The fiscal first quarter earnings season has ended and according to brokerage firms, India Inc posted a muted quarter in line with expectations, with growth adversely affected by OMCs. Per a report by Motilal Oswal Financial Services, Q1FY25 corporate earnings came in line, with overall growth primarily propelled once again by domestic cyclicals. Notable contributions, it added, were witnessed from the Healthcare, Real Estate, Capital Goods, and Metals sectors. In contrast, earnings growth was adversely affected by OMCs.
Meanwhile, Elara Securities said that overall earnings was flat, impacted by poor show by commodities (mainly energy, metals, cement). “Excluding these, earnings growth was robust at 19 per cent YoY, which was better than our and consensus estimates. In Elara coverage universe, 82 companies beat earnings estimates, 80 missed and 62 were in line. We have pared FY25E and FY26E net income estimates for Elara Coverage universe by 1 per cent each, mostly due to cuts in Cement and Metals sectors,” it said in a report.
On similar lines, MOFSL said, “The aggregate earnings of the MOFSL Universe companies were in line with our expectations and grew 1 per cent YoY (vs. our est. of -1 per cent YoY). Earnings for the Nifty50 rose 4 per cent YoY (vs. our est. of +3 per cent). The aggregate performance was hit by a drag from OMCs. Excluding OMCs, the MOFSL Universe and Nifty posted 12 per cent and 9 per cent earnings growth vs. expectations of +10 per cent and +7 per cent, respectively.”
Performance across companies and sectors
MOFSL report stated that five Nifty companies – HDFC Bank, Tata Motors, ICICI Bank, Maruti Suzuki, and TCS – contributed 127 per cent of the incremental YoY accretion in earnings. Conversely, BPCL, JSW Steel, ONGC, Reliance Industries, and Grasim Industries contributed adversely to the Nifty earnings. “The Nifty EPS estimate for FY25 was cut by 1.7 per cent to Rs 1,115, largely owing to Reliance Industries, ONGC, and BPCL. FY26E EPS was also trimmed by 1 per cent to Rs 1,316 (from Rs 1,330) as upgrades in Infosys, Coal India, Tata Motors, and Maruti were offset by downgrades in ONGC, Axis Bank, HDFC Bank, ICICI Bank, and Indusind Bank,” it said.
MOFSL said that the overall earnings growth was fueled by domestic cyclicals with automobiles posting over 28 per cent YoY growth, BFSI up by 16 per cent on-year, and improved contributions from Healthcare (+29 per cent YoY), Real Estate (+62 per cent YoY), and Capital Goods (+23 per cent YoY). Metals also reported a strong earnings growth of 18 per cent YoY, driven by performance by Vedanta, Hindalco, and Tata Steel. Excluding BFSI, profits for the MOFSL Universe would have declined 6 per cent YoY.
Banking sector: The banking sector, MOFSL said, reported a soft quarter amid tepid business growth, NIM moderation, and a slight increase in provisioning expenses, mainly for private banks. NIM contracted for most banks as cost pressures persisted amid intense competition for liabilities and continued pressure on CASA mix. Public sector banks (PSBs) reported a mild compression in margins as new investment guidelines led to better investment yields, which supported margins.
Auto sector: Elara Auto universe surpassed expectations by 6 ppt, with most companies, except for commercial vehicles and tire plays, seeing a decent YoY growth. MOFSL said that OEMs reported around 10 per cent YoY volume growth in Q1FY25, with nearly all the OEMs contributing to this broad-based growth. “2Ws led the way with around 11 per cent YoY growth, followed by PV at 6 per cent YoY growth. CVs and tractors both posted 4 per cent YoY growth. Demand is expected to stay robust during the upcoming festive season, driven by a favorable monsoon and new product launches,” the analysis report by MOFSL stated.
Consumer goods sector: The long-anticipated rural consumption recovery shows promising signs for the FMCG sector. “While FY24 earnings growth was driven by price increases, volume-led growth is expected to be the norm going forward. Although rural growth still lags urban on two-year CAGR basis, it has picked up YoY while urban growth has slowed,” Elara Securities said. MOFSL’s coverage universe posted a revenue growth of 6 per cent YoY in Q1 showing an improving consumption trend.
Oil & Gas sector: Though EBITDA was in line, HPCL, MRPL, PLNG, and AEGISLOG missed estimates, stated MOFSL, while maintaining that GAIL, GUJS, IGL, IOC, and MGL beat estimates. “Adjusted PAT was 9 per cent below our estimates (down 42 per cent YoY). Adjusted PAT, excluding OMCs, was also 8 per cent below our estimate (down 5 per cent YoY),” it said.
Technology sector: The IT services companies (MOFSL Universe) reported healthy performance in Q1FY25 with a median revenue growth of 1.2 per cent QoQ CC. “With a mild recovery in discretionary spending among BFSI clients, their focus is now transitioning from the cost-takeout deals to “high-priority” transformation deals in some pockets. Nonetheless, the overall pressure on discretionary spending persists,” the brokerage firm said.
Healthcare sector: The profitability in the sector, per MOFSL, was driven by: 1) lower raw material costs, 2) reduced intensity of price erosion in US generics, and c) launch of niche products. Meanwhile, Ealar Securities added, for Pharma, earnings growth of around 28 per cent YoY marginally exceeded projections, but performance varied across the sector. “The US generics business remains the primary growth driver, even as CDMO companies face persistent challenges. Major hospital chains showed early signs of growth deceleration and margin pressure,” it added.
Final report card and way ahead
Motilal Oswal said that of the 24 sectors under its coverage, 7 sectors reported profits above estimates, 11 recorded profits in line with expectations, and 6 posted below estimates profits. Further, of the 263 companies under its coverage, 77 exceeded profit estimates, 113 posted a miss, and 73 were in line. Going forward, MOFSL anticipates the earnings momentum to continue; albeit, the magnitude of its growth is likely to moderate to around 15 per cent over FY24-26.
Meanwhile, Elara Securities said, “We maintain our positive stance on Autos, Capital Goods, FMCG, Energy, Pharma, and Real Estate. Our outlook is negative for Cement, Chemicals, and Metals, while remaining neutral for other sectors.”