

Tier-I IT companies reported a good show on the dollar revenue front

with Infosys’ performance better than expectations on all fronts. Tier-I

IT companies’ constant currency (CC) revenues average growth

remains at 1.6% QoQ while dollar revenue growth witnessed growth of

2.8% QoQ in Q1FY18 owing to cross currency benefit

Citing the demand environment, most Indian IT companies sounded

optimistic on increasing contribution from digital offerings and expect

it to be a key catalyst for future growth. Companies maintained their

positive stance on the BFSI segment with a better recovery expected in

H2FY18 while maintaining close watch on retail vertical on the back of

structural issues. In terms of revenue outlook for FY18E, Infosys (6.5-

8.5%) and HCL Tech (10.5-12.5%) retained revenue growth guidance in

CC terms with HCL growth mainly on the back of acquisitions

integration and lower play out of organic growth (5.5-7.5%). Wipro

issued subdued revenue growth guidance (-0.5-1.5% in CC terms) for

Q2FY18 owing to softness in communication and healthcare vertical

On the operating margin front, full quarter wage hike cycle in TCS and

one month wage hike in Wipro along with rupee appreciation impacted

overall EBIT margins and resulted in a sequential decline of 110 bps to

21.1% for Tier-I IT companies. In terms of EBIT margin guidance for

FY18E, Infosys (23-25%) and HCL Tech (19.5-20.5%) maintained their

margin guidance while TCS continues to target its EBIT margin band of

26-28% (in CC terms) for FY18E

Building material, infrastructure and real estate

Building materials

Our building material coverage universe companies were impacted by

significant de-stocking at dealer’s level amid GST implementation.

Consequently, building materials revenues de-grew 1.8% YoY to

| 1790.4 crore. However, over the long term, GST will help organised

players to expand their pie by gaining market share from unorganised

players (tile industry: ~50% unorganised; plywood industry:~75%

unorganised)

In Q1FY18, our tiles universe posted volume de-growth of 4.6% YoY to

25.7 MSM. Consequently, revenues de-grew 4.1% YoY to | 961.5

crore. Also, EBITDA margins contracted 340 bps YoY to 12.2% on

account of higher advertisement spends and lower operating leverage

Dollar revenue growth trend

3.5

(1.4) 0.7

(1.4)

0.3

0.3

1.5

3.1

1.91.3

4.1

3.7

(0.8)

(0.7)

2.7

(0.7)

-5

0

5

10

Q2FY17

Q3FY17

Q4FY17

Q1FY18

%

Infosys TCS

HCL Tech Wipro

Source: Company, ICICIdirect.com Research,

Tiles universe sales volume trend

15.9

16.6

15.9

19.3

16.4

11.1

11.9

11.2

15.6

9.3

4

8

12

16

20

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

(M

SM

)

Kajaria Ceramics Somany Ceramics

Source: Company, ICICIdirect.com Research,

Going forward, Infosys would have wage hike reflected on

Q2FY18 margins while HCL would have wage hike cycle

spread across Q2 and Q3.

In addition, IHCL’s domestic EBITDA margins increased

from 11.2% to 14.5% in Q1FY18. However, international

EBITDA margins declined from 8.2% to 3.9% in Q1FY18

Occupancy trend

6769

72

78

55

72

60

77

70

76

61

77

40

50

60

70

80

90

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

(%

)

Business Destinations Leisure Destinations

Source: Crisil, ICICIdirect.com Research,


The plywood segment reported a mixed set of results in Q1FY18.

