Strategy : Q4FY25 Interim Review - Mid Cap Growth Robust While Large Cap Lags by Elara Capital
Mid Cap Growth Robust While Large Cap Lags
In Q4FY25, mid cap earnings have significantly outpaced large cap, with PAT rising 21.4% YoY vs a mere 4.3% for the Nifty 50. Midcaps delivered a profit delta of INR 77bn on base of INR 436bn — an 18% earnings accretion — compared to INR 63bn on INR 1,538bn for large caps at 4%. Notably, mid cap IT reported 47% PAT growth vs a mere 1% for large cap IT, suggesting superior execution agility in Tier II names. Mid cap banks performed better this quarter, primarily due to higher treasury gains. However, we prefer large cap names, going forward they are likely to benefit from swifter loan repricing. In contrast, large cap industrials and financials ex-banks outperformed. In our view, for mid-cap space margin sustainability, earnings visibility will be tested once global demand normalizes and cost base resets. We retain a balanced view for now but note midcaps are incrementally gaining share in the earnings pool — a structurally positive signal if breadth sustains into FY26.
Moderate sales and earnings growth for the Nifty 50: Aggregate sales for the Nifty 50 (33 results released out of 50 companies) rose by 7.6% YoY and 7.8% QoQ, reaching INR 10,577bn, driven largely by financials (ex-banks), healthcare, utilities, metals and industrials. However, PAT grew by a mere 4.3% YoY, reflecting uneven profit distribution across sectors. Both EBITDA and PAT margin saw a slight contraction of 27bp YoY and 46bp YoY, settling at 24.5% and 14.5%, respectively, in Q4FY25, underscoring muted operating leverage.
Industrials are the leader while banks and IT are the laggards for Nifty earnings: Industrials PAT, up 22% YoY, stood out as the top contributor, aided by resumption in government capex cycle, robust orderbook conversion, and margin stability. Financial exbanks, up 13% YoY, continue to benefit from operating leverage and better-than-expected asset quality trends in select NBFC and diversified financials. Healthcare, up 22% YoY, continues to register robust growth. Utilities, up 12% YoY, helped by sustained electricity demand and favorable coal cost dynamics, delivered strong earnings, with PAT margin expanding 300bp YoY to 28%. Conversely, banks and IT sectors underperformed. Banks experienced mere 1% YoY PAT growth, with net interest margin under pressure due to decline in interest rates and credit growth also coming off significantly from its peak 12 months ago. Although long-term IT story remains intact, discretionary spending has yet to come through. IT sector PAT growth was also flat at 1% YoY, hurt by weak discretionary spend from global clients and margin compression from wage inflation.
Key earnings drivers in Q4FY25 (Nifty 50) are ICICI Bank, Coal India, Tata Steel, L&T, Wipro, Adani Ports, Bajaj Finance, Tech Mahindra, HDFC Bank and Mahindra & Mahindra.
Strong earnings momentum for the Nifty Midcap 150: In Q4FY25 (73 out of 150 midcap companies released), earnings for the Midcap 150 rose by 21.4%, led by robust profit growth in banks, up 39.5% YoY, information technology, up 47.3% YoY, metals, up 36.0% YoY, and chemicals, up 250.3% YoY. These sectors collectively drove the bulk of incremental PAT gains. However, this strong print was partly offset by earnings decline in financials exbanks, down 11.9%, energy, down 7.0%, real estate, down 31.5%, and telecom, down 7.0%. Aggregate revenue rose by 21.4% YoY while EBITDA grew 14.8% YoY. PAT margin improved by ~130bp YoY to 10.7%, supported by better cost absorption in outperforming sectors. Notably, PAT growth excluding global cyclicals (energy and metals) was at a healthier 24.4% YoY.
Key earnings drivers in Q4FY25 (Nifty Midcap 150) are UPL, Union Bank of India, Bank of India, One 97, Hindustan Zinc, BSE, and Waaree Energies.
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