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Earnings review – 4QFY25: Beyond the benchmark – a surprise surge!

Earnings above expectations | Nifty exits FY25 with 1% EPS growth

* Corporate earnings – a broad-based beat, 13 sectors exceed expectations: The 4QFY25 corporate earnings concluded on a strong note, showcasing widespread outperformance across aggregates. Metals, OMCs, PSU Banks, Automobiles, Healthcare, Technology, and Capital Goods fueled this healthy performance. Conversely, Oil & Gas (ex-OMCs) and Private Banks dragged overall profitability.

* Metals, OMCs propel earnings growth: The aggregate earnings of the MOFSL Universe companies grew 10% YoY (vs. our est. of 2% YoY) in 4QFY25. The betterthan-expected earnings growth was powered by Metals (profit surged 45% YoY on a low 4QFY24 base). OMC’s profit jumped 14% YoY vs. our est. of a 59% decline, complemented by PSU Banks (+9% YoY), Automobiles (+8% YoY), Technology (+7% YoY), Healthcare (+17% YoY), Capital Goods (+14% YoY), Consumer Durables (+37% YoY), and Telecom (profit of INR5b vs. loss of INR25b YoY). In contrast, aggregate earnings growth was hit by Oil & Gas (ex OMCs), which posted a profit decline of 12% YoY. Further, earnings were dragged down by Private Banks (-6% YoY), Cement (-3% YoY), and Consumer (-1%).

* Excluding Financials, the earnings for MOFSL Universe grew 12% YoY (est. +1% YoY); whereas, barring global commodities (i.e., Metals and O&G), the MOFSL Universe reported a 10% YoY earnings growth (est. +5% YoY).

* A fourth successive quarter of single-digit growth for the Nifty-50: The Nifty delivered a 3% YoY PAT growth (vs. our est. of +2%). Nifty reported a single-digit profit growth for the fourth successive quarter since the pandemic (Jun’20). Five Nifty companies – Bharti Airtel, Hindalco, ICICI Bank, Tata Motors, and HDFC Bank – contributed 137% of the incremental YoY accretion in earnings. Conversely, IndusInd Bank, ONGC, SBI, Kotak Mahindra Bank, and Grasim contributed adversely to the earnings.

* Large-caps and mid-caps deliver a beat, while small-caps report a miss: Within our MOFSL coverage universe, large-caps (86 companies) posted an earnings growth of 10% YoY. Mid-caps (89 companies) stood out and delivered 19% earnings growth (est. of 10%), led by Financials (PSU Banks and NBFCs), Metals, Healthcare, and Retail. In contrast, small-caps (122 companies) experienced a broad-based miss adversely impacted by the Financials sector. The small-cap earnings dipped 16% YoY (est. of: -11%), with 39% of the coverage universe missing our estimates. On the other hand, within the large-cap and mid-cap universe, 21%/25% of the companies missed our estimates.

* The beat-miss dynamics: The beat-miss ratio for the MOFSL Universe was favorable, with 41% of the companies exceeding our estimates, while 29% reported a miss at the PAT level. For the MOFSL Universe, the earnings upgradeto-downgrade ratio has improved to 0.6x in 4QFY25 (from 0.3x in 3QFY25 for FY26E), with the earnings of 63 companies having been upgraded by >3%, while the earnings of 110 companies have been downgraded by >3%. Further, the EBITDA margin of the MOFSL Universe (ex-Financials) expanded 60 bp YoY to 17.6%, primarily aided by the Metals, Healthcare, Telecom, and Infrastructure sectors but hurt by the Cement, Real Estate, Consumer, and Automobiles sectors.

* Report card: Of the 25 sectors under our coverage, 13/9/3 sectors reported profits above/in line/below our estimates. Of the 297 companies under coverage, 122 exceeded our profit estimates, while 87 posted a miss, and 88 were in line.

* The FY25 snapshot: The MOFSL Universe delivered a 4.4% YoY earnings growth in FY25. Excluding Metals, and O&G, it reported an 11.1% YoY earnings growth. We categorized the coverage stocks, based on market capitalization, into large-cap, mid-cap, and small-cap segments. Notably, our large-cap universe saw a 4.6% YoY earnings growth in FY25, while mid-cap delivered an 11.6% YoY growth, and small-cap posted a decline of 17.3% YoY in FY25.

* FY26E earnings highlights: The MOFSL Universe is likely to deliver sales/EBITDA/ PAT growth of 4%/12%/14% YoY in FY26. The Financials, Metals, and Oil & Gas sectors are projected to be the key growth engines, with 11%, 25%, and 13% YoY earnings growth, respectively. However, we foresee downside risks to our earnings estimates for FY26E/27E.

