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Q3 earnings, a mixed bag: Brokerages name 15 largecaps that should be on your radar

Corporate tax rate cuts continued supporting earnings growth. BFSI and Consumer drove the earnings, while Metals dragged the aggregates.

February 20, 2020 / 09:55 AM IST
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The December-quarter corporate earnings season was a mixed bag with a slightly cautious tone from the management of India Inc.

Corporate tax rate cuts continued supporting earnings growth. BFSI and

Consumer drove the earnings, while Metals dragged the aggregates.

The Budget 2020 outlined the path of fiscal prudence over the short-term fiscal stimulus which is good for the long term, but might not help in boosting demand in the near-term, suggest experts.

High-frequency indicators on both consumption and investments remain weak and have resulted in successive downgrades for FY20 GDP growth estimate.

“Nifty sales declined 2% YoY (our estimate: -3%), while EBITDA/PBT/PAT increased 11%/4%/9% YoY. The performance was driven by BFSI, excluding which Nifty PBT was down 5% YoY and PAT was flat YoY (in-line),” Motilal Oswal said in a report.


“If BFSI drove the Nifty performance single-handedly, global cyclical like Metals and Oil & Gas dragged it. Ex-Metals and Oil & Gas, Nifty PBT/PAT were up 16%/22% which was largely in-line,” it said.

The brokerage firm further added that the commentary from corporates was mixed, and at best indicated a gradual recovery ahead. We continue seeing downside risks to our earnings estimates for FY21, it said.

The earnings season for Q3FY20 closed on a muted note amid geopolitical tensions, but now rising fears of supply disruptions due Coronavirus spread could weigh on March quarter results and the recovery in earnings is still some time away, suggest experts.

“Corporate commentary was cautious but with less negative tones – a drift towards positivity in a few but largely the tentative stance of the majority of the managements was obvious,” Amit Khurana, Head of Equities & Research, Dolat Capital said.

“There were pointers that suggested towards some green shoots but too early to call for a decisive turnaround,” he said.

We have collated a list of large-cap stocks from various brokerage firms which fall under their top picks post-December quarter earnings:

Brokerage Firm: Motilal Oswal


FMCG major Hindustan Unilever on January 31 reported an 11.9 percent year-on-year growth in the December quarter profit at Rs 1,616 crore, driven by lower commodity cost and other expenses.

Motilal Oswal is of the view that the macroeconomic indicators are pointing toward some pressure on near-term market growth. Nevertheless, HUL appears to be confident of performing well even in a relatively difficult environment.


Housing Development Finance Corporation (HDFC), the country's largest housing finance company, on January 27 registered a whopping 296 percent year-on-year growth in standalone profit due to fair value gain after the merger of Gruh Finance with Bandhan Bank.

Motilal Oswal is of the view that HDFC has guided for 15 percent AUM growth in the retail lending segment while also indicating that corporate disbursements would be opportunistic.


The country's second-largest software company Infosys grew 10.9 percent sequentially in profit terms and 2 percent on the revenue front in the quarter ended December 2019.

The management has guided for a strong large deal wins with TCV up 56 percent on a YoY basis for 9MFY20 which reflects robust demand. However, BFSI outlook remains cautious. In terms of margins, Cost-optimization levers include pyramid rationalization, onshore effort reduction and automation.


Buoyed by a strong performance across metrics, ICICI Bank reported its highest-ever quarterly profits (supported by Essar resolution) in 3QFY20. Loan growth in chosen business segments (Retail, Business Banking & SME) remained buoyant, while deposits growth moderated in the quarter.

Slippages adjusted for the two corporate accounts were on track, while retail slippages rose due to seasonal weakness in agri segment, said the report.

Motilal Oswal expects the operating performance to remain healthy, while high PCR (provision coverage ratio) and limited exposure to stress names will keep credit cost under control.

While its retail portfolio has been growing well, growth in business banking and SME is accelerating strongly and will further propel overall loan growth, the report said.

Bharti Airtel:

A recent price hike along with healthy 4G subscriber adds improved ARPU, which in turn increased EBITDA in December quarter. Further, slowing down of network opex and capex generated healthy annualized FCF for the telecom major.

Bharti Airtel has already turned FCF positive (post-interest cost), which, in our view, is its major strength. Increasing EBITDA, declining capex and subsequent deleveraging should improve valuation, said the Motilal Oswal report.

State Bank of India:

SBI reported a strong quarter, supported by NCLT recoveries, improving fee income trends and controlled opex driving healthy PPoP growth.

