The March quarter earnings of most Nifty50 companies broadly came on expected lines even as it was led by a few sectors thanks to a plethora of headwinds in terms of the Ukraine war, a sharp jump in crude oil prices, elevated raw material prices, monetary tightening, and chip shortage and signs of slowing economies.
Some sectors met the expectations of the market while a few such as technology and cement saw some moderation. Banking, metal and consumer companies reported healthy earning numbers.
As the brokerage firm Motilal Oswal Financial Services (MOFSL) pointed out, corporate earnings continued to remain healthy in Q4FY22 and instilled a ray of hope, amid the grim situation plagued by the disruptions mentioned above.
"The MOFSL Universe earnings growth of 21 percent year-on-year (YoY) in Q4FY22, which was the lowest since Q3FY21, came on a high base of 99 percent growth in Q4FY21. While the aggregate growth appeared impressive, it was hardly broad-based and driven only by three sectors: BFSI, oil & gas, and metals," said Motilal Oswal.
"More than half of the incremental growth was steered by BFSI, driven by a modest revival in credit growth and improvement in asset quality trends. BFSI, commodities (metals and oil & gas) and IT accounted for 90 percent of incremental earnings YoY for our coverage universe," the brokerage firm added.
As per Motilal Oswal, Nifty sales, EBITDA and PAT growth was in line at 23 percent, 16 percent and 21 percent YoY, respectively, against its estimates of 28 percent, 19 percent and 23 percent YoY, respectively, while PBT growth came below its estimate at 22 percent YoY against its estimate of 28 percent YoY. Among the Nifty constituents, 42 percent of the companies beat the brokerage firm's PAT estimates, while 26 percent missed.
Nifty earnings per share (EPS) for FY23E was reduced by 0.7 percent to ₹864 from ₹870 earlier, largely due to notable downgrades in the earnings of ONGC, Hindalco, JSW Steel, and Tata Motors. FY24E EPS was broadly unchanged at ₹1,002 from ₹1,003 earlier.
Among the major sectors – private banks, consumer, NBFCs, metals, automobiles, and capital goods reported higher-than-estimated PAT growth, while oil & gas, healthcare, PSU banks, and consumer durables reported PAT below estimates. Technology and cement’s profits were in line with our estimates in Q4FY22, said Motilal Oswal.
As per the brokerage firm, the top earnings upgrades at stock level (FY23E) were as follows: BPCL (33 percent), Bajaj
Auto (15 percent), Asian Paints (14 percent), Hero MotoCorp (13 percent), and Mahindra & Mahindra (12 percent). The top earnings downgrades at stock level (FY23E) came in as follows: Hindalco (-29 percent), Tata Motors (-22 percent), JSW Steel (-13 percent), Divi’s Labs (-11 percent), and Apollo Hospitals (-8 percent).
"The adverse macroeconomic backdrop with heightened worries on rising interest rates, elevated crude oil prices and liquidity tightening has kept the market volatile and jittery. Meanwhile, the domestic earnings season continues to remain healthy and provides a silver lining, notwithstanding the challenges faced on multiple fronts," Motilal Oswal pointed out.
The brokerage firm expects the full impact of elevated input costs to be felt in the first half of FY23 as Q4FY22 had some benefits of lower raw material inventory.
"After the correction, the Nifty trades at 19.2 times FY23E, at its 10-year average P/E of 19.4 times. We find more value in largecaps than midcaps given the relative valuation equation. That said, we reiterate that earnings delivery is crucial for markets to hold, in an adverse milieu of volatile and challenging macro," said the brokerage firm.
Elara Capital is of the view that Nifty50 continued witnessing healthy sales growth with 26 percent YoY, with ex-financials growth at 27 percent YoY. This was due to higher commodity prices, given ex-commodities sectors’ sales growth dips to 11 percent YoY and price hikes undertaken across consumption sectors.
"The Nifty consensus EPS estimates were slightly trimmed 1 percent for FY23 and by 2 percent for FY24, respectively, in the past three months, to ₹879 and ₹1,020, respectively. We believe this was led by earnings erosion driven by margin pressures. While global factors may put downward pressure on markets in the near term, sustained earnings would provide strong support from any sharp fall," said Elara.
Disclaimer: The views and recommendations made above are those of the broking firm and not of MintGenie.