While Century Plyboards’ (CPIL) plywood volumes grew 11.8%,

Greenply reported a volume decline of 11.6% in plywood division and

8.9% YoY growth in MDF division volumes. Consequently, topline of

our plywood universe grew moderately by 1.0% YoY to | 828.9 crore

led by 8.1% YoY growth in CPIL’s revenues to | 438.6 crore. Further,

on the operational front, EBITDA margins contracted 250 bps YoY to

13.2% led by a 300 bps YoY decline in CPIL’s margins. Consequently,

our plywood universe posted a bottomline de-growth of 16.1% YoY to

| 64.8 crore

Infrastructure

Our construction universe topline grew 5.1% YoY to | 4786.2 crore. On

the operational front, there was a 30 bps YoY expansion in EBITDA

margins to 8.5% on strong PMC margins of NBCC. Consequently, the

bottomline of our universe grew robustly by 28.9% YoY to | 148.1

crore. Overall, with a strong order book and anticipated improvement

in working capital cycle and debt reduction, execution in our

construction universe is expected to pick up in H2FY18

On the road front, the topline grew robustly by 16.1% YoY to | 3840.8

crore on account of strong execution during the quarter. However,

EBITDA margins contracted 200 bps YoY to 28.0%. The bottomline of

our road universe reported significant growth of 18.4% to | 385.2 crore

due to 30.8% YoY growth in the PAT of IRB Infrastructure

The Road Ministry has maintained its ambitious awarding, construction

target of 25000 km, 15000 km, respectively, for FY18E. However, the

start to the year has not been great as NHAI could award, construct

only 165 km, 670 km, respectively, owing to land acquisition issues.

However, various company managements expect the awarding pace

to pick up

Real estate

The demand scenario in the real estate sector continued to remain

subdued amid GST and RERA implementation. Furthermore, new

launches over the next few quarters could be limited given the

transition towards RERA and the current market scenario. However,

over the long term, with RERA implementation, a consolidation in the

industry is expected. This would ultimately benefit organised players

like Mahindra Life space, Oberoi Realty and Sunteck Realty

On the volume front, Oberoi’s volumes de-grew 27.7% YoY to 0.97

lakh sq ft while Mahindra Lifespace’s volumes remain flat YoY at 2.7

lakh sq ft, given the absence of new launches and current market

scenario. On the financial front, revenues of our real estate universe

de-grew 46.1% YoY to | 503.4 crore mainly due to 74.6% YoY de-

growth in Sunteck’s topline (high base as Signia Pearl had hit revenue

recognition threshold in Q1FY17). Consequently, the bottomline of the

universe also de-grew 24.4% YoY to | 141.7 crore due to 38.5% YoY

de-growth in Oberoi’s bottomline to | 39.6 crore


Logistics

Volume growth up-tick visible for container train operators

Exports for June 2017 grew 4.4%, the tenth straight month of growth,

while imports grew 19% YoY. For April-July 2017, exports grew 9%

YoY while imports grew 22% YoY. Volumes (Exim + domestic) for the

quarter of container train operator (CTOs) continued to show an

uptrend and rose 6% YoY. Container train operators appear to be

gaining market share from road transport as during the quarter

domestic container volumes showed strong growth. Container

volumes, which had grown 3% YoY in FY17 to 8.5 million TEUs

showed signs of an up-tick with a 6% YoY volume increase for Q1FY18

to 2.3 million TEUs

For Concor, revenues for Q1FY18 grew 9% YoY to | 1456.8 crore.

Following robust export trade scenario, Exim revenues recovered

(post de-growth in four consecutive quarter) to | 1132 crore (up 5%

YoY) compared to | 1080 crore in Q1FY17. Domestic revenues

(indicating share gain from road transport) continued to grow for a

second consecutive quarter (up 32% YoY) to | 325 crore in Q1FY18 vs.

| 246 crore in Q1FY17. Total volumes for the quarter showed robust

growth of 14.6% YoY to 842709 TEUs. Throughput volumes for Exim

and domestic grew 12.8% and 26% YoY to 712794 TEUs and 129915

TEUs, respectively. On the average realisation front, while Exim

realisations declined for a fifth consecutive quarter with a decline of

~8% YoY to | 15875/ TEU, domestic realisations rebounded with

positive growth of ~4% to | 25032/TEU after declining for the

preceding four quarters

Increased competition on the west coast due to Adani Ports’ strategic

shift in focus on container business and better port efficiency achieved

by JNPT is negatively impacting volume growth for Gujarat Pipavav

Port. Volumes for GPPL continued to remain under pressure and de-

grew 4% YoY to 1,65,000 TEU during Q1FY18. However, a ramp up in

liquid volumes coupled with higher Ro-Ro volumes resulted in an

improvement in EBITDA margin by 138 bps to 61.3%

Express players

Surface players were impacted by the slowdown in B2C e-commerce

revenues. Though revenue for BlueDart grew 7% YoY, EBITDA

declined 40% YoY to | 45.8 crore. EBITDA margin fell significantly by

550 bps to 6.9% owing to higher freight & handling costs, which rose

13% YoY mainly due to higher ATF prices (up 15% YoY)

