Nifty EPS outlook for FY24 raised by 2.5% on strong Q1 results: Motilal Oswal; remains Overweight on financials, autos

India Inc. has begun the financial year 2023-2024 on a strong footing with robust Q1 results. The corporate earnings for April-June 2023 quarter showed a decent performance and were largely in-line with consensus estimates.

Nifty companies delivered 32% earnings growth in Q1FY24. Domestic brokerage firm Motilal Oswal Financial Services raised its FY24 earnings estimates from Nifty50 stocks by 2.5% to ₹988 on the back of robust Q1 results by corporates that could support overall bullish economic outlook for India.

“We raise our FY24E Nifty EPS by 2.5% to ₹988 (earlier: ₹964) due to notable earnings upgrades in Tata Motors, JSW Steel, Bharti Airtel, SBI, and Kotak Mahindra Bank. We now expect the Nifty EPS to grow ~22% and 16% YoY in FY24 and FY25,” Motilal Oswal said in a report.

After a solid 22% earnings CAGR over FY20-23, Nifty opened FY24 with a 32% earnings growth. The spread of earnings was decent with 62% of our Universe either meeting or exceeding profit expectations, it added.

The earnings growth during the first quarter of FY24 was fueled by domestic cyclicals, such as BFSI and Auto. Healthcare made a strong comeback with 24% earnings growth after six consecutive quarters of flattish earnings.

Nifty posted a beat with EBITDA and PAT growth of 22% and 32% YoY, respectively as against the expectation of 18% and 25% growth

BFSI coverage universe recorded a 60% YoY profit growth while Auto posted a significant profit of ₹17,900 crore as compared to a profit of ₹1,300 crore only in the year-ago quarter. Ex-Tata Motors, the Auto Universe registered a healthy 83% earnings growth in Q1FY24 versus expectation of 59%. 

Also Read: PSU Banks Q1 results update: PNB, SBI lead as lenders on a strong footing, double the bottomline

Oil Marketing Companies’ (OMC) profitability surged to ₹30,500 crore in the June quarter as against a loss of ₹18,500 crore, YoY, due to strong marketing margins, the report said. 

However, metals continued to drag the aggregates with a 40% YoY decline in earnings, led by Tata Steel (-92% YoY), Vedanta (-81% YoY), and Hindalco (-40%).

IT Services companies reported weak performance in the quarter ending June 2023 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.

As many as 66 companies have reported earnings upgrades of more than 3%, while 76 companies’ earnings have been downgraded by over 3%. EBITDA margin of MOFSL Universe, excluding Financials, rose 330 bps YoY to 17.6%.

Going forward, Motilal Oswal expects the earnings to remain healthy and estimates over 20% earnings growth for Nifty in FY24. The profit pool of MOFSL Universe is expected to grow at 33% YoY in FY24 and surpass the ₹10 lakh crore mark. 

Nifty is trading at a 12-month forward P/E of 18.5x, at an 8% discount to its own long period average (LPA). 

The brokerage house remains Overweight on Financials, Consumption, and Automobiles. It stays Underweight on Metals, Energy and Utilities and Neutral on IT, Healthcare and Telecom within its model portfolio.

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