Sales/EBITDA/PBT/PAT growth for Nifty constituents was marginally better than our estimates at +5%/+21%/+27%/+28% YoY in 2QFY24. Excluding Financials, profit for Nifty constituents rose 29% YoY, while Ex-OMCs, Nifty’s earnings grew 22% YoY.
Five Nifty companies – BPCL, HDFC Bank, Tata Motors, JSW Steel, and Reliance Industries – contributed 68% of the incremental YoY accretion in earnings.
Nine Nifty companies posted an upgrade of over 5% in their FY24 EPS estimates; while five companies witnessed a downgrade of over 5%.
The beat-miss ratio for the MOFSL Universe was favourable with 38% of the companies beating our estimates, while 28% missed our estimates at the PAT level.
For MOFSL Universe, however, the earnings upgrade-to-downgrade ratio has been balanced for FY24E as 75 companies’ earnings have been upgraded by >3%, while 75 companies’ earnings have been downgraded by >3%. The EBITDA margin of MOFSL Universe (ex-Financials) improved 460bp YoY to 17.6%.
Corporate earnings in 2QFY24 exceeded expectations, with MOFSL estimates primarily being driven by the Financials and Auto sectors.The Metals sector also contributed to earnings with a 39% YoY growth after five consecutive quarters of decline.
Among sectors, IT Services companies reported a weak performance in 2QFY24, with a median revenue growth of 1% QoQ in constant currency, in an otherwise seasonally strong quarter.
The Banking sector reported a mixed performance in 2QFY24, driven by healthy business growth and sustained improvement in asset quality. However, the margin trajectory continues to compress further, led by an increase in funding costs.
The quarter saw upgrades for FY24E in the Auto sector, mainly to incorporate the advantages of improved gross margin and cost efficiencies, which ultimately supported overall profitability.
Consumer companies within the coverage universe delivered muted cumulative sales growth in 2QFY24. Volume growth has remained at the same level as seen in 1Q, still remaining at lower levels due to the persistent softness in rural India.
The corporate earnings for 2QFY24 have been marginally above expectations, with the BFSI and Automobile sectors driving the overall performance.
The spread of earnings has been satisfactory, with 72% of the Coverage Universe either meeting or exceeding profit expectations.
The margin tailwind, however, will moderate in the second half of FY24 due to the base effect and an increase in certain commodity prices. Nifty is trading at a 12-month forward P/E ratio of 17.8x, which is at 12% discount vs. its long-period average.
We now expect the Nifty EPS to grow ~24%/14% YoY in FY24/FY25. We are positive on Financials, Consumption, Industrials, Automobiles and Healthcare.
Titan Company: Buy| Target Rs 3900| LTP Rs 3338| Upside 16%
Titan has an impressive track record of outperforming its peers as well as exceptional long-term growth potential, all of which justify its premium valuations.
The management remains optimistic on the festive and wedding seasons despite the upswing in gold prices. Its other businesses such as watches, wearables, and eye-care have consistently delivered healthy performance.
Ultratech Cement: Buy| Target Rs 10,090| LTP Rs 8792| Upside 14%
We like Ultratech, given its: a) leadership position in the industry, b) robust expansion plans without leveraging the balance sheet, and c) structural cost improvement measures. We estimate consolidated volume CAGR at ~10% over FY23-26.
(The author is Head – Retail Research, Motilal Oswal Financial Services Limited)
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