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Consequently, we prefer ICICIBC, AXSB and KMB amongst the large caps. We prefer CUBK amongst the pack of smaller regional banks. We maintain our REDUCE rating on RBK and KVB, despite their sharp underperformance. Recent events (YES and COVID-19) are likely to have multiple order and far reaching impacts on the banking sector. COVID-19 will obviously impact growth and asset quality. The events at YES have impacted depositor sentiment, causing them to become more risk-averse, we believe. Consequently, the less obvious (but equally important) impact is expected to play out on the liabilities side. In such a scenario, we believe deposit flows will become more polarised. Larger banks, with strong granular liability franchises, reasonable asset quality performance and sufficient capital are likely to emerge stronger.
Extended lockdown drives estimates/TP downgrades for FY21/22E: Despite sharp correction in retail stocks, we see few value buys as for most, price performance is reflective of reduction in earnings power, esp. in apparel. (EBITDA cuts for FY21/FY22 range from -14 to 57%/-7-30% across universe). Subsequently TP cuts across universe range from -6 to -42%. We maintain our BUY rating on V-MART & ABFRL and SELL rating on D-MART. Impact of Covid-19 and FY21 template: Retail is likely to be among the worst hit sectors by COVID-19. Revenue declines across coverage is likely to range between 3-14% in 4Q. Impact on profitability (EBITDA) will be even higher (-14% to severe losses in FY21 ex-DMART) given the high fixed cost base in biz models. In this backdrop, Assessing 1. Foregone vs recoverable revenue, 2. Inventory fungibility/quality across seasons, 3. Capital to cover fixed costs and 4. Leverage position will assume centre stage.
We continue to believe that TCS' trinity of growth-scale-durability is challenged as risks to large deal ramp-up and cut in discretionary spend have increased. While TCS' supply metrics are resilient, demand dent is overwhelming with a deeper NorthAm/BFS impact and limited exposure to higher velocity verticals. Gains arising out of vendor consolidation/market-share, pipeline conversion and new business opportunities (accelerated cloud migration, remote solution & cybersecurity) will be offset by cuts to IT budgets, we've factored 6.1/8.5% decline in FY21 Rev/PAT. Valuations at 19.4x FY22E is in-line with its 10-yr avg. We maintain REDUCE on TCS following a miss on rev and slightly better operating performance. Demand-related factors to worsen while supply constraints are expected to recover ahead. The parallels to GFC are apparent (similar trajectory expected in 1HFY21), although this will be more broad-based. TCS estimation of recovery in 3Q-4QFY21 is a steep ask in context of 1HFY21 decline, but premised on its order-book and pipeline. Our TP of Rs 1,680, is based on 19x FY22E EPS (~5% cut in EPS est).
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.
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