In addition to the sluggish operational performance, lower other

income (| 5.7 crore in Q1FY18 vs. | 8.3 crore in Q1FY17) and higher

depreciation expense (up 5% YoY) further dented PAT. Resultant PAT

nearly halved to | 21 crore vs. | 44 crore in Q1FY17

TCI posted a good performance in Q1FY18. Revenues were at | 497

crore, up 16% YoY. Freight division grew for a fifth consecutive

quarter with 12% YoY growth to | 243.6 crore (49% of overall

revenues). Supply chain segment (SCS) grew 8% YoY to | 198.4 crore

(40% of overall revenues). Contribution from seaways in overall

revenue improved to 12% vs. 9% in Q1FY17, growth of 45% YoY to

| 58.1 crore. Contained operating costs coupled with lower operating

expenses resulted in a 20 bps YoY improvement in EBITDA margin to

9.1%. Subsequently, EBITDA grew 18.7% YoY to | 45.2 crore

Major ports – Volume recovery on upward trend

726

718

715

679

693

705

690

707

630

791

752

755

744

758

10.0

-1.6

5.5

-2.0

4.1

5.6

9.6

1.01.9

-6.4

6.3

9.6

6.9

2.5

500

550

600

650

700

750

800

850

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

Jul-17

('0

00 T

EU

s)

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Source: Bloomberg, ICICIdirect.com Research,

Truck rentals trend

-1.5 -1.5-3

-10

-5

-8

3.5 4

-25

-4.5

-2.5

42.5

-30

-25

-20

-15

-10

-5

0

5

10

June'1

6

July

'16

Aug'1

6

Sep'1

6

Oct'1

6

Nov'1

6

Dec'1

6

Jan'1

7

Feb'1

7

Mar'1

7

Apr'1

7

May'1

7

June'1

7

(%

change M

oM

)

Truck rentals gradually

improved post huge decline

in November and December

due to demonetization, but

June 2017 saw a steep

decline owing to GST related

issues

Source: Indian Foundation of Transport Research and Training,

ICICIdirect.com Research

Container traffic at biggest port – JNPT, grew 5.1% YoY for

Q1FY18 at 1.2 million TEUs. Also, container volumes at the

second largest port Chennai grew 4% YoY to 0.39 million TEUs

for Q1FY18. Container volumes at smaller ports like Kolkata,

Vizag and Tuticorin remained flattish with growth ranging

between 0% and 3%


Media

The performance across media companies during Q1FY18 was dented

by legislation (GST, RERA) led uncertainty which impacted the

advertisement spending. The quarter also saw some after effects of

demonetisation, which impacted growth, to an extent

Broadcasters: Zee Entertainment’s ad revenue growth was relatively

resilient as adjusting for sports (now exited) and RBNL (acquired

recently), domestic ad revenues grew 6.9% YoY to | 868.8 crore.

Subscription revenues came in at | 479.1 crore, down 9.3% YoY

mainly due to absence of sports business. On a like-to-like basis (ex-

sports), domestic subscription revenue grew 14.5% YoY. TV Today,

however, posted healthy advertisement revenue (implied) growth of

7.4% YoY

Print Players: Q1FY18 was a washout quarter for print players as

GST/RERA led uncertainty coupled with slower recovery from local

advertisement segment post demonetisation, dented the ad growth

trajectory. In terms of print ad growth, Jagran and DB Corp reported

3.8% and 4.5% YoY growth in ad revenues, HT Media reported 4.6%

decline in ad revenues (0.4% decline in Hindi ad and 7.3% YoY decline

in English ad revenues).

Multiplexes: Footfalls in a relatively weak quarter (barring Baahubali 2)

came in muted at 21.0 & 15.8 million, up 1.4% & 1.8% YoY for PVR &

Inox, respectively. The revenue performance was salvaged by

handsome ATP and advertisement growth. PVR and Inox reported

ATPs of | 214 & | 193, up 9.7% and up 10.9% YoY, respectively. Inox’

ad growth of 56.8% YoY, albeit on lower base, overshadowed PVR ad

revenues growth of 30.9% YoY.

