First Quarter FY 21 Corporate Results Beat Expectations

The June-quarter (1QFY21) corporate earnings for Motilal Oswal's coverage universe were better than expectations. Motilal Oswal Institutional Equities in a report noted that sales for the first quarter ending June 30, 2020 were impacted by the COVID-led lockdowns; however, Corporate India undertook stringent cost control measures to protect their bottom line and arrested the decline in operating profit.

According to the report Healthcare, Utilities, Private Banks and Technology sectors reported YoY profit growth, while Autos, Retail, Metals and Telecom posted losses. Overall, management commentaries indicated MoM improvement in demand during the quarter after easing of the lockdown restrictions.

Nifty sales declined 29% YoY (v/s est. -30%), while EBITDA/PBT/PAT declined 6%/30%/26% YoY (v/s est. decline of 11%/39%/35%). While >50% of Nifty-50 companies reported a beat on our PAT estimates, results of some key index heavyweights like Reliance, TCS and ITC were below expectations.

According to MOFSL Universe's sales/EBITDA/PBT/PAT declined 30%/10%/36%/35% YoY (v/s est. decline of 31%/16%/45%/43% YoY). Six sectors posted YoY profit growth - Healthcare (27%), Utilities (16%), PSU Banks (10%), Life Insurance (4%), Private Banks (1%) and Technology (1%). Automobiles, Metals, Retail and Telecom posted losses in line with expectations. Capital Goods, Cement, Consumer, Oil & Gas (O&G) and NBFCs posted YoY PAT declines of 86%, 38%, 20%, 11%, 10% (v/s est. YoY declines of 86%, 67%, 29%, 10%, 19%).

Sectoral Highlights

Healthcare and Technology stood out: MOSL Healthcare universe had a spectacular run this quarter with PBT/PAT growth of 29%/27% YoY (v/s est. decline of 6%/5% YoY). Three aspects drove the outperformance: (a) Strong revenue and better operating leverage by API companies, (b) Sharp margin improvement due to cost savings in the domestic formulation (DF) segment, offset by (c) High base of the past year and company specific reasons impacting performance of the US segment. Our Technology Universe posted in-line PAT growth of 1% YoY, despite a miss by TCS. Commentary remains stable, while deal wins and deal pipeline are encouraging for most IT companies. 11 out of 13 companies under Motilal Oswal's coverage have seen upgrades in FY21 PAT estimates.