Q3FY26 Earnings Wrap-up and Sectoral Outlook : Broad-based Earnings In-line with by Choice Institutional Equities
India Q3FY26 Earnings Wrap-up
Nifty 50 Earnings were In-line with Expectations
Headline Index Earnings Performance
Overall Q3FY26 earnings for Nifty 50 (Excl. Tatat Motors PV) witnessed a growth of 2.8% YoY (+3.2% QoQ), in-line with the consensus estimates. The growth was led by traction across Autos, Building Materials, Capital Goods, Consumer Discretionary, Conglomerates (on account of one-off), Financial services, Hospitals, Infrastructure, Metals and Power. Weakness across Consumer Staples, IT Services, Pharma, Telecommunication and Transportation offset stronger performance of other sectors. Reported earnings for Nifty 50 witnessed marginal degrowth of 1.1% YoY (+4.8% QoQ), as it was impacted by one-off losses in Tata Motors Passenger Vehicle
Headline Index Earnings Revision
Post Q3FY26, Nifty 50 (Excluding TMPVL) observed marginal revisions (in consensus estimate), as aggregate net profit for FY26E/ FY27E/ FY28E was downgraded marginally by 0.6%, 0.3% and 0.1%, respectively.
Larger upgrades (in the consensus net profit estimates) were witnessed across
(a) Energy on the back of improved realisations (b) IT Services due to improved demand environment and (c) Metals led by stronger commodity cycle.
Downgrades (in the consensus net profit estimates) was observed for
(a) Autos on account of one-off including labour code impact and exceptional losses; (b) Building Materials due to lower realisation and lower profitability; (c) Consumer staples led by impact on margins for ITC; (d) Conglomerates on account of miss in retail business for Reliance Industries; (e) Hospitals led by softer growth in core profitability of Max Healthcare; (f) Telecommunication due to one-offs including labour code and higher other expenses and (g) Transportation on account of lower passenger traffic.
Topline Growth for Coverage Universe Remained In-line with Our Estimate
Choice Coverage Universe Revenue Performance
Revenue for our coverage universe (Excl. Realty – Developers) grew 15.0% YoY (+5.2% QoQ), largely in-line to our estimates. Revenue growth was driven by Autos, AlcoBev, Cement, Building Materials, Defence, Flexible Workspace, Pharma, Hospitals, IT Services and ER&D.
Among our coverage, revenue stood higher than our estimate for
* Realty - Flexible Workspace, by 5.7% led by stronger leasing activities
* Cement, by 4.9% led by strong volume recovery across the coverage universe
* Hospitals, by 3.1% on account of consolidation of acquisition in Narayana Hrudayalaya
* AlcoBev, by 3.0% led by higher volumes of Imperial Blue for Tilak Nagar
* Pharma, by 1.1% led by strong beat in Sun Pharma and Zydus LifeScience
* Autos, by 0.9% led by sustained higher demand
Similarly, revenue estimates stood lower than estimate for
* Realty – Developers, by 5.3% due to lower construction activities and lower than expected deliveries
* Building Materials, by 5.0% due to lower realisation for Apollo Pipes, subdued demand for Hindware, seasonality for Sirca Paints
* Defence, by 1.3% on account of volatility and milestone led revenue phasing.
Downside Surprise led by Labour Code Impact in Bottom-line Growth for Coverage Universe
Choice Coverage Universe Earnings Performance
Net profit for our coverage universe (Excl. Realty – Developers) marginally by 1.9% YoY (-7.8% QoQ), while it underperformed our estimate by 7.3%. Growth in net profit was impacted by weaker performance across Cement, IT Services and E&RD.
Among our coverage, net profit stood higher than estimate for
* New Age and Internet, by 37.5% due to one-off from revaluation gain observed for IndiaMart
* Cement, by 2.7% due to large one-off observed in Ramco Cement
* Defence, by 2.3% on account of margin led beat for Bharat Electronics and HAL ? Autos, by 1.0% due to higher-than-expected operating leverage
Similarly, net profit missed our estimates for
* Building Materials, by 48.5% led by weaker gross margins and exceptional losses
* Hospitals, by 14.0% led by labour code impact ? IT Services, by 13.8% led by primarily on account of labour code impact
* Realty – Developers, by 13.6%, led by miss in revenue and subdued margins
* ER&D Services, by 13.0% led by labour code impact ? AlcoBev, by 6.0% on account of higher advertisement and promotional spends for United Spirits
* Pharma, by 5.1% primarily led by the impact of changes in labour code regulations
Top-line Revisions for Coverage Universe are Contained
Choice Coverage Universe Revenue Revision
Revenue growth for our coverage universe was upgraded by 0.8%/ 1.7%/ 1.8% for FY26E/ FY27E/ FY28E, respectively, majorly driven by Autos, Cement, ER&D Services, Pharma, and IT Services.
Among our coverage, revenue estimate was upgraded for:
* Autos, by 1.7%/ 1.4%/ 0.6% led by improved demand
* IT Services, by 1.1%/ 4.1%/ 5.2% led by improved demand environment and higher USD-INR depreciation
* Realty – Flexible Workspace, by 2.2%/ -0.1%/ 1.8%, led by higher leasing activities, for FY26E/ FY27E/ FY28E, respectively
Similarly for our coverage, revenue estimate were downgraded for
* AlcoBev, by 1.5%/ 2.4%/ 2.6%, as we incorporate new revenue model adopted by Associated Alcohols & Breweries
* Building Materials, by 4.3%/ 4.2%/ 2.7%, as we factor in quarterly performance of our coverage companies
* Defence, by 0.3%/ 1.6%/ 2.8%, as we recalibrate our expectations for milestone-based execution timelines and moderate export conversion
* Hospitals, by 1.5%/ 1.0%/ 2.1%, led by delay in operationalisation of new beds
* New-Age and Internet, by 6.1%/ 8.3%/ 5.5%, due to decline in revenue from discontinued operations for Nazara Tech, for FY26E/ FY27E/ FY28E, respectively.
Bottom-line for Coverage Universe Marginally Revised Downwards
Choice Coverage Universe Earnings Revision
Net profit estimate was revised for our coverage universe marginally by -1.4%/ -0.2%/ 0.2% for FY26E/ FY27E/ FY28E, respectively, majorly led by sectors including Building Materials, Defence, , ER&D, Hospitals, IT Services, New Age and Internet companies and Realty – Flexible Workspace.
Among our coverage, net profit estimates was upgraded for
* Autos, by 0.8%/ 0.3%/ -0.9%, as we factor in higher operating leverage, for FY26E/ FY27E/ FY28E, respectively
* IT Services, by -3.1%/ 0.6%/ 2.3%, led by labour code impact in FY26E and improved demand environment in FY27E and FY28E
* ER&D Services, by -4.6%/ 3.9%/ 7.3%, led by labour code impact in FY26E and improved demand environment in FY27E and FY28E
Similarly, net profit estimates were downgraded for
* Building Materials, by 29.6%/ 20.2%/ 16.2%, as we factor in lower EBITDA margin and profitability in-line with expansion plans and management guidance
* Hospitals, by 1.8%/ 2.4%/ 3.1%, led by higher depreciation due to addition of new hospitals
* Realty- Flexible Workspace, by 6.5%/9.2%/ 9.9%, as we factor in higher depreciation charge for coverage companies, for FY26E/ FY27E/ FY28E, respectively Further, estimates were downgraded for FY26E for ER&D Services by 4.6%, IT Services by 3.1% and New Age and Internet companies by 2.4% led by labour code impact.
Above views are of the author and not of the website kindly read disclaimer
