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Earnings Wrap Q4FY20: Quarter end lockdown takes toll, one-offs rule Q4FY20

Posted On: 2020-07-06 05:53:39

- March quarter (Q4FY20) results were muted given nationwide restriction on movement of goods amid the outbreak of Covid-19 and given its concurrence with the crucial last week of the quarter as well as financial year. At the index level, on the topline front, ex-financials, the Nifty witnessed a topline decline of 6.4% YoY while operating margins came off by 200 bps QoQ to 14% in Q4FY20. Operating margin decline amid gross margin expansion was largely tracking perils of negative operating leverage. Raw material costs for Q4FY20 declined ~250 bps QoQ to 49% while other expenses increased ~400 bps QoQ to 25.5%. Consequent operating profit decline was to the tune of 15.4% YoY. This coupled with increase in interest and depreciation charge amid lower effective tax rate led to >20% YoY decline at the adjusted PAT level for Q4FY20. However, PAT for Q4FY20 was subject to a lot of adjustment (impairments, tax reversals, forex losses). Blended tax rate in Q4FY20 was at 18.2% vs. 23.7% in Q4FY19, tracking reinstatement of DTL/DTA due to change in corporate tax regime during the fiscal year.

- On the sectoral front, key highlights include healthy ARPUs reported by all operators in the telecom space given calibrated price hikes and increasing reliance on digital economy amid Covid outbreak. Banking sector results for Q4FY20 were highlighted by Covid provisions ranging from 0.2-1% of advances and moratorium on loans being ~20-30% for large lenders & ~35-70% for mid-sized lenders. In the cement space, outperformance was witnessed tracking expansion in operating margins amidst higher realisations. In the auto pack, given the 20%+ decline in volumes, most companies reported a muted operating result

- Extended lockdown and muted economic activity due to Covid-19 in Q1FY21 led to a downward revision in our Nifty earnings, going forward. Given cautiously optimistic management commentary, the demand recovery is expected to be gradual or U shaped in nature. We now expect Nifty earnings to grow at a CAGR of 16.0% over FY20-22E, albeit on a low base and value the Nifty at 10,300 i.e. 1.2x PEG on FY22E EPS of Rs. 543 with corresponding Sensex target placed at 34,800

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Source: Equity Bulls

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