However, the net profit or PAT came in lower than expected owing to one-time DTA hit, as the bank exercised the option of the lower tax rate. Further, the slippage trajectory remains elevated, led by one stressed HFC account and RBI divergences.

Motilal still maintains buy but slightly slashed its EPS estimate for FY21/22 by 3%/5% as it moderate loan growth assumption to reflect economic slowdown.

Maruti Suzuki:

Maruti Suzuki December quarter results are a reflection of the company’s efforts to revive demand through discounts during the festive season and ahead of year change/BS6 transition.

Motilal Oswal believes that MSIL’s operating performance has bottomed out and recovery is expected from 1QFY21. The domestic brokerage firm maintains its FY20/FY21 EPS estimates and would buy into any weakness post such weak results.

Larsen & Toubro:

Infrastructure and engineering major Larsen & Toubro (L&T) reported profit growth of 15.15 percent year-on-year (YoY) to Rs 2,352 crore in the quarter ended December 2019, driven by lower tax cost (down 37 percent YoY) and operating income.

L&T is Motilal Oswal’s top pick in the capital goods sector, given (a) better domestic execution, (b) working capital cycle improvement and (c) leaner balance sheet due to non-core asset divestment.

L&T also maintained its guidance of sales growth of +12-15 percent on a YoY basis, order inflow of 10-12 percent and EBITDA margin of 10.5 percent (ex-services) in FY20.

HCL Technologies:

HCL Technologies beat street estimates to post 14 percent jump in third-quarter net profit at Rs 3,037 crore against Rs 2,651 crore in the quarter ended September 2019.

HCL has narrowed its guidance for FY20 revenue growth to 16.5-17 percent from 15-17 percent. The management has guided for a robust deal pipeline which is at an all-time high and the management is confident of higher conversion. 9MFY20 saw good order booking, though there were no huge deals.

UltraTech Cement:

UltraTech Cement, one of India’s largest cement manufacturers, on January 24 posted lower-than-expected numbers for the December quarter.

On a standalone basis, the company's net profit jumped 48.5 percent YoY to Rs 643.2 crore, which was below the expectations of the brokerages.

Over the next 12-18 months, UltraTech will continue integrating and upgrading acquired capacities, thereby reducing costs and cutting leverage, said the Motilal report.

Brokerage Firm: Edelweiss Professional Investor Research

Nestle India:

FMCG major Nestle India Ltd on Thursday reported a 38.40 percent increase in net profit at Rs 473.02 crore for the quarter ended December, helped by volume growth.

The company, which follows January-December financial year, had posted a net profit of Rs 341.76 crore in the corresponding quarter a year ago.

Net sales rose 8.75 percent to Rs 3,130.74 crore during the quarter under review as against Rs 2,878.83 crore in the corresponding quarter last year, Nestle India said in a regulatory filing.

Pidilite Industries:

Pidilite Industries on a consolidated basis reported a 53.8 percent jump in net profit to Rs 341.78 crore in Q3 December 2019 as against Rs 222.29 crore reported in Q3 December 2018. Consolidated net sales inched up 4.3 percent year on year (YoY) to Rs 1926.59 crore.

Dabur India:

Dabur India posted in-line numbers for the quarter ended December 2019 (Q3FY20) with consolidated net profit rising 8.9 percent to Rs 400 crore against the CNBC-TV18 estimates of Rs 400 crore.

The company had reported a profit of Rs 367.2 crore in the same quarter last fiscal. Revenue of the company was up 7 percent at Rs 2,353 crore against Rs 2,199.2 crore, YoY.

Titan Company:

The company reported a 12.9 percent year-on-year growth in Q3FY20 profit-driven by better-than-expected operating numbers and lower tax cost.

The management has maintained 11-13 percent YoY (base of 21.1%) jewellery sales growth guidance for Q4FY20. CaratLane turning EBIT positive is also encouraging.

Watch segment’s revenue dipped 2.4 percent YoY impacted by weak demand and liquidity stress at wholesale level while robust store addition pace sustained (up ~22% YoY) and remains a strong growth driver.

Tata Global:

Tata Global Beverages Ltd on Tuesday reported a 24.76 percent increase in consolidated net profit at Rs 135.85 crore in the third quarter ended December, aided by higher sales and lower tax rate.

The company had posted a consolidated net profit of Rs 108.89 crore in the year-ago period, Tata Global Beverages Ltd (TGBL) said in a regulatory filing.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.
first published: Feb 20, 2020 09:55 am

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