(i) The management commentary for FY23 would be
important to understand the impact of global growth, inflation and geopolitical
conditions on Indian businesses. BY now most of the corporate management would
have assessed the impact on their respective businesses and their assessment
would be reflected in their guidance for FY23.
(ii) The present earnings estimates of analysts for
FY23-FY24 may not be factoring the latest developments, especially with regard
to monetary policy, inflation, and demand outlook. Since the previous result season
most agencies have downgraded India’s growth forecast; increased inflation (wage
of raw material cost inflation); rates (cost of capital); and currency (import
inflation) forecast. The latest results may see analysts rationalizing their
forecasts to factor in latest management guidance; macroeconomic forecasts and
market (demand) conditions. This shall give a more realistic picture of the
current market valuations.
(iii) Past one year has seen a massive secctoral shift
in momentum. The focus has shifted overwhelmingly towards commodity
producers (especially metal and energy) from commodity users (FMCG, consumer
durable); deleveraging (financials suffered); asset inflation (real estate) and
exports (Textile, IT Services, Food etc.). Recently we have witnessed momentum
moving away from IT Services (due to margin concerns) and Realty (demand
concern as cost of funds rise). The latest quarter results and management
commentary would either strengthen the current sectoral preferences of the
market or cause a sectoral shift. I shall be closely watching the IT, Financials
and Metal sectors for a change in preference. A positive commentary on rural
demand may trigger a positive move in FMCG and Auto also.
I have noted the following
forecasts of brokers for the current result season. The market participants
mostly appear positioned in consonance with these forecasts. I shall be
watching the results for any significant deviation that may trigger repositioning
in the market, and hence create some trading opportunities.
Q4 FY22 and Q1 FY23 are
likely to be challenging quarters for Corporate Inc as they try to strike a
balance between rising input costs and demand. Hike in prices has so far been
well absorbed, with demand remaining intact. This can be reflected in revenue
projections for our coverage universe, which is likely to grow by 25% y/y
despite a higher base effect. In fact, Q1 FY23 revenue growth is also likely to
remain robust given the depressed activity in the first quarter of the
preceding fiscal year.
Things are not rosy on the operating margins front, which is expected to contract by 27bps sequentially
and 97bps y/y basis. As commodity prices continue their surge, companies
endeavor to further pass on the costs but remain cautious on the impact on demand.
This will likely translate into margin pressure in the quarters ahead. However,
we see that the price hikes could be a blessing in disguise in the medium term,
especially when sales realisation remains intact even after commodity induced
cost escalation subsides.
Adjusted PAT is likely to
grow by 32% y/y, largely driven by strong performance from Banks. Automobiles
to see steep contraction of 50%, hampered by both supply side issues and rising
input costs. (Yes Securities)
Margin pressure
bites in a seasonally weak quarter. Sequential growth for Indian IT will be moderate in March 2022 quarter
and in line with historical seasonal trends. Margins will remain under pressure
resulting from elevated wage increases, onsite as well as offshore. Net result
is a moderate EPS growth on yoy and moderate growth to decline on sequential
basis. Rupee depreciation is essential to bridge the gap between cost increases
and moderate price increases in FY2023. Demand trends continue to be robust.
While we are constructive on the space, we are surprised with resilient stock prices
against the backdrop of increasing risks. (Kotak Securities)
We expect the demand
outlook to remain strong in FY23, although the initial guidance may bake in a
potential impact on demand from elevated inflation in the US and Europe.
Companies will continue to post strong growth numbers on the back of tailwinds
for the industry on account of Digital and Cloud transformation initiatives
with enterprise clients. Hiring trends in recent quarters indicate continued
strength in demand with good visibility. (MOFSL)
IT Services sector is
expected to report strong growth in Q4FY22 primarily on account of the new
large deal wins and a ramp-up of deals won in the previous quarter despite
seasonality furloughs. IT spending in North America and Europe has gained
momentum and demand for digital transformation has increased exponentially.
Furthermore, improved macro-economic opportunities across the globe are
expected to provide further growth impetus to the sector moving forward. However,
supply-side constraints are likely to impact revenue growth momentum in the
short term. (AXIS Securities)
We expect a strong quarter
on earnings growth for banks in 4QFY22, but driven solely by lower provisions.
Operating profit growth for banks would continue to remain weak. We expect
further improvement in asset quality ratios. Weak loan growth remains a key concern.
We expect strong performance from NBFCs across growth, margins and asset quality.
(Kotak Securities)
Our estimates indicate
continued traction in earnings over FY22/FY23 even as we expect treasury income
to remain modest and near-term opex to remain elevated. Further, this momentum
is likely to continue over FY23E as well, as we project Private and PSU banks
to report earnings growth of 30% and 36% in FY23, respectively. Overall, our
Banking coverage universe is anticipated to report earnings growth of 33% in
FY23, after posting strong growth of 46% over FY22E.
