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3QFY21 Results Review: Marching ahead!

Big beats and upgrades; Nifty EPS upgraded by 3–5%

* The 3QFY21 corporate earnings season revved up from 2QFY21, with big beats and upgrades reported across the MOFSL Coverage Universe. Sharp demand recovery was seen during the festive season – with the opening up of the economy and the number of COVID-19 cases being contained, coupled with continued cost-saving initiatives. With an upgrade (>5%) to downgrade ratio (<-5%) of 7:2, 3QFY21 has been a blockbuster earnings season. 57% of the companies in our MOFSL Coverage Universe beat 3QFY21 estimates, while 24% reported below-est. results. This has resulted in the second consecutive quarter of material upgrades for Nifty EPS. The underlying recovery, more importantly, has led to the broad-basing of growth. The performance, while broad-based, was led by cyclical sectors such as Metals, Autos, and Cement.

* Key factors that drove the earnings beat v/s our expectations comprise (1) sharperthan-expected demand recovery with the opening up of the economy; (2) continued cost optimization measures; (3) the festive season boosting consumption demand across the Staples, Durables, and Discretionary sectors; (4) strong operational delivery by the BFSI sector (especially large banks with 70%+ PCR and low restructuring of sub 1%); and (5) cyclical sectors – such as Metals, Autos, Oil & Gas (O&G), and Cement – accounting for ~three-fourths of the incremental PAT for the Coverage Universe.

* Autos, Capital Goods, Cement, Consumer, Consumer Durables, Private and PSU Banks, Healthcare, Metals, O&G, Retail, and Technology reported beats on 3QFY21 PAT estimates. NBFC, Staffing, and Utilities reported in-line earnings.

* Nifty sales were in-line (-1% YoY; est. -2%), while EBITDA/PBT/PAT growth stood at 15%/23%/22% YoY (est. 11%/9%/7%). 60% of Nifty-50 companies reported beats on our PAT estimates, while just 18% posted results below our expectations.

* The MOFSL Universe reported sales/EBITDA/PBT/PAT growth of 0%/19%/33%/31% YoY (est. -2%/15%/20%/17% YoY). Eight sectors posted double-digit or higher YoY profit growth – Metals (454%), Cement (100%), Consumer Durables (61%), PSU Banks (+50%), Healthcare (+48%), Autos (+48%), O&G (+25%), and Technology (+14%). YoY profit growth for Retail (+8%), Consumer (7%), and Private Banks (+6%) was also above expectations, while Utilities (+4%) was in-line. NBFC (-7%), Capital Goods (-6%), and Staffing (-6%) reported profit declines, while Telecom posted another quarter of loss.

* On a 9MFY21 basis, Nifty sales/EBITDA/PBT/PAT grew (-12%)/4%/1%/4% YoY. For the MOFSL Universe, sales/EBITDA/PBT/PAT rose (-12%)/4%/3%/4% YoY. Metals (103%), PSU Banks (+45%), Healthcare (+35%), Cement (+25%), and Private Banks (+18%) were the standout performers in 9MFY21. On the flip side, Retail (-91%), Capital Goods (- 52%), Autos (-48%), and Staffing (-13%) delivered muted 9MFY21 performances

* Our FY21/FY22/FY23E Nifty EPS estimates have been revised up 4.7%/2.8%/3.2% to INR541/INR719/INR857 (prior: INR516/INR699/INR830). We now expect FY21 Nifty EPS to grow 15.7% YoY. The breadth of earnings revision is positive, with an upgrade (+5%) to downgrade ratio (-5%) of >7:2. 69 companies in the MOFSL Universe saw upgrades of >5%, while 19 witnessed downgrades of >5% for FY21.

* Sectoral highlights – The MOFSL Technology Universe posted better-than-expected 14% YoY earnings growth. Companies’ deal pipelines have improved further v/s 2QFY21 and are now stronger than pre-COVID levels, indicating a material demand uptick.

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