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Q1 Tipped To Be A Washout Quarter

Author: Kumar Shankar Roy/Wednesday, July 15, 2020/Categories: Exclusive

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Q1 Tipped To Be A Washout Quarter

India was under varying stages of a national lockdown during April-June 2020. Now, the Q1 or first-quarter results are expected to reflect some of the pain faced by listed companies in this period. At the outset, no one from the stock market expects Q1 to be a good one. It is likely to be an unparalleled quarter in terms of the extent of earnings fall. Let us take a quick look.

Overall picture

According to Motilal Oswal Research, 1QFY21 Nifty profits can decline 41 per cent. The brokerage estimates its universe of stocks in 1QFY21PBT/PAT to decline 52%/49% YoY, with autos, telecom, metals, capital goods and retail sectors posting losses. Private-sector banks and PSU banks are the only sectors likely to post marginal growth, while technology is expected to remain flattish.

Cement, utilities, oil and gas (O&G), consumer, insurance and NBFC sectors are expected to post double-digit declines. “Nifty sales are estimated to decline 30%YoY, while EBITDA/PBT/PAT should decline 18%/45%/41% YoY in 1QFY21. We expect the remaining quarters of FY21 to show gradual improvements QoQ,” Motilal Oswal Research added.


Credit growth in banking sector to remain subdued, but deposit growth accelerates amid rising risk aversion. With a new wave of retail NPAs expected and potential deterioration in corporate/SME book as well post Q2FY21, Emkay believe that banks with healthy PPoP (Pre-Provision Operating Profit) are likely to look at further shoring up specific PCR (Provision Coverage Ratio) on existing NPAs and also build higher Covid-19 contingent provisioning buffer to absorb the incoming asset-quality wave after the end of the moratorium period.

“Among large banks, we expect ICICI to report strong profitability, while Axis Bank may turn black from huge loss reported in Q4 to create strong provisioning buffer. Most mid-cap banks need to shore up provisioning buffer and thus should report subdued profitability. Among PSBs, SBI is likely to report healthy profits, helped by one-off gains. BoB reported a positive surprise in Q4, but we believe the bank needs to shore up its provisioning buffer amid having the highest moratorium rate among PSBs. PNB, Canara, Union and Indian will report merged financials for the first time and may continue to report losses,” Emkay added.

Oil & Gas

Edelweiss expects oil & gas sectoral EBITDA to fall off 41.1% YoY given a 51% YoY collapse in oil prices and a total lockdown in April 2020. Though gas transmission (GAIL, GSPL) was weak, it fared better than others with EBITDA falling relatively muted 19.5% YoY, partially assisted by a 56.9% YoY downswing in spot LNG prices.

 “RIL’s integrated model limits GRM impact ($6.5/bbl, -19.8% YoY) despite a forecast throughput volume dip (-11.1% YoY). RJio is the only exception with an estimated EBITDA rise of 41.8% YoY. iv) OMCs: Massive refining loss is likely due to negative GRMs and weak marketing sales volume,” it said. For ONGC, an 11% YoY fall in gas volumes and a 51% YoY fall in oil prices would dent EBITDA by 62.3% YoY.


Varying lockdown impact would mean a wide variation in the year-on-year comparables across companies. On an overall basis, staples will perform much better than discretionary, with some divergent trends within staples as well. Secondly, rural is likely to grow ahead of urban given lower Covid-led disruption.

Raw material price trends continued to be favorable for most companies; Operating margins across companies would depend on (1) the level of sales decline and associated adverse leverage, and (2) cost-rationalization initiatives including sharp cuts in ad-spends. “The industry bellwether (Hindustan Unilever) will see weak overall print – we expect a 12 per cent decline in organic revenues (-2% YoY including GSK-CH acquisition) in the domestic FMCG business led by 10% decline in UVG (organic). On a segmental basis, we bake in 5% YoY revenue growth for home care and 22% decline for personal care,” Kotak said.

The home insecticide category would report strong growth aided by spillover of March quarter sales, benefitting GCPL and JYL. These two would face pressure in other segments, of course – hair colors and GAUM cluster for GCPL and fabric care (post-wash) for JYL. For Dabur and Marico, Kotak has baked in a 13% YoY decline in revenue each with demand pressures in the hair oil portfolio.

 “For Jubilant Foodworks, we model a 68 per cent decline in SSSG; most outlets (except in containment areas and malls) are likely to have resumed delivery operations by quarter-end. For ITC, even as volumes bounced back quickly to near-normal levels after zero sales in the first 40 days of the quarter, we expect about 53% YoY decline in cigarette net sales led by 55% decline in volumes; expect cigarette EBIT to be down around 50 per cent,” the research outfit added.

Engineering & Capital Goods

The consequent lockdown has stalled execution in most countries across the globe, with a much sharper impact on India. Negative operating leverage is expected to more than offset the benefit from management cost reduction initiatives and lower commodity prices, impacting EBITDA. While companies are highlighting improving their collections since in April/May (deferred from March), working capital will continue to remain elevated with ongoing vendor support and weak infra payment cycles. 

“With essential services (power T&D, railways, water) permitted during the lockdown, KEC, KPP and L&T are likely to fare better in the EPC space. We expect revenues of product companies (ABB, Siemens and Cummins) to plunge 40-45 per cent. BEL to benefit from execution of ventilator orders–expected to sustain in H1FY21,” says Edelweiss.

Lack of order finalisation in Q1FY21 with ongoing deferment, muted private capex and demand disruption are likely to impact order inflow. However, orders from core infra segments, particularly water, railways, T&D, are likely to sustain. Additionally, a few companies will benefit from international orders.

“While Q1 is likely to be a washout quarter, management commentaries on how demand is reviving will be keenly watched. Though FY21 is likely to be a year of challenges for most companies, we prefer players who have consistently aligned their business models, exhibited high degree of adaptability and enjoy greater resource fungibility, ensuring sustainability and long-term scalability across cycles,” the research outfit added.


Nirmal Bang Institutional Equities expects 1QFY21 to be largely a forgetful quarter for auto and auto ancillaries, barring tractor and 2W players, which witnessed a relatively faster recovery in volume post unlocking in June. The industry lost more than half of the quarter’s sales due to the Covid-19 lockdown. Export focused OEMs fared better due to relatively faster recovery in the export markets. PV and CV segments lagged the recovery.

“Negative operating leverage on account of shutdowns/lower capacity utilization amid supply chain challenges/weak demand will likely affect margins. Tight cost controls and commodity cost tailwinds are likely to provide some support to margins. However, better-than-expected recovery in June v/s May and encouraging commentaries from OEMs indicate that performance is likely to improve significantly going forward,” Nirmal Bang added.


All segments across the media sector were significantly impacted by the Covid-19 led lockdown. Multiplexes were the most impacted segment as theatres were shut across the nation resulting in zero revenues and likely losses across EBITDA and PAT levels. Broadcasters were relatively better as subscription revenues were largely protected, although ad revenues are likely to decline sharply with a sharp decline in volumes as well as pricing, according to ICICI Securities.

Due to restrictions imposed on non-essential activities, the shooting of TV content came to a standstill from March-end itself. “Therefore, flagship GECs of both Zee, Sun TV depended upon repeat telecast of episodes throughout Q1FY21E, which does not command premium ad rates. Volumes also dried up given overall the macroeconomic activity halt. Ad revenues improved in the latter part of the quarter compared to April but on an overall quarter basis, ad revenue will see one of the sharpest ever declines,” ICICI Securities added.

The writer is a journalist with 14 years of experience


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