Metals

Topline for the metals & mining sector in Q1FY18 benefited from

higher volumes and prices of both ferrous and non ferrous metals (on

a YoY basis). The topline of the coverage universe during the quarter

was up 20.4% YoY. Aggregate EBITDA for the sector registered

growth of 22.7% YoY with corresponding EBITDA margin at 22.2%, up

42 bps YoY (Q1FY17: 21.79% and Q4FY17: 24.2%)

Tata Steel reported a good set of Q1FY18 numbers driven by healthy

operational performance of European operations. Indian operations

reported volume of 2.8 million tonne (MT) and an EBITDA/tonne of

| 10786/tonne while the European reported steel sales of 2.4 MT and

an EBITDA/tonne of ~US$80/tonne

Coal India reported a steady set of Q1FY18 numbers. CIL reported

sales volume of 137.4 million tonne (MT) up ~3% YoY. The e-auction

volumes during the quarter came in at 27.3 MT, up 33% YoY, while the

e-auction realisations were at | 1586/tonne. The reported EBITDA

came in at | 3522 crore, implying an EBITDA margin of 18.4%.

Hindustan Zinc for Q1FY18 reported zinc sales volume of ~190,000

tonnes (up 58.3% YoY). While lead sales volumes came in at ~34,000

tonnes (up 47.8% YoY), silver sales were at ~11,000 kg

Graphite India reported a good operational performance in Q1FY18.

The company reported a healthy capacity utilisation level of 95%. The

net operating income was at | 351 crore (up 27.6% YoY). The EBIDTA

came in at | 35.5 crore (up 239.8% YoY). The corresponding EBITDA

margin was at 10.1% up 632 bps YoY. The company reported a PAT of

| 29.5 crore (up 168.9% YoY)

Footfalls – PVR & Inox

15.3

20.7

18.517.9 18.2

21.0

11.5

15.5

12.7 12.5 13.0

15.8

0

5

10

15

20

25

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

(m

illion)

PVR Inox


JSW Steel, on a consolidated basis, reported a healthy

EBITDA driven by improved performance of subsidiaries

(coated products and US plate and pipe mills), the sales

volume stood at 3.51 MT while the EBITDA/tonne

(standalone operations) came in at |6262/tonne.

Hindustan Zinc reported a net operating income of | 4,576

crore up 80.8% YoY. The cost of production per tonne before

royalty (CoP) during the quarter increased 2% YoY and 18%

QoQ, the ensuing EBITDA came in at | 2,384 crore up

110.8% YoY. The corresponding EBITDA margin stood at

52.1%. The company reported a PAT of | 1,876 crore.

HEG also reported a decent performance Q1FY18, wherein it

reported a capacity utilisation of ~70% (vs. 50% in

Q1FY17). The topline stood at | 205.4 crore (up 25.9%),

while EBITDA came in at | 23.4 crore. EBITDA margin was

at 11.4%

On the other hand, Sun TV’s performance was relatively

weak. It reported advertisement revenues decline of ~4%

YoY to | 326 crore. Subscription revenues grew 15.3% YoY

to | 270.5 crore led by cable revenues, which were up

~30% to | 96 crore (aided by some catch up revenues)

while DTH revenues were up ~10% YoY to | 174 crore.

The competitive pressure in key markets of UP and Bihar

led to lower circulation growth for Jagran and HT Media

which reported 1.5% growth and 8% YoY decline

respectively. DB Corp’s circulation growth was at 4.9% YoY


Oil & gas

The oil & gas sector performance in Q1FY18 was largely in line with

our estimates with average crude oil prices falling 9% QoQ. The results

of upstream companies were as per our expectations on the oil & gas

production and revenues front. However, higher expenditure related to

depreciation led profitability to come in below our estimates. The

subsidy freedom as a result of low crude oil price regime continued to

benefit upstream companies

On the operational front, upstream sector EBITDA increased ~45%

QoQ (~5% YoY) on the lower base of Q4FY17, which included

increased employee costs and one time royalty settlements. Majority

of oil marketing companies reported a good set of numbers in spite of

higher-than-expected inventory losses. Product sales came in

marginally higher than our estimates and reported QoQ recovery,

which was affected by higher private players’ activity in Q4FY17. Core

GRMs remained strong in Q1FY18. However, inventory losses in the

current quarter vs. inventory gains in the corresponding quarter last

year pulled back overall reported GRMs

Pharmaceuticals

As expected, Q1 numbers were largely impacted due to GST transition

impact in domestic formulations and a steep price erosion in the US

generics base business. I-direct pharma universe revenues declined

7% YoY to | 34,693 crore

US sales (select pack) declined 18% YoY to | 9,984 crore mainly due to

higher base, lack of meaningful approvals and sharp generic price

erosion owing to client consolidation and increased competition.

