Q4FY23 earnings review: Earnings in line so far, says brokerage Motilal Oswal; banks shine, metals drag; details here

Brokerage firm Motilal Oswal Financial Services is of the view that the March quarter earnings of the financial year 2022-23 (Q4FY23) have been in line so far led by BFSI and automobiles while metal has been a drag. The earnings of Nifty companies, in fact, have beaten the estimates of the brokerage firm thanks to the strong show of the financial sector.

As per the brokerage firm, by May 4, some 78 companies within the Motilal Oswal Financial Services (MOFSL) universe and 26 companies of Nifty had announced their Q4FY23 results. These companies constitute (a) 50 per cent and 55 per cent of the estimated PAT for the MOFSL and Nifty Universe, respectively, (b) 41 per cent of India's market capitalization, and (c) 70 per cent of weightage in the Nifty.

Motilal Oswal pointed out that the profits of the 26 Nifty companies that have declared results so far have risen 10 per cent year-on-year (YoY) versus the estimated 7 per cent YoY, fueled by financials. Excluding financials, profits would have declined by one per cent YoY versus the estimated 4 per cent fall YoY.

"Five companies within the Nifty universe -Reliance Industries (RIL), Axis Bank, ICICI Bank, HDFC Bank, and TCS - have contributed 121 per cent of the incremental YoY accretion in earnings. Tata Steel (-90 per cent) and Tech Mahindra (-2 per cent) have contributed adversely to Nifty earnings," said Motilal Oswal.

"Nifty profits would have increased 22 per cent YoY versus the estimated 21 per cent YoY, excluding metals and Oil & Gas. Only six companies in Nifty have reported profits below our expectations, while eight have recorded a beat and 12 have been in line," the brokerage firm said.

The brokerage firm said the FY23 and FY24 earnings per share (EPS) estimates remain largely unchanged at ₹816 and ₹976 versus ₹812 and ₹978 earlier, respectively, as downgrades in technology are offset by upgrades in BFSI and automobiles.

Among the sectors, technology results have been in line with expectations. The performance has been a mixed bag with tier-2 companies outperforming tier-1 peers. Impacts from the turmoil in the banking system and softness in tech adversely affected earnings, Motilal said.

On the other hand, the earnings momentum continues for the banking sector with most banks reporting further expansion in margins.

The initial set of results of automobiles has been encouraging with almost all the companies exceeding the estimates except Maruti Suzuki due to unfavourable product mix, said the brokerage firm.

The performance of consumer companies has also been in line with Motilal's expectations. The brokerage firm pointed out that the management commentaries highlight that the overall FMCG sector volume has been flat YoY.

Talking about the Oil & Gas sector, Motilal Oswal said three Oil & Gas companies that have reported results so far are above estimates. The outperformance of Reliance Industries has been due to a stellar performance in the O2C segment driven by strength in transportation fuel cracks, said Motilal Oswal.

Highlighting the performance of the companies under its coverage, Motilal Oswal said the Q4FY23 aggregate earnings of the 78 MOFSL universe companies have been in line with its estimates and risen 8 per cent YoY versus the estimated 3 per cent rise YoY.

"This aggregate performance has been led by BFSI and automobiles which reported 28 per cent and 9 per cent, respectively, earnings growth (inline), while it has been dragged by the weaker-than-expected performance of metals that clocked 67 per cent earnings decline (Tata Steel’s profit plunging 83 per cent YoY)," said Motilal Oswal.

"Excluding metals and Oil & Gas, the MOFSL universe and Nifty have posted a solid 20 per cent and 22 per cent earnings growth (versus expectations of 19 per cent and 21 per cent), respectively, fueled by BFSI and automobiles," the brokerage firm said.

BFSI was the top support for earnings. As the brokerage firm pointed out, excluding BFSI, profits would have declined 3 per cent YoY versus the estimated 7 per cent fall YoY.

"Until now, 24/20 companies within the MOFSL coverage universe have reported an upgrade/downgrade of more than 3 per cent each, leading to a better upgrade-to-downgrade ratio for FY24E. Moreover, the EBITDA margin of the MOFSL universe (excluding financials) has contracted 50bp YoY to 18.4 per cent during the quarter," said the brokerage firm.

Disclaimer: The views and recommendations given in this article are those of the brokerage firm. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.