Asset quality outlook
robust; core credit cost undershooting across banks: We estimate slippages to
remain modest, which along with healthy recoveries and upgrades would result in
an overall improvement in asset quality – barring the mid-sized banks that could
see stable trends. The Retail and SME segments could experience some slippages;
however, the Corporate segment is likely to remain resilient. While the
performance of restructured book would be important to assess the credit cost
trajectory, we nevertheless estimate credit cost to undershoot across banks,
thereby enabling further shore up of contingent/restructured / SR provisions. (MOFSL)
The 19 Consumer companies
under our coverage universe are likely to report muted cumulative growth
numbers – revenue/EBITDA/PAT of 8%/7%/5% – in 4QFY22. This is on a cumulative
sales/EBITDA base of 26.7%/26% in 4QFY21. Two year average sales/EBITDA growth
is expected to be 17.2%/16.3%. Sales growth will largely be led by price hikes
as Staples volumes hover in the negative to slightly positive range, impacted
by spiraling inflation and a slowdown in rural demand. Inflation has been the
theme in 4QFY22, with already elevated commodity costs pushed further upwards owing
to the Russia-Ukraine war, which broke out in Feb’22. With most companies having
taken steep price hikes in 3QFY22, managements were already apprehensive of
raising prices further as it risked affecting demand.
However, spiraling input
costs compelled most managements to raise prices further in an effort to
protect margins. The recent correction in stock prices has resulted in pockets
of opportunities, especially in companies with a lower exposure to commodity
cost pressures and strong structural growth visibility. In the case of
distribution channels, e-commerce continues to strengthen its salience for most
Consumer companies, while general trade
(GT) remains resilient. Recovery in the MT channel, while still not back to
pre-COVID levels, is certainly well on its way. However, the recovery in
certain categories may not be as strong as consumers tighten their purse
strings when looking at discretionary purchases. A few key developments to
monitor include: a) a fresh COVID wave engulfing the country, b) further
escalation in the ongoing conflict in Ukraine continuing to affect commodity
costs, and c) extended slowdown in rural demand. On the positive side, a good
Rabi harvest may help boost rural demand. (MOFSL)
We expect the consumer
discretionary to report slower revenue growth of ~8% YoY in Q4FY22 mainly due
to high base (+41% in Q4FY21) and lower volume offtakes. Volume offtake of
coverage companies is likely to decline in the range of 7-12% on account of pre
price hikes inventory built by dealers in Q3 and lower demand amid pandemic led
restrictions.
Sector wise, paint
companies are likely to report revenue growth in the range of 7-9% YoY led by
price hikes of ~21% taken during 9MFY22. On the fast moving electrical goods
(FMEG) front, the coverage companies are likely to see revenue growth in the
range of 5-9% driven by price hikes of about 15-17% in 9MFY22. We believe
extended winter and pandemic led restrictions have restricted volume offtake of
cooling products.
Key raw materials such as
titanium dioxide (TiO2), vinyl acetate monomer (VAM), aluminium, high density
polyethylene (HDPE), low density polyethylene (LDPE) witnessed upward movement
in the range of 9-60% YoY. We believe limited price hike against the steep rise
in raw material prices is likely to weigh on gross margins. (ICICI
Direct)
Our dealer checks suggest
that cement off-take improved significantly in the last two weeks of March
2022, resulting in flat yoy (+19% qoq) volumes in 4QFY22 despite a subdued
start. We estimate 1% qoq higher realization and costs to remain flat qoq as
operating leverage benefits offset commodity cost inflation. We estimate EBITDA
to improve by ~Rs100/ton qoq for our coverage universe in 4QFY22. Costs
inflation would further accelerate in 1QFY23 and would require 7-8% price hike
to pass costs, suggesting significant downside risks to earnings estimates. (Kotak
Securities)
In 4QFY22, a sharp
divergence in earnings can be expected depending on the ability of the
companies to source coal or petcoke at relatively competitive rates. For
4QFY22, we are building in 9.3% YoY revenue growth for the sector, driven by ~9.7%
YoY growth in realization whereas volume is expected to remain flat (marginal
decline of 0.3% YoY). Average realization on QoQ basis is expected to rise by
2.3% only. On the other hand, operating costs are likely to increase by 21%
YoY, largely driven by higher power & fuel costs. As a result, we expect
the industry to deliver EBITDA decline of 26% YoY. EBITDA/mt for the industry
is likely to increase marginally from Rs900 in 3QFY22 to Rs920 whereas EBITDA
margin is expected to remain flat QoQ at 16.5% (down 785bps YoY). PAT is likely
to decline by 31% YoY. FY23 appears to be a tough year for the industry as coal
prices are expected to remain elevated for a prolonged period given the global
tightness in supply and geopolitical tensions. (Nirmal Bang)
We see the likely hit on
demand as well as margins from the supply disruption across energy, fertilizers
and chemicals sectors, aggravated by the Russia-Ukraine conflict, cast a shadow
on 4QFY22E for NBIE Chemical stocks. The buoyancy in freight rates (up more
than 100% YoY) is an added worry. On the brighter side, we see pricing power
supporting margins. (Nirmal Bang)
We estimate the oil &
gas sector’s aggregate EBITDA would increase by 11.2% YoY/3.1% QoQ, given
OMCs’/ONGC’s high GRMs and higher realisations. We anticipate CGDs’ EBITDA
would dip by 20.5% YoY owing to high input spot prices (~3.5x YoY) and lower
margins. (Edelweiss)
We forecast revenues for
the auto stocks under our coverage to remain flat yoy in 4QFY22 led by (1) chip
shortage impacting PV production volumes and (2) weak 2W segment demand, offset
by (1) recovery in CV segment volumes and (2) higher ASPs. We expect EBITDA for
companies under our coverage (excluding Tata Motors) to decline by 10% yoy due
to multiple cost pressures. Suppliers will also have a weak quarter with 18%
yoy decline in EBITDA in 4QFY22. (Kotak Securities)