Out of 700 companies’ quarterly results, the median revenue growth is 47 percent on a YoY basis. The net margins of the companies have been reported as median of 8.2 percent with profit before depreciation, interest and tax (PBDIT) margins of 19.2 percent.
Nifty EPS is expected to get downgraded marginally. We expect Nifty EPS for FY22 at Rs 699. Revenues for companies were impacted by severe lockdowns while margins were impacted by higher commodity prices and supply chain issues. Amongst the sectors, Cement, Metals and Gas companies have reported better-than-expected results while Banking, Automobiles, FMCG and IT have reported results in line with expectations. Pharmaceutical companies and Private Banks have reported results worse-than-expectations.
IT companies both large and Mid cap ones reported strong revenues driven by healthy pipelines. Positive Management commentaries regarding deal pipelines on the digital front and cloud migration focus by companies provides long term high visibility for growth in companies. We prefer Infosys, TCS, and Tata Elxsi in this space. At the same time, we need to keep an eye on increased revenues for internet-based businesses like IndiaMART InterMESH, Matrimony.com, and Nazara Technologies where revenues are expected to grow manifold driven by organic and inorganic growth.
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Cement volumes on average increased by 38.4 percent YoY. The average realization QoQ increased by 6.44 percent. Margins increased by 84 bps driven by operational efficiency and cost saving measures despite steep increase in prices of diesel, pet-coke & thermal coal. The companies have learnt to increase focus on the usage of alternate fuels and increasing the share of green power in power & fuel mix which will further help margins. We prefer JK Cement and ACC for their continued expansion projects. Industry small unorganized players are facing issues of financial crunch and supply chain / logistics while making room for organized players to gain market share.
In last 6 months prices of commodities like Steel, Aluminum, Copper, etc., have risen significantly. Sharp commodity prices have impacted the margins of companies consuming these commodities. Russia & China put temporary ban on the export of Steel & related products that has led to sharp rise in price of Steel. Companies from chemical, and textile sectors witnessed robust demand for its products as demand normalcy returned in US, Europe & other major economies. Container shortage issues resolved and execution of new orders which were stuck due to Covid were executed.
As regards consumer discretionary space, particularly automobiles, there has been a contraction in volumes due to lockdowns & chip shortage. Earnings before interest, tax, depreciation and amortisation (EBITDA) margin declined by 230bps QoQ. The ancillary segment revenue declined by 8 percent QoQ. EBITDA margin declined by 280bps due to weaker operating leverage and supply chain issues. FMCG sector average volumes increased by 15 percent YoY. Average gross and EBITDA margin declined by 221/187 bps on account of input inflation prevailing across agriculture commodity baskets, crude and edible oil also stabilisation of advertising & promotion spends and other expenses also contributed to the decline in margins. We prefer Nestle India and Britannia Industries in this space.
Banks and NBFCs have been worst affected by the pandemic. NII growth slowed down due to muted credit growth and the bottomline was impacted by the higher credit cost on account of significant increase in slippages. MSMSE and unsecured retail segment witnessed higher slippages due to low collection efficiency on account of lockdown. Whereas corporate credit growth was muted largely impacted by stagnant economic activity. Going ahead credit cost is likely to remain elevated and we expect a soft pickup in credit growth as the economy opens. We remain optimistic on large banks like HDFC Bank, ICICI Bank, and SBI.
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