The July-September quarter (Q2) earnings of Nifty 50 companies have been broadly in line with expectations so far with domestic cyclicals, such as BFSI and auto, fuelling earnings growth, said brokerage firm Motilal Oswal Financial Services in its report on the interim review of the Q2FY24 earnings season.
The brokerage firm pointed out that as of November 1, 36 Nifty 50 companies have announced their Q2FY24 results. These companies constitute (a) 75 per cent of the estimated PAT for the Nifty Universe, (b) 49 per cent of India’s market capitalisation, and (c) 85 per cent of weightage in the Nifty, Motilal Oswal said.
The brokerage firm highlighted that the earnings of the 36 Nifty companies that have declared results so far jumped 35 per cent YoY versus the estimates of 31 per cent YoY, propelled by BPCL, HDFC Bank, JSW Steel, Reliance Industries, and ICICI Bank.
“These five companies contributed 73 per cent to the incremental YoY accretion in earnings. Conversely, Tata Steel, UPL, and Tech Mahindra contributed adversely to Nifty earnings. Only five companies within Nifty reported profits below our expectations, while 12 recorded a beat and 19 registered in-line results so far,” Motilal Oswal said.
“Among the Nifty constituents, HDFC Bank, ICICI Bank, Maruti Suzuki, JSW Steel, Bajaj Auto, Dr Reddy’s Labs, Ultratech Cement, Cipla, Hero Motocorp, Tech Mahindra, and Tata Steel exceeded our profit estimates. Conversely, UPL, Wipro, and SBI Life Insurance missed our profit estimates for the quarter,” said Motilal Oswal.
Top FY24E upgrades according to Motilal Oswal are Maruti Suzuki (10 per cent), JSW Steel (82 per cent), Cipla (7 per cent), Dr Reddy’s Lab (5 per cent), and BPCL (5 per cent).
Top FY24E downgrades according to Motilal Oswal are UPL (-11 per cent), Bharti Airtel (-8 per cent), Wipro (-8 per cent), HUL (-5 per cent), and Asian Paints (-3 per cent).
“Nifty EPS (earnings per share) estimates for FY24 and FY25 have witnessed a marginal rise so far at ₹993 and ₹1,139 versus ₹986 and ₹1,132, respectively, as downgrades in the technology sector have been offset by upgrades in BFSI and automobiles,” said the brokerage firm.
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Sectoral trends
Technology: The IT services companies reported a weak performance (although in line) in Q2FY24 with median revenue growth of 1 per cent QoQ (quarter-on-quarter) CC (constant currency), in an otherwise seasonally strong quarter, said Motilal Oswal.
The FY24 revenue guidance cut (Infosys, HCL Tech) came on the back of multi-year mega deal signings, which indicates a challenging second half of FY24 (H2FY24) with elongated ramp-ups and higher furloughs in Q3, said the brokerage firm.
Banks: Motilal Oswal pointed out that the earnings growth of the banking sector has broadly stood in line, owing to steady loan growth and robust asset quality even as margins compressed further (more resilient for PSU banks so far). Asset quality has continued to improve while SMA and restructured pool have remained in control.
NBFCs (Lending): Demand momentum has remained strong so far in personal utility vehicles and commercial vehicles. While lower-ticket housing demand has been buoyant, a weakness has been observed in affordable housing below a ticket size of ₹30 lakh, said Motilal Oswal.
Automobiles: Motilal Oswal said the automobile sector’s Q2FY24 results thus far have been promising, with most of the companies surpassing the brokerage firm’s EBITDA and PAT estimates.
“The positive results were largely been driven by (1) lower commodity costs, (2) better product mix, (3) favourable forex, and (4) operating leverage. We believe the EBITDA margin for most of the companies has peaked as it reflects all these tailwinds,” said Motilal Oswal.
Consumer: The overall FMCG sector posted muted YoY volume growth even as the pricing growth component is moderating, said Motilal Oswal.
Oil & Gas: The sector so far has reported mixed results. RIL outperformed our estimates due to its sustained performance in the O2C segment and better realization in the E&P segment, Motilal Oswal said.
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