Interim Q3 results review: 5 firms including RIL, HDFC Bank, Tata Steel contribute 57% to Nifty earnings growth

The earnings for the December quarter (Q3FY24) so far have been in line with estimates for the most part and grew 34 percent YoY (vs estimate of 28 percent YoY). Once again, the earnings growth was fueled by domestic cyclicals, such as BFSI (bank, financial services, and insurance) and Auto, stated a report by domestic brokerage house Motilal Oswal (MOSL).

As of February 1, 2024, 33 companies within the Nifty announced their Q3FY24 results. These companies constitute a) 73 percent and 74 percent of the estimated PAT for the MOFSL and Nifty Universe, respectively; b) 48 percent of India's market capitalisation; and c) 77 percent weightage in the Nifty, informed the brokerage.

33 Nifty stocks have reported sales, EBITDA, and PAT growth of 6 percent, 15 percent, and 21 percent YoY versus estimates of 7 percent, 14 percent, and 20 percent, respectively. Of these, 9 companies have surpassed profit expectations, 8 missed and the remaining 16 were in-line, highlighted the brokerage. Meanwhile, on the EBITDA front, 9 companies have exceeded estimates during the quarter whereas 7 missed, added MOSL.

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Stocks

Earnings of the 33 Nifty companies that have declared results so far jumped 21 percent YoY, propelled by HDFC Bank, Tata Steel, ICICI Bank, JSW Steel, and Reliance Industries. These five companies contributed 57 percent to the incremental YoY accretion in earnings. Conversely, Tech Mahindra, Infosys, and Wipro contributed adversely to Nifty earnings, said MOSL.

Among the Nifty constituents, ITC, HCL Tech, Wipro, Adani Ports, JSW Steel, Asian Paints, Dr Reddy’s Labs, Cipla, and Tata Steel exceeded MOSL's profit estimates. Conversely, Kotak Mahindra Bank, L&T, HUL, Ultratech Cement, Titan Company, Tech Mahindra and SBI Life Insurance missed profit estimates for Q3FY24, it informed.

Sectors

According to the brokerage, BFSI clocked a 26 percent YoY growth, while Auto registered a growth of 40 percent YoY (in line with estimate of +40 percent), driven by Maruti Suzuki and Bajaj Auto.

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OMC’s profitability surged to ₹12,000 crore in Q3FY24 from ₹2600 crore in Q3FY23, owing to strong marketing margins. Ex-OMCs, MOFSL/Nifty’s earnings grew 28 percent/20 percent YoY, it informed.

The metals sector reported a healthy growth of 234 percent YoY (vs. estimate of 133 percent YoY), primarily fired by Tata Steel, which clocked a profit of ₹850 crore in 3QFY24 (vs a loss of ₹2,380 crore in Q3FY23). Excluding Tata Steel, the MOFSL Metals Universe grew 62 percent YoY during the quarter, it added.

Meanwhile, the IT services companies (within MOFSL Universe) reported relatively healthy performance (beating its estimates) despite having seasonality and furlough impact in Q3FY24, with a median revenue growth of 1 percent QoQ CC.

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Upgrades/downgrades

As per the brokerage, until now, 28 companies within MOFSL Coverage Universe have reported an upgrade while 48 have witnessed a downgrade of over 3 percent each, leading to an adverse upgrade-to-downgrade ratio for FY24E.

Within the MOFSL Universe, Healthcare/Logistics/Cement/Tech recorded an FY25E earnings upgrade of 3.3 percent/2.4 percent/1.4 percent/1 percent. Conversely, Real Estate, Retail, and Consumer registered an earnings downgrade of 15.2 percent/5.1 percent/4.1 percent.

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Top FY25E upgrades: Cipla (8.2%), Dr Reddy’s Labs (4.6%), HCL Technologies (3.8%), Sun Pharma (3.7%), and Adani Ports (3.5%).

Top FY25E downgrades: LTIMindtree (-8.3%), ITC (-6.2%), HUL (-4.6%), Axis Bank (-4.2%), and IndusInd Bank (-3.4%).

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The Q3FY24 corporate earnings scorecard has been in line so far, with heavyweights such as HDFC Bank, Tata Steel, ICICI Bank, JSW Steel, and Reliance Industries driving the aggregate.

As per the brokerage, the earnings spread has been decent, with 64 percent of MOSL's Coverage Universe either meeting or exceeding profit expectations. However, growth has primarily been led by the BFSI, metals, O&G, and auto. Nifty is trading at a 12-month forward P/E of 19.4x, at a 4 percent discount to its own long-period average (LPA).

The brokerage prefers PSU banks, industrials (capital goods, cement), real estate, consumer discretionary, and NBFCs, while is ‘underweight’ on IT, and metals. It recently upgraded energy to ‘neutral’ and downgraded auto and pharma to ‘neutral’ in its model portfolio. 

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.