Not Earnings, But Weak Outlook Spooked Investors

It has been two weeks since India Inc. kicked off the first quarter earnings season. While most companies that declared results so far have met estimates, the cautious commentary by the management led to a selloff in their stocks.

Shares of Yes Bank, RBL Bank, DCB Bank, Cyient Ltd. and Mindtree Ltd., among others, fell in the range of 11-19 percent after the results announcement.

With several large caps set to declare their earnings this week, here’s what spooked investors of these stocks so far.

RBL Bank

RBL Bank expects deterioration in asset quality over the next two-three quarters owing to stress in its corporate book. The lender could also incur 35-40-basis point additional credit cost on account of corporate exposure, Managing Director and Chief Executive Officer Vishwavir Ahuja had said.

DCB Bank

The bank remains cautious in corporate lending where its book shrunk 13 percent. Higher slippages—fresh accretion of bad loans in a year—during the quarter came from five accounts, it said in a post-earnings conference call. DCB Bank, however, expects to recover or upgrade two accounts in the next couple of quarters.

Yes Bank

The bank reported poor asset quality in the April-June period and expects faster loan growth only in the second quarter. It also restricted credit costs at 125 basis points of loans in the ongoing financial year.

Still, Macquarie said the first-quarter results and the management’s commentary only make it clear that “Yes Bank faces a long journey back to credibility”. Its guidance of 125 basis points of credit cost is unreliable, Suresh Ganapathy, banking analyst at the research firm, wrote in a note.

While most brokerages cut target prices on Yes Bank after its June-quarter results, a few such as Axis Capital and Antique Broking put their estimates “under review”.

Federal Bank

The bank in a post-earnings conference call said it expects higher bad loans in the SME segment as repayment slowed on likely extension in moratorium of loans for Kerala. While Federal Bank maintained its guidance on credit costs and exit return on assets, it lowered its target for loan growth to 18-20 percent from more than 20 percent earlier.

IndusInd Bank

The bank expects fewer recoveries in stressed loans.

Karnataka Bank

The bank is monitoring its two main stressed accounts—Sintex Group with a Rs 95-crore exposure, and Dewan Housing Finance Corporation Ltd. with a Rs 100-crore exposure.

Bandhan Bank

Despite stable asset quality, the bank highlighted some “interruption in recoveries in Odisha”.

HDFC Bank

The bank’s credit growth softened in the June quarter. That was led by moderating auto loans and rundown of a few corporate assets. HDFC Bank expects higher pressure in its agricultural portfolio over the next couple of quarters, and thus made extra provision.

Cyient

The mid-sized tech firm refrained from providing revenue guidance for the ongoing fiscal, citing weaker-than-expected recovery in its key verticals such as aerospace and defence and communications.

Mindtree

While its deal pipeline remains healthy, the company said some “pockets of weakness” exist, which are a cause of concern. Also, increased uncertainty after senior management exits in the last few weeks has spooked investors.

L&T Group Firms

Revenue headwinds from top clients in the banking and financial services space continued to impact growth in the first quarter. While L&T Infotech Ltd. expects growth to improve only from the third quarter, L&T Technology Services Ltd. cut its FY20 revenue growth guidance to 12-14 percent from 14-16 percent.

Revenue growth was hurt by slowdown in spends in the telecom and hi-tech segments on account of geopolitical tensions between China and the U.S. The management expects this to continue in the second quarter as well.

TCS

Weakness in some clients in the U.S. capital markets, European banking and retail verticals hurt revenue growth in the first quarter. The company, however, aims double-digit growth in July-September period and is confident on medium-term demand outlook.

Wipro

The software services provider reported a weak first quarter with a revenue growth guidance of 0-2 percent for the July-September period.

Dabur

The consumer goods maker expects demand headwinds and higher competition to continue in the ongoing financial year. It guided for 5-6 percent growth in volume in FY20, citing farmer distress and liquidity constraints.

Bajaj Consumer Care

The FMCG company in a post-earnings conference call said growth moderated starting May 2019 and hasn’t picked up since then.

Colgate-Palmolive India

Slowdown in rural areas—from where the maker of namesake brand generates about 45 percent of revenue—hurt volume growth.

InterGlobe Aviation

The operator of India’s largest airline IndiGo remained cautious on yields—a measure of average fare per passenger per kilometre—in the second quarter as fares declined in July. The management also expects minimal upside from redistribution of Jet Airways’ international slots with Air India being the prime beneficiary.

Ambit Capital’s analyst Nitin Bhasin said the outlook appears uncertain as “Jet Airways’ bankruptcy effect is now behind us and visibility on demand growth is low”.

ACC

Though the cement maker’s number met estimates on higher prices, analysts are not too hopeful of a strong outlook. BofA ML expects weak demand to lead to a partial roll-back in price in the next quarter. While Citi expects the near-term pullback on volumes and pricing to be temporary, Kotak Securities said cement price hikes have started reversing on weak demand and prices and margins are likely to fall from current levels.

Dhanuka Agritech

The management, in a post-earnings conference call, said sowing was delayed due to the late onset of monsoon. To date, the monsoon is 16 percent deficient with regions in Vidarbha and Saurashtra facing water crisis, the company said, adding Gujarat is completely distressed.

Rallis India

The crop care provider in an earnings conference call said its working capital stress remains and raw material situation in China is still uncertain.