Profit beat, consistent revenue growth hint at India's earnings up-cycle trend: Morgan Stanley
Nifty companies covered by Morgan Stanley reported strong earnings growth in Q4 FY23, beating analyst estimates. EBITDA margins increased for the first time in eight quarters, and net profit was above expectations.
PremiumA robust earnings beat and in-line revenue growth for the quarter ended March, according to a study by international brokerage company Morgan Stanley (MS), confirmed India's earnings up-cycle trend.
Nifty companies covered by Morgan Stanley reported earnings before interest, taxes, depreciation, and amortisation (EBITDA), profit before tax (PBT), and net profit growth of 14%, 17%, 21%, and 24% for the fourth quarter of FY23, respectively, versus analyst estimates of 13%, 21%, 21%, and 19%.
EBITDA margins increased (by 51 basis points YoY) for the first time in eight quarters. Net profit was 22%, above brokerage analysts' forecasts by 7 ppts, although EBITDA margins for MS coverage (ex-energy) remained negative YoY. While the relative stock outperformance following earnings announcements increased QoQ to 43%, a six-quarter high, the earnings beat ratio remained at 54%.
In line revenue growth for the Sensex and Nifty was 14% and 12% YoY, respectively, versus predictions from brokerage experts. The increase in net profit for the Sensex and Nifty was 21% and 18%, respectively, exceeding predictions from MS experts by 10 and 4 percentage points. Nifty (ex Energy PSUs) delivered net profit growth of 18% (10ppt beat versus MS analysts'expectations).
Best and worst Nifty earnings growth contributions
State Bank of India, Tata Motors, Bharat Petroleum Corporation Ltd., Reliance Industries, Axis Bank, ICICI Bank, HDFC Bank, Bharti Airtel, Tata Consultancy Services, Mahindra & Mahindra, Dr. Reddy's, and Adani Ports & Special Economic Zone were some of the top earning growth contributors, according to the Morgan Stanley report.
The backwards included Tech Mahindra, Divi's Laboratories, UPL, UltraTech Cement, Grasim Industries, Coal India, and Hindalco Industries.
Road Ahead
For an eighth straight quarter, the net profit share of the top corporations remained at cycle-low levels. Approximately 60% of the MS coverage universe reported double-digit QoQ profit increase.
Sensex earnings growth for FY24 is predicted by Morgan Stanley analysts and the market as a whole to be 18%, which is 10% less than the top-down prediction of 29% from MS.
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