Q2-FY24: A broad-based beat - Motilal Oswal review

The Q2FY24 corporate earnings ended on a buoyant note with a widespread outperformance across aggregates driven by margin tailwinds. Domestic cyclicals such as Automobiles, BFSI, and Cement drove the beat. Forward earnings for Nifty were revised upwards by about one per cent each for FY24/25, said Motilal Oswal Financial Services, in its preview report.

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The aggregate earnings of the MOFSL Universe companies rose 48 per cent y-o-y (vs. est. of 40 per cent rise). Earnings for Nifty-50 posted a 28 per cent growth (vs. est. of a 21 per cent growth). Domestic cyclicals, such as BFSI and Auto led the earnings growth in the MOFSL Universe. BFSI clocked a 33 per cent y-o-y growth, while the Auto sector registered a notable growth of 112 per cent y-o-y (vs. est. of +87 per cent), driven by Tata Motors, Maruti, and M&M. OMC’s profitability surged to ₹266 bn in 2QFY24 . against a loss of ₹27 bn in 2QFY23, owing to strong marketing margins. Ex-OMCs, MOFSL earnings grew 30 percent Y-o-Y, which was above our estimate of 23 per cent, the note added.

Nifty Universe

Nifty delivered a beat with a 28 per net Y-o-Y PAT growth (vs. est. of +21 per cent). Five Nifty companies - BPCL, HDFC Bank, Tata Motors, JSW Steel, and Reliance Industries - contributed 68 per cent of the incremental y-o-y accretion in earnings. Ex-OMCs, Nifty’s earnings grew 22 per cent Y-o-Y (Vs. est. of +15 per cent).

Ex-Metals & O&G, Nifty earnings were up 32 per cent (Vs. est. of +27 per cent).

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The beat-miss ratio for the MOFSL Universe was favorable with 38 per cent of the companies beating our estimates, while 28 per cent missed our estimates at the PAT level. For MOFSL Universe, however, the earnings upgrade-to-downgrade ratio has been balanced for FY24.

Outlook

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 per cent of our Coverage Universe either meeting or exceeding profit expectations. The margin tailwind will moderate in the second half of FY24 due to the base effect and an increase in certain commodity prices,” it said in the note.

Nifty is trading at a 12-month forward P/E ratio of 17.8x, which is at 12 per cent discount vs. its long-period average (LPA).

“We largely maintain our sectoral allocations and weights, relying on the sectors that have shown growth potential to drive our stock selection framework. We remain OW on Financials, Consumption, Industrials, Automobiles and Healthcare; while we maintain our UW stance on Metals, Energy, IT and Utilities, and Neutral outlook on Telecom in our model portfolio.”