Downgrades Outpaced Upgrades This Earnings Season, Says Jefferies

India's June quarter results season has been mixed, with Jefferies India Pvt.'s analysts observing more earnings downgrades than upgrades. 

The analysis by Jefferies showed that earnings downgrades (47%) have exceeded upgrades (40%) among the 128 companies reviewed. Slightly less than half of the companies analysed have seen their fiscal 2025 earnings estimates cut. This trend reflects the impact of a harsh summer and recent elections, which have significantly influenced earnings outcomes across various sectors, the brokerage said in the note. 

Sectors experiencing significant earnings per share downgrades include lending financials, consumer discretionary, cement, and chemicals. Despite these challenges, there are some notable positives, including an improved outlook for the IT sector, a firming up of rural demand, and continued strong performance in capital markets and real estate.

Overall, the Nifty EPS has remained flat throughout the earnings season, according to the note. Jefferies maintains a 15% earnings growth outlook for fiscal 2025, reflecting a mixed performance across sectors.

• IT Sector: Major players like Infosys Ltd. and Tata Consultancy Services Ltd. reported revenue growth that exceeded expectations. The sector has shown improved demand and increased headcounts, marking the first rise in employment in six quarters.

• Lending Financials: The sector has faced challenges with earnings downgrades due to lower net interest margins and increased credit costs. Large lenders such as Axis Bank Ltd. and Kotak Mahindra Bank Ltd. saw earnings cuts of 3–5%, while smaller lenders experienced even steeper declines. However, ICICI Bank Ltd. reported a 15% increase in earnings with stable margins.

• Consumer Discretionary: Companies in this sector, including Titan Co., Nestle India Ltd., and Asian Paints Ltd., reported weaker results, with Ebitda growth slowing to single digits due to revenue misses. This has led to earnings cuts ranging from 7% to 14%.

• Consumer Staples: This sector saw 4-8% volume growth in India, supported by a recovery in rural demand. Companies like Hindustan Unilever Ltd., Dabur India Ltd., and Colgate-Palmolive (India) Ltd. benefited from lower raw material costs, leading to margin improvements.

• Automobiles: Automakers such as Maruti Suzuki India Ltd., Mahindra & Mahindra Ltd., Bajaj Auto Ltd., and TVS Motor Co. reported strong earnings with Ebitda growth of 24–39%, driven by favourable margin dynamics from lower raw material costs.

• Cement: The cement sector missed earnings estimates due to a 2-6% decline in realisations quarter-on-quarter, adversely impacting margins. Major players like ACC Ltd., Ambuja Cements Ltd., and Shree Cement Ltd. experienced YoY Ebitda declines, although UltraTech Cement Ltd. maintained its double-digit volume growth expectations for fiscal 2025.

• Pharma Generics: Companies in this sector, including Lupin Ltd., Dr Reddy's Laboratories Ltd., and Cipla Ltd., reported up to an 11% QoQ increase in US generic sales, leading to positive earnings beats. However, contract development and research organisations, and contract development and manufacturing organisations showed mixed results.

• Real Estate: Property developers such as Godrej Properties Ltd., DLF Ltd., and Oberoi Realty Ltd. reported impressive pre-sales growth of over 50% YoY. They maintained their FY25 pre-sales growth guidance of 15–30%, with margins improving due to firm pricing trends.

• Oil Marketing PSU's: The sector faced significant Ebitda declines of 40–60% due to weak refining margins. Similarly, Reliance India Ltd. reported a 9% sequential decline in Ebitda , with weaker performance in the retail and telecom sectors.

• Engineering and Construction: Larsen & Toubro Ltd. reported an 8% YoY increase in ordering for the fourth quarter, with margins improving slightly despite higher international revenue growth.