According to Jefferies coverage, commodity majors in the oil and metals sectors are expected to report a reasonably strong 19% y-o-y earnings growth for the June 2023 quarter. However, this growth rate is expected to slow by 7 percentage points q-o-q due to a higher base. The key earnings driver is projected to be a 25%+ earnings growth for lenders, auto companies, and select cyclicals. Domestic revenue growth is slowing down to 13% y-o-y, but a trough margin base is anticipated to drive approximately 18% Ebitda growth, excluding financials. The preference for domestic cyclicals, real estate, and industrial sectors remains.
There is expected to be strong headline growth due to a boost from the oil marketing companies (OMCs), with the JEF coverage universe’s earnings projected to rise by 37% y-o-y compared to a 13% y-o-y rise in the previous quarter. OMCs are expected to achieve one of their highest ever profitability levels due to strong margins. However, the metals sector is still experiencing a significant decline y-o-y (halving), and the cement sector is expected to show flattish profitability. However, there have been some improvements in q-o-q trends for cement. IT revenues are anticipated to decline q-o-q, posing some risk to earnings, with a projected growth of 14% due to deferred pay-hikes. The pharmaceutical sector is expected to post muted growth of less than 5%.
Domestic companies (excluding financials) are forecasted to experience a y-o-y revenue and Ebitda growth of around 13% and 18% respectively. Ebitda margins are expected to increase by approximately 0.8 percentage points y-o-y and 0.1 percentage points q-o-q, although they will still be below pre-Covid levels. Revenue growth is now declining as the large selling price hikes are included in the base, but the decline in commodity costs is providing a margin tailwind. Autos and consumer companies are expected to see a 2 percentage point and 1 percentage point y-o-y increase in margins respectively.
Sectors with strong earnings
Banking sector profits are expected to rise by approximately 25% y-o-y due to strong performances by major private and public sector banks such as ICICI, Indusind, and SBI. Margin expansion and mid-teen system loan growth are the
key drivers.
Selected NBFCs like Chola, BAF, and MMFS, as well as housing finance companies like Aptus and Aavas, are projected to achieve profit growth of 25% or more.
Two-wheeler companies (Hero, Bajaj, TVS, Eicher) are expected to experience a strong 40% growth in profit, while Maruti Suzuki may see a profit increase of over 100%, and Tata Motors could shift from loss to profit.
OMCs like BPCL, HPCL, and IOCL are likely to experience a spike in profitability due to marketing strength, despite weakness in refining.