The earnings for the June quarter (Q1FY24) so far have been better than estimates for the most part. Once again the earnings growth was propelled by domestic cyclical, such as BFSI (bank, financial services, and insurance) and auto while metals continued to drag, stated a report by domestic brokerage house Motilal Oswal (MOSL).
As of July 31, 33 Nifty companies have announced their Q1FY24 results. These companies constitute: a) 72 percent of the estimated PAT for the Nifty Universe, b) 46 percent of India's market capitalisation, and c) 77 percent weightage in the Nifty, informed the brokerage.
33 Nifty stocks have reported sales, EBITDA, and PAT growth of 8 percent, 29 percent, and 43 percent YoY versus estimates of 5 percent, 27 percent, and 41 percent, respectively. Of these, 12 companies have surpassed Street expectations, 9 missed and the remaining were in-line, highlighted the brokerage. Meanwhile, on the EBITDA front, 9 companies have exceeded estimates during the quarter whereas 10 missed, added MOSL.
Upgrades/downgrades: As per the brokerage, until now, 30 companies within MOFSL Coverage Universe have reported an upgrade while 35 have witnessed a downgrade of over 3 percent each, leading to an adverse upgrade-to-downgrade ratio for FY24E.
Automobiles, Healthcare, Real Estate, PSU Banks, and Metal sectors have recorded an FY24E earnings upgrade of 10 percent, 9 percent, 7 percent, 7 percent and 5 percent, respectively. Conversely, Oil & Gas, Technology, and Private Banks have witnessed an earnings downgrade, highlighted the brokerage.
Top FY24E upgrades: JSW Steel (34.1%), Tata Motors (28.2%), Dr Reddy’s Lab (15.2%), Kotak Mahindra Bank (6.2%), and Cipla (6.2%).
Top FY24E downgrades: Tech Mahindra (-10%), UPL (-7.2%), Tata Steel (-5.4%), HUL (-3.9%), and Infosys (-3.8%).
Sectors
According to the brokerage, the BFSI space recorded a 42 percent YoY growth while the Auto sector registered a profit of ₹10,200 crore (vs a loss of ₹2,900 crore in Q1FY23) driven by Tata Motors. Excluding Tata Motors as well, the Auto Universe posted a healthy 82 percent earnings growth in Q1FY24 so far, it noted.
Meanwhile, the brokerage also mentioned that OMC’s profitability surged to ₹24,300 crore in Q1FY24 versus a loss of ₹8,300 crore in Q1FY23 due to strong marketing margins. Ex-OMC, Nifty’s earnings rose 22 percent YoY, it observed.
However, the metals sector continued to drag the aggregates with a 64 percent YoY decline in earnings, led by Tata Steel (-92 percent YoY) and Vedanta (-81 percent YoY), it added.
IT services companies also reported weak performance in 1QFY24 with flattish median revenue growth QoQ in constant currency, in an otherwise seasonally strong quarter whereas in the consumer space, aggregate sales stood in line with estimates, but EBITDA/PAT exceeded expectations. The aggregate FMCG sector posted muted YoY volume growth, it informed.
Stocks
According to MOSL, profits of the 33 Nifty companies that have declared results were fueled by Tata Motors, BPCL, HDFC Bank, ICICI Bank and Axis Bank. These five companies have contributed 93 percent to the incremental YoY accretion in earnings. Tata Steel, Reliance Industries, and UPL have contributed adversely to Nifty earnings, it pointed out.
Among the Nifty constituents, Tata Motors, HDFC Bank, Kotak Mahindra Bank, Maruti Suzuki, JSW Steel, Asian Paints, Dr Reddy’s Labs, Cipla, Nestle, UPL, and SBI Life Insurance have exceeded profit estimates. Conversely, BPCL, Infosys, HCL Technologies, HUL, LTIMindtree, Tech Mahindra, Tata Steel, and Tata Consumer have missed profit estimates, said MOSL.
Only four Nifty50 companies have posted a YoY decline in PAT till now in their June quarter earnings - RIL, Tech Mahindra, UPL and Tata Steel.
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The brokerage noted that the Q1FY24 corporate earnings so far have been in line, with the performance of heavyweights, such as Tata Motors, BPCL, HDFC Bank, ICICI Bank and Axis Bank, driving the aggregate. The spread of earnings has been decent with 65 percent of MOSL Universe either meeting or exceeding profit expectations. However, growth has been led only by BFSI, Auto while the Oil & Gas sector reported a 2.6x surge in profit YoY underpinned by the improvement in marketing margins of OMCs, noted the brokerage.
It pointed out that Nifty is trading at a 12-month forward P/E of 19.1x, at a 5 percent discount to its own long-period average (LPA).
MOSL has largely maintained its sectoral allocations and weights and continues to rely on the sector winners with growth visibility driving our stock selection framework. It remains overweight on Financials, Consumption, and Automobiles but is underweight on Metals, Energy and Utilities and neutral on Healthcare and Telecom in its model portfolio.
