Q4FY18 – A MIXED BAG OF SOUR AND SWEET

By Ruma Dubey

This week marks the beginning of the earning season for Q4FY18. Q2 and Q3 were pretty stable, what with the disruption of demon and GST earlier. And now we have Q4 where there is murmur of more weakness that strength in the numbers.

Mind you, all YoY numbers will look superlative as there is the lower base effect on account of demon which happened in Nov’17.

As we enter a year-before-elections phase, with Parliament efficiency dropping to an all- time low, and scams coming out from every nook and corner, we can now get ready for some stock specific action.

Infosys will kick off the earnings season on 13^th April. Indusind Bank which is usually amongst the first banks to always declare quarterly numbers has not yet announced a date. TCS is scheduled for 19^th April.

Talking about IT first, not many expect any major upheaval in the sector. It is expected to be a steady and stable quarter but all eyes and ears will be on high alert for FY19 estimates as that will set the tone for the months to come. More than bigwig IT companies, the midcap sector is expected to show a much better performance. Wipro could show a muted Q4 while HCL Tech is expected to end the quarter on a high note. Usually, for the sector, Q2 and Q3 are the best as maximum IT spend decision companies happen then.

Of course all will be curious to see the extent of hit which PSU banks on their balance sheet. It is a given than PSU banks will have a weak Q4 as higher slippages are expected on the back of RBI’s new guidelines for NPAs. Yes, brace for higher NPAs. On the other hand, private sector banks will be relatively better placed with HDFC Bank, Kotak and Indusind expected to steal the show in the sector.

Banks loss will be NBFC’s gain. M&M Financial Services, Shriram Transport will report robust Q4 as commercial vehicles sales for the three months of Q4 have been consistently on an upward trajectory. In the same vein, Bajaj Finance is also expected to do well.

The capital goods sector, at least based on the order intake we have been seeing for some weeks and IIP/PMI data indicates that Q4 would be good. The market leader, L&T has been showing a robust order intake and it is expected that given the “election year” coming up, there will be a ramp up in infra build and companies like L&T, BHEL, Crompton Greaves, Thermax will do well.

Auto companies are estimated to have a very good Q4 given the very healthy sales numbers for Jan, Feb and March. Lower demon base effect will also be a very huge factor. Escorts, M&M, Maruti and Eicher will be the top performers.

As a trickle down effect, auto ancillary companies like Sona Koyo, Motherson Sumi, Bosch, Amara Raja, Wheels India; all are expected to end Q4 on a high note.

Ditto for tyre companies which will be aided by good growth in auto sector plus the advantage of the lower rubber prices The sector will see better revenue growth and stable rubber prices augur well for  margin expansion for MRF, TVS Srichakra, Apollo Tyres, JK Tyre & Industries, Goodyear India, Govind Rubber and Balkrishna Industries.

FMCG or consumer goods sector is also slated to do better as growth in earnings will be largely aided by volume increase. YoY expansions are expected to be good though we could see some margin pressure on home and personal care products due to rise in raw material prices. Britannia, HUL, Nestle and Colgate are largely expected to do well on the back of steady staples. Keep an eye out for Jubilant Foodworks and Titan.

Overall the picture looks good for the metal and Oil & gas sector too, especially oil marketing companies as they have seen robust refining margins. Upstream companies too will post good number due to higher oil price realization. In pharma, all companies with exports to USA will remain under the cloud while ‘desi’ companies like Cipla and Lupin would do well.

The telecom sector is expected to have a quarter which they would rather forget forever. Lower average revenue per user, tariff cuts will all have a telling effect; in fact most analysts expect Bharti Airtel and Idea to report losses.

Overall, it will be a mixed bag for Q4FY18 and one only hopes hat FY19 will throw up more gainers than losers.