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ICICIdirect Research Posted on 09:05am 27-Jul-2020

Telecom industry subscriber base dipped by 8.2 million in April, 2020 on account of lockdown and nonavailability of offline recharges....

* Market Outlook

Indian markets are likely to open on a flat note on the back of mixed global cues and positive opening of Asian markets. However, global news flows and earning outcomes of domestic companies would be key monitorables.

* Markets Yesterday

• Domestic markets ended marginally lower tracking weak global cues

• US markets ended lower amid concerns surrounding USChina tensions and rising Covid-19 cases


* Key Developments  

• Tech Mahindra will report Q1FY21 results today. It was severely impacted by the ongoing pandemic and is expected to report 8.7% QoQ decline in dollar revenues due to expected dip in BPS revenues, network revenues, seasonal dip in Comviva revenues, project deferrals. Rupee revenues may fall 5.6% QoQ to | 8959 crore. EBITDA margins are also expected to dip 199 bps QoQ to 12.2% due to a decline in utilisation, negative operating leverage. Key interest in today's conference call would be opportunities in 5G, improvement in discretionary spend, margin improvement in portfolio companies outlook on BPO revenues and long term growth opportunity

• For United Spirits in Q1FY21E, overall volumes are expected to de-grow 70% YoY to 5.7 million cases. We expect 69% de-growth in net revenues to | 699 crore. Hence, due to negative operating leverage and adverse product mix, absolute EBITDA, PAT are expected to report a loss of | 70 crore, | 179 crore, respectively

• Marico is expected to post 3.3% increase in sales mainly led by higher sales in March 2020 with increased stocking of Saffola & Parachute by consumer & retailers due to countrywide lockdown for 21 days. However, the company is facing challenges in terms of saturation of hair oil category & intense competition in edible oil category. We expect a 180 bps increase in operating margins with stable copra, rice bran, liquid paraffin prices & 12% decline in HDPE prices with steep decline in crude prices during the quarter. Adjusting for tax write-back of | 188 crore in base quarter, we expect flat earnings of | 217 crore

• For Kotak Bank, a cautious approach in auto and unsecured retail segment would keep advances growth moderate at ~6.5% YoY to | 221551 crore. Disbursement under credit guarantee scheme may lead to traction in MSME segment. Margin is expected to remain steady at ~4.6-4.7%, amid a steep decline in saving interest rate, forming 39.8% of deposits. Fee based income is seen remaining benign impacting PPP marginally at | 2580 crore. The bank has provided 30 bps of contingent provision in Q4FY20; additional provisioning further to keep credit cost higher at | 886 crore; i.e. 40 bps of advances, leading to earnings at | 1287 crore, up 1.7% YoY. Moratorium is expected to keep slippages benign with GNPA steady at 2.2-2.3% while provision is seen bringing down NNPA to ~0.6%. Subsidiaries including insurance, AMC and broking are expected to report a healthy performance 

• Havells’ consolidated sales are likely to decline ~52% led by ~60% YoY dip in industrial product categories. However, pent up demand in the appliances category in June 2020 would have limited the overall fall in revenues. Low operating leverage is likely to drag EBITDA margin by ~600 bps YoY at 4%. As a result, PAT may decline 89% YoY to ~| 19 crore 

• Escorts is expected to outperform the rest of the OEM pack during Q1FY21E on account of limited volume decline suffered by the company during the quarter (tractor volumes down 13.8% YoY to 18,150 units). Construction equipment and railway equipment segments, however, are expected to be soft. Net sales for the quarter is expected at | 1,074 crore, down 25% YoY. EBITDA in Q1FY21E is expected at | 123.5 crore with corresponding EBITDA margins at 11.5% (down 260 bps QoQ but up 150 bps YoY). Resultant PAT is expected at | 98.2 crore, up 12.2% YoY

