Citi Q3 Preview: Nifty 50 Companies Likely To Deliver 8% Earnings Growth

Larsen & Toubro Ltd. and Adani Ports and Special Economic Zone Ltd. are among the companies that could be potential positive surprises this earnings season, according to Citi.

The research firm also cited Hero MotoCorp Ltd. and Godrej Consumer Products Ltd. that could strong earnings in the quarter ended December, according to its note. The season kicks off this week with information technology companies reporting numbers.

Citi expects 8% year-on-year earnings growth for Nifty 50 companies in the third quarter, according to its note. It projects companies within its coverage to deliver 17% profit growth. Operating income is estimated to rise 12% and 10%, respectively, for Citi universe and Nifty 50 companies, it said.

Auto, industrials, non-lending financial companies, gas utilities and cement are among the sectors that will report strong growth in earnings in the quarter ended December, according to Citi. IT services, banks and staples may report subdued earnings, the note said.

More than 90% investors expect earnings per share to grow in the range of +/- 3% of consensus estimates in 2024, according to Citi's investor poll.

However, none foresee earnings per share upgrades in FY25 over the consensus estimates, implying an anticipation of higher expected price-to-earnings ratios, it said.

About 37% investors anticipate downside or flat returns on Nifty in 2024, suggesting a lower-than-expected PE in these cases. 16% investors anticipate a more than 15% increase in Nifty this year.

Among sectors, investors see financials and PSU utilities as most crowded and consumer and information technology services as least crowded.

"Interestingly, NSDL data suggests that in third-quarter, FIIs raised active weights in investments-related sectors (utilities, capital goods, realty), while cutting in financials and consumer sectors," the note said.

• Comments on demand trends after the festive season.

• Entry level car and two-wheeler demand versus premium end vehicles.

• Product plans for 2024, including electric vehicles.

• Any possible expectations from budget.

• Comments on capex and ordering prospects in various end-user industries in India and comments around hydrocarbon related spends in the Middle East.

• Input cost trends and commentary around margin outlook.

• Execution trends and commentary on working capital trends.

• Commentary on exports trends and outlook in given global macro risks.

• Citi expects underlying industry demand to remain muted, similar to previous quarters, with only a slight sequential improvement in volume trends.

• "We see gross margins to continue to expand, benefitting from lower input prices; this benefit, though, is likely to be partially reinvested in ad-spends to drive growth/innovation," it said.

• Citi continue to watch for commentary around: a) consumer sentiment and rural demand recovery, b) any election-linked supportive policy, c) pricing action by companies, and d) competitive intensity from regional players.

Financial Lenders

Commentary on NIM trajectory, asset quality and slippage trends (particularly retail unsecured loans).

Financials (Non-lenders)

Expect margin compression for life insurers owing to mix change. Expect strong PBT growth for capital market players.

• Citi expect Q3 IT services revenue growth of -2.9% to 2.9% QoQ (-8% to +4% YoY) for the top six Indian IT companies.

• Investors will likely focus on pace of recovery and CY24 outlook, particularly after Fed commentary on rates – forward indicators such as guidance, deal TCV, comments, headcount, will be keenly monitored.

• Margins are another focus area, with pricing and large deal ramp-up to be monitored

For oil marketing companies, Ebitda could be sharply lower on quarter-on-quarter basis, due to lower refining margins and higher inventory loss.

Citi expects Q3 to be a mixed quarter for pharma. In the domestic formulations, high chronic exposure may continue to outperform, while acute is yet to pick up meaningfully.

What to look for in results/commentary:

• U.S. generic pricing trends and the management commentary around that.

• Sales trends and contribution of products under exclusivity/semi-exclusivity.

• Growth and pricing trends in domestic formulations.

• Commentary around compliance issues.

• Focus will be on residential demand and outlook.

• Office occupancy will be key for REITS.

• Retail consumption trends.

• Average revenue per user for telecom companies could improve slightly, owing to 2G-to-4G mix improvement.

• Bharti Airtel Ltd. and Reliance Jio Infocomm Ltd.’s subscriber base to improve further, whereas Vodafone Idea Ltd. could see continued subscriber loss.

• VI’s updates on capital raise would be key to monitor.

• Commentary on pace of capex, capitalisation, and incremental capex opportunities for regulated utilities.

• Updates on incremental solar and other clean energy area plans/targets and progress on bidding for the same.

• Receivables position and latest trends.

• Citi expects advertising revenue trends to improve gradually in Q3 (projects QoQ growth, but YoY decline) as some increase in spends by advertisers in the festive season is partially offset by weaker spending by new-age brands and increased share of sports in the quarter (Cricket World Cup).

• Subscription revenues are likely to see sequential stability with the implementation of NTO3.0.

• Cargo volume trends and outlook, especially in containers.

• Balance sheet health and cash flow trends.

• Larsen and Toubro Ltd. could see order inflows and revenue due to strong execution.

• Adani Ports and Special Economic Zone Ltd. to have healthy volumes.

• Axis Bank Ltd. to have better-than-peers NIM trajectory and contained opex growth.

• Hero MotoCorp Ltd. to have better margins due to mix operating leverage.

• Godrej Consumer Products Ltd. could see flat YoY consolidated revenue. Domestic (organic) revenue to grow 3%; reported domestic revenue (including Raymond FMCG business) to grow 12% YoY.

• Bata India Ltd. to have weaker-than-expected export and apparel ramp-up.

• Lupin Ltd. to be affected from competition in select products.

• Tata Steel Ltd. performance will depend on European performance.

• AU Small Finance Bank to have NIM and RoAs drag.

• Maruti Suzuki India Ltd. to report lower margins due to higher discounts.