Domestic formulations declined 9% decline YoY to | 7,192 crore due

to de-stocking of inventories owing GST transition

On the revenues front, 13 out of 19 companies under coverage

registered negative growth during the quarter due to a steep price

erosion in the US base business, litigation impact and GST transition in

domestic sales. Bucking the trend, Natco (31% YoY growth) registered

a stellar set of numbers due to Oseltamivir exclusivity. Similarly

Glenmark (20% YoY growth) was the only company to register positive

growth in domestic formulations

EBITDA for the universe declined ~33% YoY to | 6,261 crore mainly

due to 1) pricing pressure in the US, 2) GST impact in the domestic

formulations and 3) higher R&D spend. Among all, pricing pressure in

the US is the major reason for sharp fall in large caps margins. The fall

in EBITDA also had a cascading effect on the net profit of the universe,

which declined 46% YoY to | 3,253 crore

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

Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18

Upstream 0 0 0 0 0

Downstream 0 0 0 0 0

Government 4095 3731 4297 7604 6319

Total 4095 3731 4297 7604 6319


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)


Sales from US & India (| crore)

(| crore) Q1FY18 Q1FY17 Var. (%) Q4FY17 Var. (%)

Ajanta 135.0 157.0 -14.0 133.0 1.5

Alembic 210.0 277.7 -24.4 261.7 -19.7

Biocon 130.4 158.0 -17.5 131.0 -0.5

Cadila 637.6 786.2 -18.9 840.2 -24.1

Glenmark 616.4 535.0 15.2 576.9 6.8

Indoco 99.7 142.1 -29.9 130.1 -23.4

Ipca 295.0 355.1 -16.9 276.7 6.6

Lupin 932.4 949.9 -1.8 878.8 6.1

Cipla 1,271.0 1,459.0 -12.9 1,197.0 6.2

Dr Reddy's 468.7 522.3 -10.3 571.1 -17.9

Sun Pharma 1,760.8 1,854.3 -5.0 1,916.4 -8.1

Torrent 464.0 510.0 -9.0 467.0 -0.6

Unichem 170.6 221.5 -23.0 187.4 -9.0

Total 7,191.6 7,928.2 -9.3 7,567.2 -5.0

(| crore) Q1FY18 Q1FY17 Var. (%) Q4FY17 Var. (%)

Aurobindo 1,694.9 1,703.9 -0.5 1,643.2 3.1

Cadila 965.0 848.3 13.8 985.1 -2.0

Cipla 646.0 657.0 -1.7 646.0 0.0

Glenmark 1,045.0 698.2 49.7 1,000.4 4.5

Lupin 1,601.8 2,188.6 -26.8 1,900.7 -15.7

Dr Reddy's 1,494.6 1,552.3 -3.7 1,534.9 -2.6

Sun Pharma 2,264.6 4,070.6 -44.4 2,554.5 -11.3

Torrent 272.0 434.0 -37.3 281.0 -3.2

Total 9,984.0 12,152.9 -17.8 10,545.8 -5.3

India

US


Key parameters in Q1FY18


Singapore

GRMs ($/bbl) 5.0 5.1 6.7 6.4 6.7

Crude oil

($/bbl) 46.0 45.8 50.1 54.6 50.1

APM gas

(NCV)

