scorecardresearchQ4 earnings preview: Nifty growth seen at 14% driven by BFSI, autos; FY24

Q4 earnings preview: Nifty growth seen at 14% driven by BFSI, autos; FY24 to remain challenging, says MOSL

Updated: 10 Apr 2023, 03:56 PM IST
TL;DR.

In the March quarter of FY23 (Q4FY23), the brokerage expects MOSL earnings to rise 15 percent YoY while Nifty earnings are likely to grow 14 percent YoY.

Domestic brokerage house Motilal Oswal pointed out that the only solace in an otherwise hard time can be derived from the fact that corporate earnings were healthy during 9MFY23.

Domestic brokerage house Motilal Oswal pointed out that the only solace in an otherwise hard time can be derived from the fact that corporate earnings were healthy during 9MFY23.

FY23 was an extremely volatile year with higher interest rates, FII outflows, consumption slowdown, weak global macros, higher inflation, as well as the US and European banking crises.

However, domestic brokerage house Motilal Oswal pointed out that the only solace in an otherwise hard time can be derived from the fact that corporate earnings were healthy during 9MFY23. Therefore, despite multiple headwinds at play, Nifty outperformed the world markets during the first nine months of FY23 and closed flat by end of the fiscal year. This was primarily underpinned by an expected resilient 12 percent YoY earnings growth for Nifty in FY23E on a high base of 34 percent YoY growth in FY22, it said.

In the March quarter of FY23 (Q4FY23), the brokerage expects MOSL earnings to rise 15 percent YoY while Nifty earnings are likely to grow 14 percent YoY in Q4FY23. Earnings growth would be fueled by BFSI and auto sectors, which are likely to rise 37 percent and 70 percent YoY and contribute 70 percent and 20 percent of incremental YoY earnings for MOSL universe for 4QFY23, respectively, it forecasted. Further, IT, consumer and O&G sectors are expected to post 11 percent, 10 percent and 16 percent YoY growth, respectively, during the quarter, it added.

It also pointed out that the earnings performances for both MOSL universe, as well as Nifty, in Q4FY23, are likely to be lopsided and led by a few heavyweights. Five companies within MOSL universe (SBI, IOC, BPCL, Indigo, and Tata Motors) are expected to contribute 72 percent of the incremental YoY accretion in earnings. Similarly within Nifty, five companies (SBI, ICICI Bank, ONGC, Tata Motors, and BPCL) are likely to contribute 82 percent of the incremental YoY accretion in earnings, it noted.

It also predicted that the sales and EBITDA of MOSL universe are likely to grow 9 percent and 13 percent, while for Nifty, it expects the sales and EBITDA to rise 9 percent and 16 percent, respectively.

However, it cautioned that the aggregate performance of MOFSL universe is likely to be marred by a sharp drag from metals, which is likely to report a 35 percent YoY earnings decline.

Cement and specialty chemicals are expected to report an 8 percent and 6 percent YoY earnings decline while healthcare should post a modest 9 percent YoY growth in Q4FY23, it further predicted.

Meanwhile, the EBITDA margin is projected to contract 1000 bps YoY for MOSL universe (excluding OMCs and financials) to 19.6 percent while that for Nifty companies is likely to stay flat YoY to 21.9 percent during the quarter, it added.

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PAT Q4FY23 estimates by MOSL

FY24 Earnings

While the earnings remained resilient in FY23, the brokerage noted that FY24 offers a challenging pitch for corporate earnings. "As we usher in FY24, there are three important variables that will dominate investor conversations on corporate earnings in our view," said MOSL.

First, after a spectacular run for five years where the earnings surged 5x to 2.1 lakh crore in FY23 from 45,000 crore in FY18, the growth in BFSI earnings will now normalize as the bulk of the benefits of lower credit costs from asset quality clean-up and recovery is behind. This coupled with higher deposit costs and consequent cap on NIMs will result in earnings normalization, it stated.

Second, the domestic consumption slowdown has become well-entrenched in both staples as well as discretionary sectors with very few exceptions. Thus, the onset and progress of monsoon assume importance given the subdued rural consumption backdrop, further said MOSL.

Third, the weak global growth and higher interest rates coupled with flux in the US and European banking sectors have earnings implications for globally-linked sectors such as commodities and technology, which together comprised 40 percent of the Nifty profit pool in FY23, it added.

EPS Estimates

The brokerage has maintained its FY23 Nifty EPS at 812 but cut the FY24 and FY25 EPS estimates by 1.5 percent and 2.2 percent to 978 and 1,119, respectively. It forecasts the Nifty EPS to grow 12 percent in FY23. Financials alone are likely to account for 82 percent of the incremental FY23E earnings growth for Nifty. Ex-BFSI, MOSL expects Nifty FY23 earnings to grow by a measly 6 percent; while ex-metals and O&G, Nifty FY23 earnings are expected to post 23 percent YoY growth, it estimated.

MOSL Top Ideas:

Large-caps ICICI Bank, ITC, L&T, M&M, Infosys, Ultratech Cement and ONGC.

Mid-capsAshok Leyland, Vedant Fashion, Metro Brands, M&M Financial Services, APL Apollo, and Godrej Properties.

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Top five sectors likely to contribute more than half of the earnings growth
First Published: 10 Apr 2023, 03:56 PM IST