Q2FY22 Earnings: Overall results marginally above expectations; these sectors drive the market most
As the earnings season has come halfway, the domestic brokerage firm Motilal Oswal Financial Services (MOFSL) mentioned in a report that the overall results are marginally above-expectations, this is on the back of multiple metrics during the second quarter of the financial year 2021-22 (Q2FY22).
As the earnings season has come halfway, the domestic brokerage firm Motilal Oswal Financial Services (MOFSL) mentioned in a report that the overall results are marginally above-expectations, this is on the back of multiple metrics during the second quarter of the financial year 2021-22 (Q2FY22).
While listing out the reasons for different sectors, the brokerage firm said, “The companies benefitted from the strong revenue growth in the technology sector; steady recovery in loan growth, as well improved asset quality of most private lenders; higher commodity prices and volume growth in the energy and metal sectors, and last but not least opening up of the economy.”
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The profit for the 34 Nifty companies that have announced their results so far jumped 22 per cent as compared to 13 per cent estimated year-on-year during the quarter, MOFSL said in a report.
The brokerage firm points out three key drivers of the Q2FY22 performance; 1) IT- The Indian IT services delivered one of its best-ever quarterly performances with sequential revenue growth of 4.8 per cent in USD terms, besides, stable deal wins and the upbeat commentary on overall tech spending.
2) Oil & Gas (O&G) – The performance of OMCs (oil marketing companies) was driven by a better-than-expected margin performance, led by both higher reported GRM and higher-than-estimated marketing margins. Sales volume witnessed a demand recovery post the second wave.
3) Autos – High raw material inflation and operating deleverage impacted the sector’s Q2FY22 results. OEMs like Maruti Suzuki, Bajaj Auto, and TVS reported a commodity cost impact of 2-4pp sequentially, but expect semi-conductor supply to improve from the Q2FY22 levels.
At the sectoral level, Retail, Oil& Gas, Cement, IT, and Telecom recorded FY22 earnings upgrade of 17/6/2/1/1 per cent, respectively, and on the other hand, Life Insurance, PSU Banks, Autos, Metals, Private Banks, Healthcare, Speciality Chemicals, and Consumer witnessed an earnings downgrade.
According to the MOFSL report, “The majority of the companies largely delivered on the earnings front (except for autos), markets saw increased volatility on rising energy prices and inflation concerns.”
Moreover, “Companies have taken price hikes to pass on the impact of commodity costs, and the impact on demand elasticity remains to be seen. Globally, central banks have begun shifting their focus on inflation with the Bank of Canada abruptly ending QE”, the brokerage firm pointed out.
Highlights
Top companies that surpassed our estimates: Axis Bank, ICICI Bank, IndusInd Bank, Kotak Bank, Larsen & Toubro, Shree Cement, Nestle, Dr Reddy’s Lab, JSW Steel, BPCL, IOC, RIL, Titan, Tech Mahindra, and Wipro.
Top companies that missed our estimates: MSIL, HDFC Life, SBI Life, BajajFinance, Ultratech Cement, Asian Paints, Tata Consumer, and UPL.
Top FY22E upgrades: BPCL (up 22%), Shree Cement (up 15%), Titan (up 13%), Wipro (up 7%), Tech Mahindra (up 6%) and ICICI Bank (up 5%).
Top FY22E downgrades: Asian Paints (down 22%), SBI Life (down 18%), Maruti (down 16%), HDFC Life (down 15%), JSW Steel (down 7%), Axis Bank (down 6%) and Bajaj Finance (down 5%).
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