Q1 Results Review: The corporate earnings for the first quarter of FY24 were strong and largely in-line with the street estimates with domestic cyclical sectors such as companies in BFSI and Automobile sectors driving the earnings growth.
The performance of India Inc. in the June quarter was highlighted by strong net profit growth with tepid rise in topline. Easing input costs supported margin expansion for most sectors during Q1FY24.
The financials and oil & gas companies contributed the majority of the net profit growth, while the Information Technology (IT) sector saw a sluggish performance. The healthcare sector saw 24% earnings growth after six consecutive quarters of flattish earnings.
The Nifty companies posted 32% earnings growth in Q1FY24 after a strong 23% earnings CAGR over FY20-23.
“BSE500 topline slowed further to 6% with nearly 30% of them posting topline contraction (usually happens during crisis). The slowdown is more pronounced in global oriented sectors (IT, chemicals), followed by low ticket consumption, while high end consumption and capex seem to be doing well,” Nuvama Institutional Equities said.
High domestic real rates, slowing global economy, risks broadening the slowdown, it added.
While the top line slowed, operating profit, or Earnings before interest, taxes, depreciation and amortization (EBITDA) growth for BSE500 (ex commodities and BFSI) accelerated to 22% as compared to 13% in Q4FY23 as lower input prices boosted margins.
However, analysts believe with input prices stabilising, the top line will be critical in shaping margins hereon.
Among sectors, IT Services companies reported weak performance during the quarter with flattish median revenue growth QoQ in CC, in an otherwise seasonally strong quarter.
The weakness in key verticals continued through Q1 with BFSI and Retail reporting a median USD revenue decline of 1.2% and 0.4% QoQ, respectively, according to brokerage firm Motilal Oswal Financial Services.
The banking sector posted a mixed Q1FY24, driven by healthy loan growth and sustained improvement in asset quality. However, margin trajectory reversed due to a sharp rise in funding costs.
The automobile sector saw upgrades for FY24E largely to factor in the benefits of better gross margin, thus aiding overall profitability and commentaries related to a sequential improvement in exports.
Meanwhile, the overall performance of Motilal Oswal Universe in the consumer sector was a mixed bag with a few companies reporting healthy volume growth while others posted healthy value growth during the quarter.
Overall, BSE500 saw a muted 1.4% upgrade to FY24 PAT estimates during the results season, with Travel (31%, led by Indigo), OMCs (25%), Automobiles (9%) and Tyres (7%) seeing the highest upgrades.
On the other hand, Chemicals (10%), Telecom (6%), Media (6%) and Metals (5%) saw the highest downgrades, as per IIFL Securities.
Companies that have seen FY24 PAT upgrades, but weak stock performances during the Q1 results season are Indigo, BPCL, HDFC Bank, Ultratech Cement and Apollo Tyres. On the other hand, companies seeing downgrades, albeit good stock performances include MCX, Sobha, PVR Inox, ACC, Tata Steel and Tech Mahindra, IIFL Securities said.
Going ahead, analysts at Nuvama Institutional Equities expect weak exports and rising domestic real rates could broaden earnings downgrades.
“The recent rally has rendered valuations expensive to both peers as well as interest rates backdrop– implying growth concerns are not priced in. We remain cautious. We are Overweight on defensives and sectors with margin tailwinds (FMCG, pharma, cement, autos, IT, Telecom, internet) and Underweight on cyclicals (BFSI, Industrials, metals),” Nuvama Institutional Equities said.
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