India Strategy : A broad-based beat By Motilal Oswal Financial Services
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BFSI and Automobiles drive earnings; Nifty EPS experiences an upward revision
* Corporate earnings – broader markets’ contributions continue to improve: The 4QFY24 corporate earnings ended on a strong note, with widespread outperformance across aggregates. Domestic cyclicals, such as Autos and Financials, along with Healthcare, Capital Goods, and Cement drove the beat. Conversely, global cyclicals (Metals and O&G) dragged down overall profitability.
* Financials and Autos propel 4QFY24 earnings: The aggregate earnings of the MOFSL Universe companies exceeded our expectations and rose 10% YoY (vs. our est. of +5%). Earnings for the Nifty-50 jumped 12% YoY (vs. our est. of +5%). The earnings growth for the MOFSL Universe was fueled by domestic cyclicals (such as BFSI and Autos). Autos registered a growth of 32% YoY (vs. est. of +20%), driven by Tata Motors, Maruti, and Bajaj Auto. BFSI grew 22% YoY (vs. est. of +15%). The Healthcare sector posted a healthy earnings growth of 44% YoY (vs. est. of +36%). The Capital Goods sector clocked a strong earnings growth of 27% (vs. est. of +5%). In contrast, the aggregate performance has been dragged down by the Metals and O&G sectors, which posted a 13% and 7% earnings decline, respectively. Excluding Metals and O&G, the MOFSL Universe recorded an 18% YoY earnings growth (vs. est. of +12%).
* Heavyweights buck up the quarter: Nifty delivered a strong beat with a 12% YoY PAT growth (vs. est. of +5%). Five Nifty companies – HDFC Bank, SBI, ONGC, Tata Motors, and Coal India – contributed 72% of the incremental YoY accretion in earnings. Ex-Metals & O&G, Nifty’s earnings grew 16% YoY (vs. est. of +9%).
* The beat-miss dynamics: The beat-miss ratio for the MOFSL Universe was favorable, with 41% of the companies recording a beat at the PAT level, while 33% reported a miss. For the MOFSL Universe, however, the earnings upgradeto-downgrade ratio has been largely balanced for FY25E, as 72 companies’ earnings have been upgraded by >3%, while 80 companies’ earnings have been downgraded by >3%. The earnings upgrade/downgrade ratio of 0.9x was better than 0.6x in 3QFY24. EBITDA margin for the MOFSL Universe (ex-Financials) improved marginally by 40bp YoY to 16.5%.
* Report card: Of the 23 sectors under our coverage, 11/8/4 sectors reported profits above/in line/below our estimates. Of the 258 companies under coverage, 107 exceeded our profit estimates, 86 posted a miss, and 65 were in line.
* The FY24 snapshot: The MOFSL/Nifty Universes delivered 34%/26% YoY PAT growth in FY24. Excluding OMCs, MOFSL/Nifty posted 24%/22% YoY PAT growth.
* FY25E earnings highlights: The MOFSL Universe is likely to deliver sales/EBITDA/ PAT growth of 11%/11%/14% YoY in FY25. The Financials and Metals sectors are projected to be the key growth drivers, with 18% and 36% YoY earnings growth, respectively. They are likely to contribute 65% of the earnings growth.
* Nifty exits FY24 with 24% EPS growth: Nifty EPS for FY24 increased 2.6% to INR1,005 (earlier: INR980) largely fueled by notable upgrades in ONGC, Coal India, and SBI. EPS for FY25E/FY26E also experienced upward revisions of 0.8% each to INR1,142/INR1,327. We now expect Nifty EPS to rise ~14%/16% YoY in FY25/FY26.
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