1QFY20 Earnings - pain aggravating
The latest earning season has been disappointing on most counts.
If we can avoid getting into the nitty-gritty of the performance relative to
corresponding quarter of last year or immediately preceding quarter, we shall
find the reported earnings much below par across most sectors. The earnings
totally belie the high hopes, the street had from FY20 earnings.
There is a stampede amongst analysts to downgrade earnings
estimates to bring these in line with the market conditions. The unfortunate
part is that the revised earnings estimates also mostly appear driven by the
prevailing stock prices and not by the earnings potential and prospects of
businesses; and hence may not be reflecting the true state of the anticipated
corporate performance.
A significant majority of corporate managements guided caution
in terms of near term growth, indicating that the 2QFY20 earnings may also not
be encouraging. 2HFY20 outlook is generally optimistic, though no concrete
basis has been presented for the optimism.
The key highlights of earnings estimates could be listed as
follows:
- As per Motilal Securities' Research the Nifty Sales (6.4%), EBIDTA (2.8%) and PAT (5.1%) growth was below estimates. Sales growth was lowest in past 8qtrs. Pertinent to note that EBIDTA was pushed up by change in Accounting Standard for Leases (AS-116).
- Highest earnings growth was witnessed in airlines, financials and cement, while metals, auto & auto ancillaries and chemicals reported the highest decline. Cement was the only sector that surprised the analysts with strong numbers as the realization remained strong across regions and costs were under check.
- Pharma sector earnings stabilized after declining for many quarters.
- As per JM Financial Research, 11/50 Nifty companies cut capex guidance for FY20.
- Post earnings, various brokerages have downgraded Nifty earnings by ~5 to 6% for FY20 and by ~3.5-4% for FY21. However, ~18-20% Nifty EPS growth estimates for FY20 and FY21 still look rather optimistic and may see further rationalization post 2QFY20 results. As per Elara Capital Research, Among Nifty 50, 23 stocks saw an earnings beat (actual results exceed estimates by >5%) while 18 saw an earnings miss. The beat ratio (net earnings surprise divided by the total number of stocks) improved from -10% to 10%, largely due to earnings beat in metals, energy and IT. However we consider the broader markets, the companies missing the estimates were much more than the companies beating the estimates.
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