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MOSL : STRATEGY: Interim earnings review – 1QFY23: Below expectations; Financials outperform; Nifty earnings see minor cut

.  STRATEGY: Interim earnings review – 1QFY23: Below expectations; Financials outperform; Nifty earnings see minor cut

• As of 31^st Jul’22, 110/31 companies within the MOFSL Universe/Nifty have announced their results. The companies that have reported their earnings so far comprise: a) 69% of estimated PAT for the MOFSL Universe, b) 67% of estimated PAT for the Nifty, c) 54% of India's market capitalization, and d) 80% weightage in the Nifty.
• The earnings growth in 1QFY23 has been subdued and led solely by BFSI, which has driven 124% of incremental YoY earnings growth for MOSL universe so far, aided by credit cost moderation. Loan growth has spiked fueled by continued momentum in Retail and SME segments. O&G and Automobiles have been laggards while Metals and Cement sectors posted expectedly weak numbers expectedly.
• Profits of the aforesaid 110 MOFSL universe companies grew 13.5% YoY (est. 18% YoY). Excluding BFSI, profits have declined 4.3% YoY (v/s est. +6%). Around 30/32 companies within our coverage universe witnessed an upgrade/downgrade of more than 3% each, respectively, leading to a balanced upgrade-to-downgrade ratio for FY23E. However, EBITDA margin of the MOFSL universe (excluding Financials) contracted 520bp YoY to 14.1%.
• Profits of the 31 Nifty companies rose 12% YoY (est. 24% YoY), single-handedly led driven by BFSI. Excluding BFSI, profits would have declined 1% YoY (v/s est. +16% YoY). Heavyweights, like such as Reliance and Tata Motors, which posted weaker weaker- than than-expected expected performance, dragged the Nifty earnings. Excluding Reliance RIL and Tata Motors, Nifty profits are uprose 9% YoY v/s. expectations of 6% growth.
• FY23E/FY24E Nifty EPS saw a downgrade of 1.3%/1.0%: Nifty EPS estimate for FY23 was cut by 1.3% to INR855 largely due to Reliance Industries and Tata Motors. FY24E EPS was also reduced by 1.0% to INR997 (from INR1,006 earlier) as upgrades in Tata Steel/Bajaj Finance/JSW Steel/ and HUL were offset by downgrade downgrades in Reliance Industries and&  Tata Motors.
• Summary of the 1QFY23 performance: 1) Technology: The quarter was a mixed bag for IT companies with our coverage universe reporting an overall revenue growth of 1.9% QoQ. Tier II companies posted better growth at 3.1% QoQ than the 1.7% growth for Tier I companies. Amid heightened concerns over weakening macro environment, managements of most of the companies are not seeing any impact on the pipeline. A majority of the companies delivered good deal wins and highlighted a strong pipeline. 2) Banks: Growth momentum has remained strong over 1QFY23 propelled by healthy trends in the corporate portfolio, while growth in retail, business banking, and the SME segments continued to shine. Lower provisioning costs drove the earnings as despite a modest but in-line 5% PPOP growth, BFSI universe registered a 63% profit growth. 3) Oil & Gas: The lower-than-estimated standalone O2C performance of Reliance led to the 10% miss in EBITDA/PAT. Severe volatility in feedstock prices and high inflation concerns instigated the slowdown in global intermediates and polyester market. 4) Consumer: Sales growth during the quarter was largely fueled by price hikes, as volumes for Staple companies continued to remain weak, ranging from low- to mid-single-digit growth. 5) Automobiles: The topline was largely above or in-line for the companies having reported so far, driven by price hikes, improved mix and favorable FX (for exporters). Higher Higher-than than-estimated estimated losses in Tata Motors dragged the aggregate Automobile universe performance. Ex-Tata Motors, earnings were in- line.