• For Bharti Infratel, we bake in net tenancy addition of ~1000. We expect 1% QoQ decline in rental revenues at | 2229 crore, largely due to residual impact of exits (equipment removal) during previous quarters by VIL. Energy revenues would be flattish QoQ at | 1391 crore. Overall margins are expected at 50.5%, up 360 bps QoQ as Q4FY20 had one-off provision for debtors of ~| 193 crore. Key monitorables are Indus merger status, future outlook and growth plans

• Ambuja Cements recorded a healthy operating performance for Q2CY20 with EBITDA margin expansion of 389 bps YoY to 27.3%. In spite of complete lockdown in April, volume decline of 28% YoY was more than offset by lower costs, which fell 30.6% YoY. Further, higher other income (up 231% YoY) led the company to report PAT growth of 10% YoY

• Chennai Petroleum's (CPCL) operating revenue fell 53% YoY to | 5940.9 crore in Q1FY21. Crude throughput was down 49% YoY to 1.3 MMT. Reported PAT stood at | 271.6 crore

•  We expect Bharat Electronics (BEL) to report revenues at | 1739.8 crore with a decline of 17.2%, YoY on the back of supply chain disruption affecting execution. EBITDA margin is expected to decline 12.0% vs. 16.6%, YoY owing to product mix, resulting in absolute EBITDA decline of 40.1% YoY to | 208.6 crore. However, execution/acceptance of some projects may get affected due to the Covid-19 outbreak. Accordingly, we expect PAT to fall 47.6% YoY to | 107.2 crore. It has not announced any orders as on date for the quarter. Overall, strong order backlog of | 51970 crore is likely to augur well for BEL in the long term

• Coromandel International reported a strong set of numbers. Revenue grew by 50.6% YoY to | 3224 crore, largely driven by phosphatic sales volumes growth of 75% YoY. Better operating leverage resulting into EBITDA growth of 111% YoY to | 412 crore. OPM improved by 400bps YoY to 13%. PAT grew 304% YoY to | 251 crore due to better operational performance along with lower finance cost and taxes.

• Atul reputed revenue decline of 36.5% YoY to | 661 crore. The revenue from life science chemical fell by 22% YoY to | 271 crore, while the same from performance chemical declined by 43% YoY to | 421 crore. OPM improved by 100bps YoY to 24% largely due to better gross margins, resulting into EBITDA decline of 34% YoY to | 159 crore. PAT stood at | 118 crore (-20% YoY) owing to lower taxes and higher other income

• GHCL registered revenue decline of 49% YoY to | 452 crore. The revenue from inorganic chemical fell by 41% YoY to | 346 crore, while textile revenue was down by 64% YoY to | 94 crore. OPM contracted by 700bps YoY to 17% due to poor gross margins resulting into EBITDA decline of 64% YoY to | 76 crore. PAT remained at | 13 crore against | 98 crore in Q1FY20

• Control Print reported revenue de growth of 31% YoY to | 35 crore. Better gross margins led OPM to sustained, which stood at 24% against 26.9% in Q1FY20. EBITDA was down by 38.5% YoY to | 8.5 crore. PAT fell by 56% YoY to | 3.3 crore

• Telecom industry subscriber base dipped by 8.2 million in April, 2020 on account of lockdown and nonavailability of offline recharges. The active subscriber base dipped 31.3mn (down 4.2% YoY and 3.2% MoM) to 958 mn. Airtel’s active subs declined 8 mn to 307 mn and total subs dipped 5.3 mn. VIL’s active subs were most impacted with a decline of 14.1 mn to 280 mn and total subs dipped by 4.5 mn. New operator active subs base shrink 7.2 mn to 306 mn in April 2020. However, it saw total subs net add at 1.6 mn despite a tough situation

• India's oil imports fell 28.5% YoY at 3.2 mbpd in June due to maintenance shutdowns and weaker fuel demand

• As per media sources, Aditya Puri has sold 95% of his stake in HDFC Bank worth | 843 crore in July 21-24, 2020. Accordingly, his shareholding has been pared down from 0.14% to 0.01%

• Cipla has received restricted emergency use approval from the drug controller general of India (DCGI) for launching the antiviral drug Favipiravir in India for treatment of mild to moderate Covid-19 patients. The drug will be launched in the first week of August at a price of about | 68 per tablet (200 mg) under the brand name, Ciplenza

• As per the Financial Stability Report released by RBI, macro stress for credit risk revealed that GNPA's of all Scheduled Commercial Banks may surge from 8.5% in March 2020 to 12.5% in March 2021. This ratio may further escalate to 14.7% under severely stressed scenario.

