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Ending FY24 on good note   

Against the backdrop of mixed earnings performance in FY23, we had anticipated broad-based growth in FY24. Our expectations were not only met but surpassed, as we observed a notable improvement in earnings performance across-the-board. Earnings for Elara coverage universe grew by a healthy ~40% YoY in FY24, with domestic cyclicals once again leading growth.                

FY24 ended on a high note, with Q4 earnings growing at 23% YoY, exceeding both our and consensus expectations despite our conservative stance. This robust performance was supported by significant upward revisions across various sectors. Auto, Energy, Financials, and Industrials sectors led with substantial earnings upgrades, reflecting their strong performance throughout the year. Although some sectors such as Consumer Discretionary and Metals faced downgrades, the overall earnings trajectory for Elara universe remained positive.     

Beats across parameters

Within Elara coverage universe, 43% of the companies saw an earnings beat (actual results exceeded estimate by >5%), while 36% of the companies saw an earnings miss. This beat-to-miss ratio improved to 1.2x in Q4, with beats coming from Banks, Energy and Industrials. Media and Utilities led the misses. Diving deeper, large-cap companies demonstrated stronger resilience, with a beat-to-miss ratio of 2.1x, while mid-caps were less impressive.

Earnings outlook polarized

We downgrade our FY25E earnings expectations by a modest ~1% for our coverage universe. Earnings revision has been quite polar, with consumption-oriented sectors seeing positive earnings revision and commodity oriented sector negative. Interestingly, despite seeing a ~10% downward revision in earnings, Metals is expected to lead earnings growth for our coverage universe in FY25.

Within large-caps, HDFC Bank, Shree Cement, Zomato, Dr. Reddy's, Bharat Electronics, Hindustan Aeronautics, Hindalco Industries and Power Grid Corporation have seen a ratings upgrade, while Bajaj Auto, Maruti Suzuki, State Bank of India, GCPL, Reliance Industries, Bajaj Finance, ABB and InterGlobe Aviation have seen a ratings downgrade.

Inflows strong for Capital Goods; execution, key monitorable for RE

The Government’s focus on capex in the past two years started an unabated rally in Capital Goods and Renewable Energy and was entirely disconnected from fundamentals in the past few months. Entering this quarter, we were keenly observing any signs of fundamentals realigning with the performance.

Within Capital Goods, inflows from defense and power equipment grew at a healthy pace, while industrial equipment witnessed a slowdown in orders. Inflow momentum also witnessed softness sequentially in some pockets, largely rail and EPC, although this can be attributed to deferrals amid the onset of general elections. While earnings beat for the sector came on the back of strong executions, the same did not hold true for companies within the Renewables space. NHPC and SJVN both faced delays in execution of key projects

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