Citi replaces RIL with BPCL post Q3 earnings; a look at its model portfolio and earnings upgrades/downgrades

The Indian markets delivered another resilient earnings season in the December quarter with BSE-100 and Nifty EBITDA growth at 18 percent and 13 percent YoY, respectively; largely led by Industrials and Energy, global brokerage house Citi said in an earnings review note. It further informed that the earnings growth for BSE-100 and Nifty was also ahead at 19 percent and 10 percent YoY, respectively.

Nifty FY24E-26E EPS CAGR at 13 percent/14 percent for Citi/Consensus, with earnings revision trends still tracking moderately better than LTA. Its December 2024 NIFTY target is 22.5k, which indicates a 2 percent upside.

Post the earnings, the brokerage is overweight on PSU Utilities & Defence, Industrials, Banks/Insurance and underweight on Consumer Discretionary, IT Services, and Metals.

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It has made some changes in its model portfolio. Citi replaced RIL with BPCL and added MakeMyTrip, 360One, and Concorde Biotech in its top midcap picks while removing Sobha.

Upgrades and Downgrades

As per the brokerage, sectors with both earnings beat and upward revisions to estimates include Autos and Healthcare, while Financials and Materials missed estimates and saw downward revisions in earnings.

The top 6 stocks with Upward revision by Citi include InterGlobe Aviation, BPCL, Lupin, TVS Motor Company, Dr Reddy's, and Bajaj Auto.

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Meanwhile, the top 6 stocks with the most downward revision by Citi are UPL, Zee, SRF, Jubilant FoodWorks, Bharat Forge, and Havells India.

Earnings Highlights

The brokerage pointed out that ex-energy topline growth for BSE-100 ex-energy was 9 percent YoY. Meanwhile, overall, EBITDA/PAT growth was 18 percent/19 percent YoY for BSE-100.

"The key driver of the difference in earnings growth between BSE-100 and NIFTY (19% vs 10%) is Oil & Gas earnings. Autos, Industrials, Materials & Utilities were the key sectors that drove headline earnings growth. Against expectations, Industrials, Energy, and Healthcare saw ‘beats’, while Staples & Discretionary (ex-Autos) saw ‘miss’ on EBITDA growth," it stated.

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It further noted that Upgrades exceeded downgrades for Citi coverage (in BSE-100) at 41/33 for FY24E and 39/35 for FY25E over the Q3 earnings season. The revision trajectory is modestly negative but still tracking better than LTA trends in earnings revisions. Citi/Consensus NIFTY EPS growth for FY24E/25E/26E stands at 18%/14%/13% and 20%/15%/14%, respectively, implying a Citi/Consensus 13%/14% CAGR for FY24E-26E.

Key Things to Watch Ahead

a) The outcome of general elections in May’24 will be keenly watched – recent state elections and incremental opinion polls suggest a low probability of any surprise.

b) FII flow trends given QTD outflows.

c) Citi global economists see a global growth slowdown/US recession ahead. India economists expect delays in the rate cut cycle.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.