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Informist, Monday, Nov. 18, 2024

 

MUMBAI – The September quarter earnings of India's largest blue-chip companies were weighed down by the commodities sector, as the Nifty 50 companies posted a mere 4% growth in their earnings for the quarter, Motilal Oswal Financial Services Ltd. said in a report. This is the first time since the June quarter of 2020-21 (Apr-Mar) that these companies have reported a single-digit growth in their net profit for the second consecutive quarter, the brokerage said. While 17 Nifty 50 companies beat the brokerage's net profit estimates, 14 of these companies missed it, and another 19 met its projections. 

The brokerage has cut its estimate for the earnings per share of the Nifty 50 companies for FY25 by 1.4% to INR 1,057, mainly due to a sharp cut in estimates for Oil and Natural Gas Corp., Bharat Petroleum Corp. Ltd., Reliance Industries Ltd., and Coal India Ltd. The brokerage has also cut its estimate for the earnings per share of Nifty 50 companies for FY26 by 2.2% to INR 1,241. The brokerage, however, said excluding the commodities, there is no downgrade in the earnings per share estimate for FY25. Motilal Oswal has downgraded the earnings estimates for 33 Nifty 50 companies for FY25, upgraded the earnings estimates for 13 companies, and kept the earnings estimates unchanged for two companies. The brokerage does not cover Bajaj Finserv Ltd. and Adani Enterprises Ltd. 

 

Aggregate earnings of the 275 companies covered by Motilal Oswal fell 1% on year, in line with the brokerage's expectations, it said. Of these, 35% reported higher-than-estimated net profit, 38% posted lower-than-estimated profit, and 27% reported profit which was along estimated lines, the brokerage said. 

 

Motilal had downgraded its earnings estimates for the current financial year by more than 3% for 121 companies, and had upgraded its estimates by more than 3% for 43 companies. It has retained the earnings estimates for the remaining companies. This is the worst upgrade-to-downgrade ratio since the June quarter of FY21, it added. 

 

For Oct-Mar, Motilal Oswal expects the Nifty 50 companies to post an 8% on-year growth in its net profit. The brokerage expects 275 companies to post a 9% on-year growth in their net profit for the second half of the current financial year and a 4% growth in their net profit for the whole year.

 

The brokerage said while companies in the telecommunication, banking and financial services, technology, healthcare, and metal sectors will drive the on-year growth in net profit for Oct-Mar, oil and gas, and cement companies will be laggards. The banking, metals, and technology sectors will also likely be the key drivers of the net profit growth for the whole year. The brokerage said companies in the banking sector are expected to post a 13% growth in their net profit for FY25, metal companies are expected to post a 20% net profit growth, and technology companies are expected to post 10% growth.

 

Motilal Oswal expects improved government spending, rural demand and a good kharif yield to help improve the corporate earnings for the second half of the current financial year. However, it has already cut its earnings estimates for Nifty 50 companies for FY25 by 7% for Oct-Mar. This has reduced the expected growth in the overall Nifty 50 earnings per share for FY25 to 5%, the weakest since FY20, the brokerage said.  

 

The Nifty is trading at a 12-month forward price-to-earnings ratio of 20 times, the brokerage said, adding that despite the recent 10% correction from the highs, the broader markets are still trading at expensive valuations.

 

While the Nifty 50 constituents beat the brokerage's estimate for their aggregate net profit growth for the September quarter by 100 basis points, the brokerage said these companies, excluding the financial sector ones, reported a flat-on-year net profit growth. The aggregate earnings were affected by global commodities, the brokerage said, adding that excluding both metals and oil and gas companies, the net profit of the Nifty 50 companies would have grown 11% on year. 

 

Of the 25 sectors it covers, Motilal Oswal said only four reported above-expected profit for the quarter, 12 reported as-expected profit and nine reported lower-than-expected profit. Nine of the 15 major sectors the brokerage covers reported a contraction in the gross margin for the September quarter, Motilal Oswal said.

 

The banking, financial services and insurance companies reported 15% on-year growth in earnings in Jul-Sept. Healthcare and utilities companies reported 17%-on-year growth each, while companies in the technology sector reported 8% on-year growth, and capital goods companies reported 17% growth in net profit. However, profits of oil and gas companies fell 41% on year, those of cement companies fell 46%, and chemical companies fell 4% on year, the brokerage said.

 

Of the oil and gas companies, profits of oil marketing companies plunged 92% on year in the latest quarter. Excluding the oil and gas companies and the metal companies, the net profit of companies covered by Motilal would have grown 12% on year in the latest quarter. Profit growth of consumer goods companies, on the other hand, was flat on year, the brokerage said.  

Hindalco Industries, State Bank of India, Oil and Natural Gas Corp., ICICI Bank, and Axis Bank contributed 140% of the incremental on-year rise in the Nifty 50 companies' earnings, Motilal Oswal said. Bharat Petroleum Corp., JSW Steel, Coal India, Indusind Bank, and Reliance Industries, on the other hand, dragged down the aggregate earnings for the latest quarter.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Aman Aryan

Edited by Tanima Banerjee

 

 

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