Q2 FY24 Results Preview - A Quarter Of Strong Earnings Fueled By Domestic Cyclicals: Motilal Oswal

Motilal Oswal Report

We predict our coverage companies' earnings to jump ~40% YoY, while Nifty earnings are likely to grow 21% YoY in Q2 FY24. Overall earnings growth is projected to be driven once again by domestic cyclicals, such as banking, financial services and insurance and auto, while oil and gas' earnings are likely to surge 2.2 times YoY underpinned by strong marketing margins of the oil marketing companies.

Auto sector’s earnings are anticipated to surge 87% YoY during the quarter on a low base. Excluding Tata Motors Ltd., the auto universe is likely to post 39% YoY earnings growth. Banking, financial services and insurance earnings are predicted to remain buoyant with 26% YoY growth for Q2 FY24.

Sales and Ebitda of our universe are likely to grow 6% and 27%, while for Nifty, we expect sales and Ebitda to improve 7% and 19% YoY, respectively. Excluding OMC’s, Ebitda of our universe/Nifty is expected to grow 18%/14% YoY though.

Metals sector is likely to report a 6% YoY earnings growth. Excluding global commodities (i.e. metals and oil and gas), our universe and Nifty would post 26% and 19% YoY earnings growth, respectively, in Q2 FY24.

Cement is anticipated to report a strong 72% YoY earnings growth on a low base, while healthcare and technology would clock a moderate earnings growth of ~7% YoY each for the quarter. Specialty chemicals is expected to report an earnings decline of 19%YoY.

Ebitda margin is projected to expand 350 basis points YoY for our universe (excluding financials) to 16.4%. On the other hand, Ebitda margin for Nifty, excluding financials, is likely to expand 230 bp YoY to 19.5% during the quarter.

Our midcap universe is estimated to report a growth of 8%/38%/104% YoY in sales/Ebitda/profit after tax, while our smallcap universe is estimated to report a growth of 10%/75%/130% YoY in Q2 FY24. Large-cap companies are likely to register sales/Ebitda/profit after tax growth of 5%/24%/31% YoY during the quarter.

Sales/Ebitda/profit after tax of our universe would increase 4.5%/28%/46% YoY while those of Nifty would grow 7%/20%/26% YoY in H1 FY24.

Sales/Ebitda/PAT of our universe would post a two-year compound annual growth rate of 17%/ 13%/13% over September 2021-Sep-23.

FY24E earnings highlights:

Our universe is likely to post sales/Ebitda/PAT growth of 7%/21%/28% YoY. banking, auto and O&G are the key growth sectors with 16%, 80% and 73% YoY earnings growth, respectively.

Marginal cut in Nifty EPS:

We have marginally cut our FY24/FY25E Nifty earnings per share by 0.3%/0.9% to Rs 986/Rs 1,132. We now forecast the Nifty EPS to grow 22%/15% in FY24/FY25. Financials and O&G are likely to account for 66% of the incremental FY24E earnings growth for Nifty. Excluding-BFSI, we expect Nifty’s FY24 earnings to grow at 24% YoY; while excluding metals and O&G, Nifty’s FY24 earnings are likely to post 20% YoY growth.

Our top Ideas:

Large-caps – ICICI Bank, ITC, Bajaj Finance, L&T, HCL Tech., M&M, Titan, Avenue Supermarts, Ultratech, BoB, and Zomato.

Mid-caps – Indian Hotels, Ashok Leyland, Godrej Properties, Mahindra Finance, Metro Brands, Kajaraia Ceramics, CreditAccess Grameen, Global Health, and Craftsman Automation.

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