scorecardresearchQ2 earnings, a tale of mixed fortunes; A look at top FY23E upgrades and downgrades
According to an interim earnings review report by domestic brokerage house Motilal Oswal, profits of the 32 Nifty companies that declared results so far dipped 2 percent YoY against an estimate of -2.5 percent YoY, led by global cyclical.

Q2 earnings, a tale of mixed fortunes; A look at top FY23E upgrades and downgrades

Updated: 10 Nov 2022, 08:32 AM IST
TL;DR.
According to an interim earnings review report by domestic brokerage house Motilal Oswal, profits of the 32 Nifty companies that declared results so far dipped 2 percent YoY against an estimate of -2.5 percent YoY, led by global cyclical.

As of November 1, 2022, 32 companies from the Nifty50 index have announced their September quarter (Q2) results. The companies that have reported their earnings so far comprise 73 percent of the estimated PAT for the Nifty Universe, 53 percent of India's market capitalization, and 79 percent of weightage in the Nifty.

According to an interim earnings review report by domestic brokerage house Motilal Oswal, profits of the 32 Nifty companies that declared results so far dipped 2 percent YoY against an estimate of -2.5 percent YoY, led by global cyclical. Excluding these (global cyclical), profits would have grown 25 percent YoY (v/s est. 20 percent YoY), noted the brokerage.

Nifty stocks reported a sales and EBITDA growth of 24 percent and 6 percent YoY versus an estimate of 15 percent and 2 percent, respectively, it added.

Further, excluding the BFSI space, the Nifty profits would have decreased 14 percent YoY (v/s est. -13 percent), it added. Meanwhile, excluding the Metals and oil and gas space, the Nifty posted a solid 25 percent earnings growth, versus expectations of 20 percent, fueled by BFSI and Autos. Along with Metals and O&G, the Cement sector also dragged 2QFY23 earnings, the brokerage stated.

MOSL informed that five companies in Nifty reported profits below expectations, while 15 reported a beat in earnings and the remaining were in-line with the predictions.

Among the Nifty constituents, Bharti Airtel, Dr Reddy’s Labs, Ultratech Cement, Axis Bank, Sun Pharma, UPL, SBI Life Insurance, Maruti Suzuki, Tech Mahindra, Kotak Mahindra Bank, ITC, Nestle, and Bajaj Auto exceeded our profit estimates. Conversely, JSW Steel, Asian Paints, Tata Steel, Tata Consumer, and Wipro missed our profit estimates, said the brokerage.

Source: MOSL
Source: MOSL

"The Q2FY23 corporate earnings so far have been in line with the performance of heavyweights, such as RIL, HDFC Bank, TCS, ICICI Bank and Infosys, driving an in-line aggregate. The spread of earnings has been decent with 70 percent of our universe either meeting or exceeding profit expectations. However, the growth is being led by just BFSI and Autos with IT reporting single-digit (7 percent YoY) earnings growth while Metals, Oil & Gas and Cement recorded a YoY earnings decline for the quarter," noted the brokerage.

Going ahead, the brokerage believes that as the benefits of the recent moderation in commodity costs start accruing in H2FY23E, it expects other sectors to contribute too.

Markets have bounced back smartly in Oct’22 with Nifty-50 rising 5.4 percent and almost wiping out the entire YTD’CY22 decline. The Nifty-50 is now up 4 percent YTD in 2022. With this rally, Nifty now trades at 22x FY23E, comfortably above the LPA and offers limited upside in the near term, predicted MOSL.

It reckons the upside from here will be a function of stability in global and local macros and continued earnings delivery v/s expectations. In MOSL's model portfolio, it maintains an 'overweight' stance on BFSI, Auto, Consumer and IT; an 'underweight' stance on Energy, Pharma and Utilities.

The brokerage also stated that Nifty EPS for FY23E has been increased by 0.5 percent to 821 (from 817 earlier) driven by Axis Bank, Sun Pharma, HCL Tech and ICICI Bank. FY24E EPS was also raised by 0.4 percent to 989 (from 984 earlier), it added.

Top FY23E upgrades by the brokerage: Axis Bank (17%), Sun Pharma (6.7%), Maruti Suzuki (5.8%), SBI Life Insurance (5.4%), and Bharti Airtel (4.3%).

Top FY23E downgrades by the brokerage: Asian Paints (-18%), Reliance Industries (-6%), Wipro (-5.7%), Tata Consumer (-4.3%), and JSW Steel (-3.4%).

Source: MOSL
Source: MOSL

Sector-wise summary

1) Technology: Better-than-expected quarter for IT companies despite the challenging macro environment and continued supply headwinds. MOSL coverage universe reported overall revenue growth of 2 percent QoQ. Tier II companies posted better growth at 3.7 percent QoQ vs. 1.8 percent growth for Tier I companies.

2) Banks: Growth momentum has remained strong over 2QFY23 propelled by a pick-up in the corporate segment (primarily working capital loans), while growth in retail, business banking, and the SME segments continued to remain healthy, said MOSL.

3) Automobiles: The initial flush of results was encouraging from an OEM perspective, though Auto Ancillaries’ results were a mixed bag. OEMs’ performance was largely in line/above estimates, driven by strong volume growth, favorable commodity and currency, noted MOSL.

4) Consumer: At a topline level from a sectoral perspective, what is evident from the results so far is that urban and discretionary demand is holding up well but rural demand remains weak with no clear recovery in sight over the next few months, it said.

5) Oil & Gas: The sector so far has bagged mixed results with IGL and MRPL posting results below our estimates. Reliance performed in line with estimates as better-than-anticipated performance in the Retail segment was offset by relatively weak Standalone performance, said MOSL.

Source: MOSL report
Source: MOSL report
First Published: 10 Nov 2022, 08:32 AM IST