Q1 FY25 Results Review - Domestic Cyclicals Ignite Resilience; OMCs Temper Corporate Earnings: Motilal Oswal

Motilal Oswal Report

OMCs temper corporate earnings:

The Q1 FY25 corporate earnings came in line, with overall growth primarily being propelled once again by domestic cyclicals. Notable contributions were observed from the healthcare, real estate, capital goods, and metals sectors. In contrast, earnings growth was adversely affected by OMCs.

For Banks, Q1 has been a seasonally slow quarter, and most of the banks have reported slower deposit growth too in Q1 FY25. We cut our growth estimates for many of the banks amid slower deposit growth and a higher credit/deposit ratio across several banks and the system. Most of the banks have raised their deposit rates in Q1 FY25 amid rising competition in deposits. Banks are still increasingly relying on the bulk TDs and CDs to fund their asset growth.

Within NBFC/HFC, various management teams highlighted the following:

1. disbursements in the mortgage segment were hit by the RBI Fair Practices Code circular in addition to Q1 being the seasonally weakest quarter;

2. asset quality deteriorated across most product segments because of elections, heat waves, higher attrition rates, and even the impact on customers’ earnings;

3. the MFI segment, in particular, is experiencing lower collections and slippages into forward buckets due to customer over-leveraging,

4. borrowing costs largely peaked out and everyone is looking forward to repo rate cuts; and

5. competitive intensity in gold loans, from both banks and NBFCs, moderated.

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