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
ICICI Securities Ltd. | Retail Equity Research
Page 2
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)
Source: Capitaline, ICICIdirect.com Research
#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 (%)
Source: Capitaline, ICICIdirect.com Research
#Data is based on 24 companies (excluding banks, NBFCs)
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
ICICI Securities Ltd. | Retail Equity Research
Page 3
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
Source: Capitaline, ICICIdirect.com Research
#Data is based on 24 companies (excluding banks, NBFCs)
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,
#Data is based on 24 companies (excluding banks, NBFCs)
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 (%)
Jun-17 Jun-16 Mar-17
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
Source: Capitaline, ICICIdirect.com Research
Industry wise net profit contribution (%)
Jun-17 Jun-16 Mar-17
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
Source: Capitaline, ICICIdirect.com Research
ICICI Securities Ltd. | Retail Equity Research
Page 4
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
ICICI Securities Ltd. | Retail Equity Research
Page 5
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
Source: Company, ICICIdirect.com Research
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
ICICI Securities Ltd. | Retail Equity Research
Page 6
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
Source: Capitaline, ICICIdirect.com Research
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
Source: Capitaline, ICICIdirect.com Research
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
ICICI Securities Ltd. | Retail Equity Research
Page 7
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
Source: Company, ICICIdirect.com Research
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
Source: Company, ICICIdirect.com Research
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
ICICI Securities Ltd. | Retail Equity Research
Page 8
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 (
%)
Source: Company, ICICIdirect.com Research
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
ICICI Securities Ltd. | Retail Equity Research
Page 9
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,
ICICI Securities Ltd. | Retail Equity Research
Page 10
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
ICICI Securities Ltd. | Retail Equity Research
Page 11
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%
ICICI Securities Ltd. | Retail Equity Research
Page 12
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
Source: Company, ICICIdirect.com Research
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
ICICI Securities Ltd. | Retail Equity Research
Page 13
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
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18
Upstream 0.0 0.0 0.0 0.0 0.0
Downstream 0.0 0.0 0.0 0.0 0.0
Government 100.0 100.0 100.0 100.0 100.0
Total 100.0 100.0 100.0 100.0 100.0
Sharing of gross under-recoveries (%)
Sharing of gross under-recoveries (| crore)
Source: Company, ICICIdirect.com Research
Sales from US & India (| crore)
(| crore) 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
Source: Company, ICICIdirect.com Research
Key parameters in Q1FY18
Q1FY17 Q2FY17 Q3FY17 Q4FY17 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
ICICI Securities Ltd. | Retail Equity Research
Page 14
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)
Source: Company, ICICIdirect.com Research
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
ICICI Securities Ltd. | Retail Equity Research
Page 15
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
ICICI Securities Ltd. | Retail Equity Research
Page 16
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
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18
Voic
e A
RP
M (
in p
ais
a)
Airtel Idea
Source: Company, ICICIdirect.com Research
* 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)
Source: Company, ICICIdirect.com Research
Page 17 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
Page 18 ICICI Securities Ltd | Retail Equity Research
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