* MOFSL Universe experienced a cut of 2.2%/1.1% for FY26E/FY27: Our MOFSL Universe witnessed a cut of 2.2% for FY26, led by Oil & Gas, Metals, Technology, PSU Banks, NBFCs, and Automobiles. Further, our mid-cap and small-cap universes experienced a bigger cut at 3.8% each in FY26E. The large-cap universe witnessed a cut of 1.8%.

* Nifty exits FY25 with 1% EPS growth: Nifty EPS for FY25 ended at INR1,013 (+1% YoY) over a high base of FY24 (+24% YoY) as the earnings normalized and tracked the revenue trend. The past two financial years experienced an interesting interplay of revenue and earnings growth, driven by global macros.

* Nifty EPS cut by 1.9%/1.1% for FY26E/FY27E: The Nifty EPS estimate for FY26 was cut by 1.9% to INR1,135, largely owing to SBI, ONGC, IndusInd Bank, Tata Motors, and TCS. FY27E EPS was also reduced by 1.1% to INR1,314 (from INR1,328) due to downgrades in SBI, ONGC, IndusInd Bank, TCS, and Reliance Industries.

* The top earnings upgrades in FY26E: Bharat Electronics (7.1%), Bharti Airtel (6.6%), Hindalco (5.8%), Adani Ports (4.6%), and M&M (4.4%).

* The top earnings downgrades in FY26E: Eternal (-53.9%), IndusInd Bank (-45.6%), ONGC (-13.4%), Tata Motors (-11.6%), and JSW Steel (-8.5%).

* Key sectoral highlights – 1) Banks: The banking sector witnessed a mixed quarter, with business momentum gaining a mild pace amid a busy 4Q. However, the margin outcome was divergent for the private and public banks. Most of the large private banks had seen a sequential improvement in NIMs amid lower-day adjustments in 4Q, while public banks continue to see a moderation in NIMs, although calibrated at low single digits. 2) Autos: For our coverage universe, total revenue grew ~6% YoY and was in line with our estimates. While Auto OEMs posted a 5% YoY growth, the auto ancillary universe posted a higher growth of 8% YoY. For FY26E, the industry body expects PVs to grow in the low single digits (2-4%), CVs to grow in mid-single digits, and 2Ws to grow at ~6%. 3) Consumer: Our coverage universe reported a 6.2% YoY revenue growth (vs. est. 6.3%). Excluding ITC, our consumer sector grew 6.6% YoY (est. 7.3%). The demand remained subdued during the quarter. Volume growth across most companies was limited to low-to-mid-single digits. 4) Oil & Gas: Revenue came in 7% above our estimate (flat YoY). Excluding OMCs, revenue was 8% above our estimate (up 7% YoY). EBITDA was 16% above estimates (flat YoY), with OMCs, GAIL, and IGL beating our estimates. Excluding OMCs, EBITDA was in line with estimates (flat YoY). Adjusted PAT was 27% above est. (down 5% YoY). Adjusted PAT, excluding OMCs, was in line (down 12% YoY). 5) Technology: The IT services companies within the MOFSL Universe posted a 0.7% QoQ decline in median revenue in 4QFY25 (vs. growth of 1.8%/2.0%/1.2% in 3QFY25/2QFY25/1QFY25). The backdrop remains challenging, as macro uncertainty continues to weigh on IT demand, marking a softer exit to FY25. FY26 setups diverge across tier-1 companies: TCS/Wipro guide for weak 1Q; INFO strikes a cautiously optimistic tone with the upper end of INFO’s guidance (3% YoY organic cc growth) assuming a ‘stable to marginally improving environment’. HCLT leads with the most constructive guidance of 2- 5% YoY in CC. 6) Metals: Ferrous companies reported robust growth as imports softened. The Ferrous companies within our coverage clocked a sales volume growth of 9% YoY and 12% QoQ. This growth was primarily led by the resumption of construction activity and softening imports, coupled with a low base effect.

* Our view: The 4QFY25 earnings fared better than expectations; however, forward earnings revisions continue to exhibit weakness, with downgrades surpassing upgrades. The Nifty-50 registered a modest 1% EPS growth in FY25 (following a 20%+ CAGR during FY20-24). The market has rebounded notably over the last two months, completely reversing its YTD decline. Currently, the Nifty is trading 4.7% higher in CY25YTD. With this rally, the Nifty trades at 21.8x FY26E earnings, near its LPA of 20.7x. While near-term challenges such as global macros, trade wars, and earnings will keep the market volatile and jittery, we believe that the medium-to-long-term growth narrative for India remains intact. Our model portfolio stance remains unchanged, with a distinct bias towards large-caps and domestic plays, given the current volatile backdrop. We are OW on BFSI, Consumer Discretionary, Industrials, Healthcare, IT, and Telecom, while we are UW on Oil & Gas, Cement, Automobiles, Real Estate, and Metals.

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