($/mmbtu) 3.4 3.4 2.7 2.7 2.7

Source: Bloomberg, Reuters, ICICIdirect.com Research

The gas utility companies continued to report a decent set of

numbers with expansion in gross margins and stable volume

growth. The growth in profitability was mainly contributed by

higher gross margins as a result of lower spot LNG prices QoQ

in conjunction with favourable exchange rate


Power

In terms of capacity addition, NTPC did manage to meet expectations

as it commercialised capacity to the tune of 800 MW while it expects to

add and commercialise capacity to the tune of 5400 MW and 4500 MW

respectively. Power Grid disappointed with lower capitalisation but the

management expects to cover up the shortfall with its strong

capitalisation trends as it has guided for asset addition of | 31000-

35000 crore in FY18E

On the financial performance, NTPC reported results, which were

disappointing operationally, given lower EBITDA. However, significant

other income led to beat on reported PAT. Revenue mix was higher-

than-expected on account of higher auxiliary consumption, which led

to lower-than-expected energy sold. Power Grid also reported lower-

than-expected double digit growth as most of capitalisation was in

Q1FY18 but it has maintained its guidance in terms of capitalisation

Retail

Advancement of end of season sale (EOSS) was the key highlight for

the retail sector this quarter (leading to robust topline growth). Several

branded players had advanced their clearance sale by a month in

June, offering heavy discounts to liquidate their existing inventory

before implementation of GST. Shopper Stop’s Departmental store

reported one of the highest like-to-like (LTL) sales growth of 19.8%

with LTL volume growth of 16%. Aditya Birla Fashion and Retail

(ABFRL) reported revenue growth of 25% YoY driven by strong growth

in the lifestyle brands (including Fast Fashion) to the tune of 24.7% and

27% revenue growth for Pantaloons

Among specialty retailers, Titan in Q1FY18 continued on its strong

revenue trajectory, by reporting healthy topline growth of 42% YoY led

by robust performance in the jewellery segment, up 55.9% YoY. The

factors, which contributed to exceptional growth were, a) successful

Akshaya Tritiya period, b) successful gold exchange programme, c)

advancement of sales on account of introduction of GST (| 250 crore)

and d) favourable base of Q1FY17 (jewellers strike that continued till

mid-April 2016). The watches division reported a mere 2.4% revenue

growth to | 511.8 crore. Watches in the domestic market grew 9% in

volume terms while exports declined ~20%, dragging overall growth

in the watches segment

Bata reported healthy double digit revenue growth of 11% YoY to

| 736.1 crore, which is its highest quarterly sales. The company’s focus

on the lifestyle segment and improved visual merchandising resulted

in like-to-like (LTL) sales growth of 10%. Bata added 40 new stores this

quarter. Revenues from retail channels grew 15% YoY

Textiles

Q1FY18 was a challenging quarter for the textile sector on the

profitability front owing to increase in domestic cotton prices and

appreciation of the rupee against other currencies. On the revenue

front, topline growth was adversely impacted by de-stocking by

various trade channels prior to GST implementation

For Kewal Kiran Clothing (KKCL), revenues de-grew 24.9% YoY to

| 78.4 crore. Volume de-grew 25.9% YoY to 7.6 lakh pieces while

average realisations remained flattish YoY to | 1038 per piece. EBITDA

margins declined 940 bps YoY to 9.3% mainly on account of negative

operating leverage. Rupa & Company reported a disappointing set of

Q1FY18 numbers, wherein results were below our estimates across all

parameters. Revenues for the quarter were mainly impacted by de-

stocking of inventory at the dealer’s level prior to GST

LTL volume growth (departmental & HyperCity stores)

(10)

(6)

(2)

2

6

10

14

18

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

%

Like to like volume growth (Dept.)

Like to like volume growth (HyperCity)


Trent reported strong LTL sales growth of 14% despite

company not preponing its EOSS period.

Page Industries was the only exception, which registered

strong revenue growth amid a tough scenario. Arvind

reported healthy topline growth, largely on the back of

advancement of EOSS

Consolidated revenues for Vardhman Textiles grew 6.0%

YoY to | 1562.0 crore. Revenues from the textile segment

grew 6.5% while acrylic fibre segment continued to remain

under pressure by reporting a decline in revenues by 35.7%.

EBITDA margins for the quarter fell 707 bps YoY to 14.1%

CESC reported a strong set of results as energy sold

grew 3% YoY, which was above our estimates. Going

ahead, key re-rating catalysts include signing of PPA for

the remainder untied capacity of Chandrapur plant and

de-merger of the company


Page Industries registered robust topline growth of 22% YoY. Growth

was driven by healthy volume growth of 13.3% to 46.4 million pieces

with expansion in average realisation by 7.5% YoY to | 149/piece. Key

growth drivers were the leisure, brassiere and women’s segment

wherein revenues grew 27.7%, 26.4% and 21.8%, respectively

For Arvind, brands continue to create value. Overall revenues for the

quarter grew quarter grew 18% YoY to | 2475 crore. The growth was

accelerated by higher growth in brand & retail segment, which grew

22% YoY (up 40% including Tommy Hilfiger & Calvin Klein) at | 673

crore (| 773 crore including TH & CK)

Telecom

Telecom Operators

Q1FY18 performance was an indicator of plateauing out of pain inflicted by

Jio’s launch (at least for the first phase). We, however, note that

JioPhone’s launch could inflict another dent on incumbent operators as

low paying 2G subscriber base could witness some churn to “largely

affordable” 4G Feature Phone priced at refundable deposit of | 1500.

