EUR 350.00 For Business Accounts Only

MOSL: INDIA STRATEGY: 2QFY22 interim earnings review; Results marginally ahead of expectations

India Strategy: 2QFY22 interim earnings review; Results marginally ahead of expectations; RM impacts gross margins; Nifty EPS estimates remain unchanged

 

• 127 MOFSL Universe and 34 Nifty companies have announced their results, as of 31 Oct'21. The companies that have reported earnings so far comprise: (a) 70% of est. PAT for the MOFSL Universe, (b) 71% of est. PAT for the Nifty, (c) 60% of India's market capitalisation, and (d) 78% of the Nifty 50 index weight.
• The 2QFY22 earnings are marginally ahead of our expectations as the companies benefitted from a) strong revenue growth in the technology sector b) steady recovery in loan growth, as well recovery and upgrade in the asset quality of most private sector banks (except Bandhan), c) higher commodity prices and volume growth in the energy and metal sectors, and d) opening up of the economy which boosted consumer and retail growth. Nifty profit for the 34 companies that have announced their results grew 22% YoY (v/s estimate of 13% YoY). On the other hand, for the 127 companies in the MOFSL Universe, profit grew 26% YoY (v/s estimate of 19% YoY). Excluding Bandhan (INR 30b loss due to higher provisioning), the MOFSL PBT/PAT growth stood at 33%/31% YoY (v/s estimate of 25%/19% YoY ). 44 companies within our coverage universe witnessed an upgrade of more than 3%, while 37companies saw a downgrade of more than 3%, leading to close to 5:4 upgrade to the downgrade ratio. MOFSL EBITDA margin (ex-financials) contracted by 140bps from 18.8% YoY to 17.4% YoY.
• Nifty EPS remains largely unchanged: The Nifty EPS for FY22E/FY23E saw a minor tweak to INR 731/INR873 (from INR 730/874). The FY22 EPS upgrade for BPCL, Titan, IT companies and private banks was negated by downgrades for Asian Paints, autos and insurance companies.
• Key drivers of 2QFY22 performance:  [1] IT- Indian IT services delivered one of its best-ever quarterly performances with a sequential revenue growth of 4.8% (USD). Moreover, stable deal wins and the upbeat commentary on overall tech spending provide high visibility for future growth. [2] Oil & Gas (O&G) - The performance of OMCs was driven by a better-than-expected margin performance, led by both higher reported GRM and higher-than-estimated marketing margins. Sales volume witnessed a demand recovery post the second COVID wave. [3] Autos - High raw material inflation and operating deleverage impacted the sector's 2QFY22 results. OEMs (MSIL, Bajaj and TVS) reported a commodity cost impact of 2-4pp QoQ, but expect semi-conductor supply to improve from the 2QFY22 levels.