18 Jul , 2022 By : Monika Singh
A low base and fully reopened economy should drive 30% y-o-y earnings growth, ex commodity majors, oil and metals. Sequentially, domestic cos’ earnings for reopening plays, autos, cyclical cos. should improve but consumer staples, appliance cos. & cement could weaken. Lending fin numbers should be reasonably strong, though MTM bond losses are a dampener. Demand outlook and tackling commodity price volatility will be key commentary to watch.
Earnings growth to slow, but still reasonable: Y-o-y earnings growth for the JEF coverage universe should decline to an 8-qtr low of 10%, as the OMCs turn loss making and metal cos. see margin pressures. Direct y-o-y earnings comparisons are tough due to the 2nd wave impact in base. An analysis of 3-Yr CAGR suggests earnings (ex-Oil, ex-Metals) will slow 3ppt y-o-y to a still strong 18%. Sectors with slowing 3-Y earnings trends are cement, lending financials, mid-caps (consumer durables and building material), pharma, metals, and PSU oil & gas. Consumer earnings should be mixed (weaker staples) while autos, property, infra (led by power) should improve. IT cos. should see high-single-digit profit growth trends, but demand outlook is key.
Sectors/stocks with strong earnings
Lenders to report 30% y-o-y rise in profit, led by NBFCs (low base) and pvt banks (Axis, ICICI) — better loan growth & low credit costs help. Consumer discretionary & retail to see high-teen 3-Y Ebitda growth for most cos. Auto OEMs (Maruti, Hero, Eicher, TVS) to see 2-3x profit jump on low base, improving vols, & higher recovery of input costs. RIL (~50%) should likely see high GRMs driving earnings. In the cap goods/infra space, 25% y-o-y profit growth is likely for L&T, ABB, Siemens, and Thermax on improving execution. Power cos. Tata Power and NTPC to see 50% earnings. Property cos.’ pre-sales up multifold on low base and strong demand.
Earnings laggards
BPCL, HPCL, IOCL to suffer due to inadequate absorption of marketing losses. Cement cos. to report ~20% profit fall
y-o-y as cost pressures are high. Consumer staple cos. to see ~5?itda growth, though half could see vol. declines. Consumer durables (Whirlpool, V-Guard, Crompton) & Building material cos. (Kajaria, Astral, Supreme) could see sequential profit growth weakening. IT Top 5 to see moderated revenue growth of 2-5% q-o-q cc. However, blended margins to decline by ~100bps. >10?rnings decline is likely for many pharma cos. (Cipla, Cadila, Lupin, Alkem, IPCA).Metal cos. (Tata, JSW) to see >20?rnings decline on revenue and cost pressures.
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