After a turnaround in corporate earnings in financial year 2021, the momentum of business profitability is expected to sustain. Edelweiss Securities Ltd expects Nifty FY22 and FY23 EPS at ₹697 and ₹816, respectively
MUMBAI: After a turnaround in corporate earnings in financial year 2021, the momentum of business profitability is expected to sustain. According to Edelweiss Securities Ltd, Nifty earnings per share (EPS) was upgraded 3–4% for FY22 mainly due to metals and export auto.
The brokerage firm expects Nifty FY22 and FY23 EPS at ₹697 and ₹816, respectively.
“Going ahead, we believe FY21–23E Nifty EPS CAGR of over 25% is achievable. However, it’s likely to be more concentrated in cyclicals (commodities, financials, industrials, power), and not broad-based like it was in FY21. In fact consumption-facing sectors could see disappointments on both demand as well as margin," it said in a note.
Earnings momentum continued in March quarter of FY21 with companies under coverage of Edelweiss posting 135% net profit growth—despite a modest top-line growth. It said that key highlights of the quarter were organised players continue to gain market share, margins seem to be peaking from decadal high as input prices are rising and cost rationalisation is largely behind. While credit costs remained broadly stable, there was significant deleveraging among listed players.
“FY21 seems to be a turnaround year for India Inc.—posting 20% profit growth, 250 basis points (bps) margin expansion and significant deleveraging," it said.
Among sectors, cement companies continued to report record-high earnings before interest, taxes, depreciation, and amortization (ebitda) per tonne owing to fixed cost rationalisation and market share gains from unorganised sector. However, industrial companies continued to face headwinds, especially on the working capital front. Going ahead, analysts at Edelweiss Securities think fortunes should reverse with industrial/power companies performing better than cement.
Rising metal prices, gross revenue margins (GRMs) and inventory gains led to a four times jump in profits of commodity led companies. The brokerage firm expects energy companies to do well as global unlocking spurs transportation demand. “However, China’s fading credit impulse and rotation of demand from goods to services could weigh on metals demand," it said.
According to Edelweiss Securities, the second covid wave may have some impact on credit costs. However, large contingency buffers along with easy liquidity and improving corporate balance sheet, earnings growth should perk up after a decade of sluggishness.
“We continue to have a cyclical bias in our model portfolio, given strong earnings tailwinds and cheap valuations. Within them, we find risk-reward extremely attractive in PSUs However, we are underweight on expensive consumer and cement. IT remains the key defensive OW given the structural rise in technology spending," it said.
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