Sell

TCS: Prelude to darker Q1FY21. Oil & Gas: Q4FY20 Preview Pressure on cyclical earnings.

The company has not provided for 1QFY21E guidance, citing uncertainty. We cut our EPS estimates by 0.9/1.5% for FY21/22E. Our TP of Rs 185 is based on 11x FY22 EPS. We maintain REDUCE rating on Wipro based on lower than expected revenue and margin performance. Covid-19 related global slowdown will lead to cut in discretionary spending, pricing discounts and postponement of large deals wins. Headwinds in BFSI (Medium term), stress in Manufacturing (Auto) and ENU (Energy) will offset the improving outlook in Healthcare and Communication.

Wipro (WPRO) reported a subpar Q4FY20 with a miss on both revenue and operating margins.

Delay in payments by OEMs, coupled with higher fixed cost would increase the working capital days for auto-ancillary companies, which may impact the small and mid-cap companies the most. Q4FY20 Result Expectation: We have seen 10 days lockdown in March20 and muted demand leading to lower volumes and higher discounting. We expect all the OEM's to report decline in revenue on YoY and QoQ. Amongst OEM's like Ashok Leyland (AL) (-64%), TVS motors (TVSL) (-29%) and Hero MotCorp (HMCL) (-25%) to report decline in revenue on YoY. We expect highest YoY EBITDA de-growth for AL (84%),...

Accordingly, DMART should see 65-70% impact on its monthly revenue during the shutdown. Further, once the lockdown is lifted, the non-essential 30% product sales (which also include 10% apparel sales) may take some time to recover, as these are part of semi- discretionary products. The pace of store addition is also estimated to reduce from 28 to ~10 in FY21E. DMarts average cost of retailing is ~6-7% of stable state revenues, i.e. Thus, during the lockdown when sales impact is 65-70%, DMart could incur monthly EBITDA loss of ~INR400m, after factoring in 15-20% cost reduction due to opex savings from closed stores. Post lockdown, we expect swift revenue recovery given that 70% of DMarts business caters to the essentials category, against other apparel retailers, which may see severe impact. However, there could be some impact due to (a) 30% non-essential sales, and (b) lower new store addition in FY21.

Nifty IT index has corrected 16% since last one-month factoring in potential demand shock from COVID-19 spreading to key client markets (US/ Western Europe) along with oil price shock and potential impact on global growth. The COVID-19 crisis in our view will have more severe impact on global economy than GFC as its severity is increasing on day-to-day basis. As Indian IT growth expectation is anchored to global economy, COVID-19 could derail it...

BAF: Covid-19 to hurt loan growth; recovery only in H2FY22. Pharmaceuticals: Q4FY20 Preview Good Q4 for DRRD, LPC, DIVI, Laurus; FY21 guidance key to watch

The pharma sector is up ~1% YTD and has outperformed the Nifty Index by 28%. We prefer stocks with high India exposure as it offers greater earnings visibility, supported by reasonable valuations. Reiterate Buy on Cipla. Downgrade Dr. Reddy's to Reduce. Our positive stance on Indian pharma is premised on sectors relative resilience to Covid disruption, favorable currency tailwinds and stable outlook for India and US business. India growth has picked up (~10% growth for IPM as of MAT Mar20) and we forecast 11% growth for covered companies over the next two years. US pricing environment continues to remain benign and the regulatory challenges are well understood.

ARBP has mutually terminated its proposed acquisition of Sandoz asset (Novartis generic subsidiary). ARBP planned to acquire a part of Sandoz's generic business including oral solid and dermatology products in CY18 while expecting to wind up the deal by CY-20 March with USFTC's approval. With US$1,200m sales, ARBP agreed for the deal value of $US900mn and an additional payment of US$100m based on revenue milestones with the entire amount was to be funded by debt. While our estimated earning has not discounted potentials from Sandoz deal, we placed ARBP UNDER REVIEW'...

Companies like Larsen & Toubro and KEC with exposure to Middle East and North Africa (MENA) region are expected to get moderately impacted by the recent more than 30% fall in crude oil prices to US$35/barrel. This is expected to impact overall orders/awarding from MENA region. Companies like Elgi Equipments, AIA Engineering, Thermax, Engineers India and Kalpataru Power with exposure to international geographies like Europe, Middle East, China for sales or essential raw material may get impacted. Accordingly, we have tried to factor in the additional risk and revised our...