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4QFY21 interim earnings review

In-line; Downgrades > Upgrades; Corporate commentaries turning cautious

* 78 MOFSL Universe and 27 Nifty companies have announced their results as of 10th May’21. Companies that have reported earnings thus far comprise: (a) 50% of est. PAT for the MOFSL Universe, (b) 58% of est. PAT for the Nifty, (c) 53% of India's market capitalization, and (d) 75% of the Nifty 50 index weight.

* The 4QFY21 earnings season has maintained the momentum of the 3QFY21 results season. Nifty profits for the 27 companies that have posted their results have grown 50% YoY (v/s exp. of 49% growth). On the other hand, for the 78 companies in the MOFSL Universe, profit growth stood at 47% YoY (v/s exp. of 51% growth).

* 4QFY21 was another strong quarter, aided by the deflated base of 4QFY20 and healthy demand recovery for the large part of 4QFY21 – as attested by high-frequency indicators. 31 companies from our Coverage Universe have seen downgrades of more than 5%, while just 15 companies have seen upgrades of more than 5%, reversing the trend of 2QFY21 and 3QFY21 where upgrades were far higher than downgrades.

* Key drivers of the 4QFY21 performance: [1] Metals – Only Tata Steel / Hindustan Zinc has thus far reported results among the steel/non-ferrous companies. As expected, Tata Steel reported strong margins in India Steel operations. [2] Private Banks and NBFCs – The healthy performance was attributable to moderation in slippages and improved disbursements / collection efficiency. However managements sounded cautious about collection efficiencies/asset quality ahead. [3] IT – It has continued to post strong performance, with robust deal wins and orderbook.

* KEY SECTORAL INSIGHTS: [1] Technology: 4QFY21 marks the third quarter of robust QoQ revenue growth; 4 out of 12 companies have reported beats on a PAT basis, while 5 posted in-line performance. [2] Consumer: Most of the companies have delivered sales growth in line with or below our expectations. Marico has been the only company to post a beat. Margins have remained under pressure due to high commodity inflation during the quarter. [3] Metals: As expected, Tata Steel reported strong margins in India Steel operations. It further saw massive deleveraging of INR123b in 4QFY21 owing to strong FCF generation.

* The near-term outlook for the sector remains strong, driven by sharp price increases over Apr–May’21 (thus far). [4] Banks: Most banks have reported a strong sequential uptick in loan growth, led by healthy trends in Retail – many segments such as Gold Loans and Home Loans have surpassed pre-COVID levels. On the other hand, deposit growth has remained strong, led by a higher mix of CASA deposits. Margins also exhibited positive bias. On the asset quality front, most banks (barring AUBANK) reported an improvement in asset quality ratios (from the pro-forma ratios reported in Dec’20), with slippages declining sequentially.

Key 4QFY21 result highlights

* The 27 Nifty companies have reported sales/EBITDA/PBT/PAT at 17%/25%/52%/50% YoY (v/s est. 17%/23%/55%/49% YoY). 8 of these have beaten our PAT expectations, while 9 have missed. On the EBITDA front, 7 have exceeded, 7 have missed, and 13 have met our expectations.

* For the MOFSL Universe, sales/EBITDA/PBT/PAT growth stands at 17%/26%/50%/47% YoY (v/s est. 18%/26%/55%/51% YoY).

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