Subscriber addition: The net subscriber addition for the industry (as per

Trai) of 16.7 million during Q1FY18 was again led by Jio, which added 14.7

million subscribers. Another noticeable trend was that marginal players

(Telenor, Tata, RCom, Aircel & Sistema) have cumulatively lost subscriber

base of 12.0 million during the quarter, clearly reflecting that they are

facing the heat of subscriber churn towards Jio. Airtel, Vodafone & Idea

added 7.9, 2.9 and 0.9 million subscribers to 280.6, 211.9 and 196.3 million

subscribers respectively.

Data business: The bundled offer was key highlight for the quarter, which

drove data usage, on the one hand, while leading to a decline in effective

realisations, on the other. For Airtel, data subscriber addition grew 9.5%

QoQ to 62.6 million subscribers. Data consumption per user inched up to

2611 MB per user, up 96.1% QoQ, thereby leading to 109.8% QoQ growth

in data volumes to 472.4 billion MB. Data ARMBs declined steeply by

51.1% QoQ to 6.0 paisa. Given the sharp volume uptick, overall data

revenue grew 2.7% QoQ to | 2820.1 crore, despite such a sharp fall in

realisation. For Idea, data revenues declined 6.5% QoQ to 1363.3 crore

impacted by steeper decline in tariffs that came in at 5.3 paisa, down 53%

QoQ. The data subscriber base at 38.1 million was down 9.7% QoQ. Data

volumes grew 99.1% QoQ to 252.8 billion MB driven by bundled freebies.

Voice business: Total voice minutes across telcos witnessed strong

growth owing to bundled free voice offerings by incumbents in response

to Jio and also owing to influx of incoming calls from the free Jio network.

Airtel & Idea witnessed growth of 10.7% & 8.4% QoQ to 422 & 251 billion

minutes, respectively. All players had followed suit with bundled offering

for high ARPU customers in order to reduce subscriber churn towards Jio,

leading to Airtel & Idea witnessing a decline in the voice ARPM by 9.5% &

5.9% QoQ to 22.0 & 24.3 paisa, respectively. Hence, voice revenues grew

0.2% & 1.9% QoQ to | 9273.6 crore and | 6091.2 crore for Airtel and Idea,

respectively.

EBITDA margins: The margin performance was a mixed bag for telecom

operators in Q1FY18, with Airtel reporting superior margins aided by

Africa performance and Idea suffering due to weak Indian telecom

competitive scenario. EBITDA margin for Airtel came in slightly higher at

35.5%, down 47 bps QoQ, with India margin of 37.3% (down 200 bps

QoQ) & Africa margins of 28.1%. The beat was largely led by superior

Africa margins. Idea reported EBITDA margins of at 23% vs. expectations

of 24.2%, owing to higher roaming & access charges (as outgoing minutes

increased) and higher marketing expenses

For Arvind; standalone textile business added to

consolidated growth with revenues of | 1557.4 crore (up

9.3% YoY). Increase in RM costs (cotton prices up 22% YoY)

impacted gross margins, which declined 286 bps YoY to

54.3%. Higher employee expenses (up 17% YoY) and other

overheads (up 19% YoY) further impacted EBITDA margins,

which contracted 325 bps YoY to 8.4%.

Media reports also indicate some strategic initiatives by

Airtel in the handset segment (e.g. launching entry level 4G

phone at ~| 2500) to protect its relatively creamy share of

2G subscribers


Others:

Bharti Infratel reported another set of healthy net tenancy addition driven

by Jio’s network expansion. Sterlite Technologies reported a strong set of

numbers driven by strong product segment (OF & OFC) demand globally.

Exhibit 16: ARPM trend

33.6

32.8

33.5

32.4

29.4

24.3

22.0

29.4

25.8

24.3

20

22

24

26

28

30

32

34

36


Voic

e A

RP

M (

in p

ais

a)

Airtel Idea


* Voice ARPM contains certain estimations.

Exhibit 17: Total data consumption & data realisation trend

186,9

73.0

214,9

40.0

251,1

62.0

285,5

64.0

229,0

04.3

280,6

60.4

352,1

23.2

725,2

07.0

24.4 23.2

22.8 21.719.5

17.1

11.9

5.8

0

5

10

15

20

25

30

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

(in

Pais

a)

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

(M

illion M

B's

)

Total Data Consumption (RHS) Data Realization per MB (LHS)


ICICI Securities Ltd | Retail Equity Research

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC

Andheri (East)

Mumbai – 400 093

[email protected]

ICICI Securities Ltd | Retail Equity Research

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