• Axis Bank plans to raise | 12000 crore of equity capital which would take place either through a preferential allotment to PE funds or a QIP. As per media sources, Carlyle, KKR and Fidelity are interested to buy Axis Bank shares in the proposed QIP

• As per media sources, in a bid to provide support to the economy amid Covid times, RBI is likely to reduce repo and reverse repo rates by 25 bps and 35 bps, respectively, during its MPC meet held on August 4, 2020. Accordingly, repo and reverse repo are expected to be reduced to 3.75% and 3%, respectively

• As per USFDA disclosures, Lupin has initiated a class-II voluntary recall of ~4.9 lakh bottles of its Metformin Hydrochloride (anti-diabetic) extended-release tablets, 500 (1.2 lakh bottles) & 1000 mg (3.7 lakh bottles) from US. The drug, manufactured at the company's Goa manufacturing plant, is being recalled due to cGMP deviations and presence of N-Nitrosodimethylamine (NDMA) impurity above acceptable daily intake limits in some batches

• Zee Entertainment has entered into share purchase agreement with Mantena Aviation and Fly-By-Wire International, a wholly owned subsidiary of Zee for transfer of Equity Shares of the Subsidiary in two tranches for total consideration of | 27 crore

• BPCL is planning to restart its 200,000 bpd unit at Kochi refinery by July end after three week maintenance shutdown

• A CARE Ratings report estimates that CV volumes domestically could decline ~30-35% YoY during FY21E, with LCV segment seen performing better than M&HCV segment 

• The Civil Aviation Ministry extended the restrictions on domestic flights till Nov-24 or until further notice in view of Covid pandemic. The cap on airfares will remain in effect till the same period

• NMDC's steel plant at Nagarnar, Chhattisgarh, is facing delays in commissioning due to disruptions caused by the Covid-19 pandemic. NMDC was first expected to commence steel production at its Nagarnar plant in July 2019, but failed to do so and then the commissioning deadline was shifted to July 2020.It is now expected to take one more year to start production

• Media reports indicate I&B ministry has requested the Home Ministry to consider reopening cinemas from August 1 or at the latest by August 31. It also proposed to keep alternate row and adjacent seat vacant between two seats

• Following US alert, DGCA directs SpiceJet Air India express and Vistara to inspect their Boeing 737s that have not flown for more than seven days at a stretch

• As per media sources, NTPC has floated a tender to acquire 1 GW operational solar projects, entailing an investment of | 5000 crore. The company has a capex plan of | 21000 crore in current fiscal year, and most of it would be spent on new power generating capacities

• ARM Infra & utilities invoked pledge on 4.8% of share capital of Zee Media 

• Cyquator media services invoked pledge on 0.64% of share capital of Zee Entertainment

• Media reports state that EESL would be installing 2,000 single charger EV stations and 10 EV charging plazas across the country during FY21.

• Media reports state that the National Green Tribunal has provided the Road Transport Ministry an extension of two months to issue final notification on the vehicular scrappage policy.

• Bharat Forge's board of directors would meet on July 29 to consider fund raising via NCDs or term loans.

• ICRA Ratings has assigned AAA stable rating to ONGC's | 5000 crore NCDs issue


* Today's Highlights

Results: Marico, Bharat Electronics, United Spirits, Havells, Bharti Infratel, Pfizer, Tech M, V-Guard, Kotak Bank, Royal Orchid Hotel, India Cement, Vardhman Textiles, Escorts, Maharashtra Seamless, Orient Electric