COVID-19 impact | AI/ML | Financial Statements


Instinct: COVID-19 resulted in a demand-side shock for Vitality firms (In easy language, much less individuals fueling) leading to lesser revenues and therefore oil firms posted losses. Amongst shopper firms, Shopper Defensive(those promoting staple and recurring stuff) stayed put because the demand for his or her merchandise is comparatively inelastic whereas Shopper Cyclicals (these promoting impulse and comfort objects) had their earnings drop considerably. Inelasticity of demand explains the low impression on Utilities firms as nicely. Tech additionally emerged comparatively unscathed, because of elevated WFH, accelerated push in direction of digitization and many others.

Further Commentary: Observe a set of pink dots on the prime of Sector 3 (Shopper Defensive) tower — these are more likely to be the impact of the likes of Coca Cola, Pepsi and many others. with excessive variety of fulltime workers that posted QoQ decline in Q2

Capex deep-dive: Corporations with excessive capex to income ratio have been hit onerous — search for the development of dots within the graph under (Observe: Y-axis =Energy/Affect on the mannequin. Colour of dot = Diploma of affect of key secondary issue i.e. Whole Income).

Impression of Capex to Income ratio (and Whole Income) on >10% Web Revenue decline between Q2FY19 and Q2 FY20. Picture by writer.

Instinct: COVID-19 suppressed revenues. Corporations may have probably acted swiftly to include Opex to some extent, nevertheless, increased Capex(prices incurred to create potential revenues in later years) in yester-years would suggest increased depreciation on P&L and therefore decrease Web Revenue. Additionally, wanting on the pink dots in direction of the highest, it may very well be inferred that firms with larger absolute Capex (not simply Capex to Income ratio) are those most impacted.

P/E ratio deep-dive: Corporations with increased chance of posting >10% drop in earnings had a decrease P/E (Value to Earnings which can be similar because the ratio of Market Cap to Web Revenue) than others.

Impression of Market Cap To Web Revenue ratio on >10% Web Revenue decline between Q2FY19 and Q2 FY20. Picture by writer.

Instinct: Mr. Market is at all times proper. Resilience of a inventory is priced into its value premium i.e. an organization with increased high quality of earnings(contains potential to carry on within the face of adversarial market circumstances) can be priced increased than one with decrease high quality. The shares, which the market thought are higher, on a mean, weathered COVID-19 storm higher from an earnings perspective.


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