Earnings Wrap Q1FY21 - ICICI Securities

- Q1FY21 (April-June) Corporate India results were expected to be a washout courtesy nationwide lockdown due to Covid-19 in April, gradual easing of restrictions starting May-June. At the index level, however, excluding banks & NBFCs and a couple of commodity players that are yet to announce quarterly results; topline fall was limited to 33% YoY. This represents resilience of India Inc. in challenging times with key sectors like IT actually growing YoY and arresting the topline decline. With bulk of people working from home and increased reliance on connectivity i.e. both data, voice, telecom sector actually outperformed with sales growing ~14% YoY thereby enabling smooth corporate functioning and validating the proverb "Data is the new Oil". On the profitability front, at the index level, operating profit decline for Q1FY21 was limited to 29% YoY led by ~100 bps expansion in EBITDA margins to 16.5%. It was largely driven by lower RM costs at key oil refiners amid ~38% QoQ decline in average crude prices and elevated retail fuel prices. RM costs as a percentage to sales for Q1FY21 was at ~40% vs. its usual trend of ~50%. Benefits of RM costs savings were negated by negative operating leverage given fixed nature of employee as well as large part of other expenses. In Q1FY21, PAT fell 43% YoY, aggravated by higher interest & depreciation charge and partially supported by lower effective tax rate.

- On sectoral front, in the banking space, key highlight for the quarter was reduction in proportion of moratorium from ~30-70% earlier to 10-18% for large lenders & 20-35% for mid-sized lenders. Healthy double digit decline in absolute figures of GNPA, NNPA to less than pre-Covid level was also encouraging. In FMCG pack, topline decline was limited to single digit with some categories like biscuits, noodles, ketchup, staples (Atta) seeing strong 20%+ growth aided by higher 'at-home' consumption. In telecom space, Airtel reported better than expected ARPUs (Rs. 157 in Q1FY21, up 1.8% QoQ) owing to calibrated price hikes.

- Going forward, with large macroeconomic data prints signalling path to normalcy, we expect Nifty EPS to grow at a CAGR of 19.4% over FY20-22E. We value Nifty at 12,000 i.e. 19x P/E (~1x PEG) on FY22E EPS of Rs. 630. Corresponding Sensex target is at 40,500 levels.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_EarningsWrap_Q1FY21.pdf

Source : Equity Bulls

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