Q2 corporate earnings report: Banks perform well, moderate growth in FMCG, auto

• High input costs during the quarter impacted profitability of companies.
• While many sectors delivered moderate growth in the latest quarter, analysts believe banks outpaced other sectors.
• FMCG firms delivered healthy earnings reports in the latest Q2, but are wary of an inflationary environment.

Corporate India’s performance in the September quarter has been healthy, based on the 386 companies that have already declared their results.

“Quarterly financial performance shows that net sales continue to grow at a robust double digit pace of 22.9% in Q2FY23 against 22.3% in Q2FY22,” said economist Dipanwita Mazumdar from Bank of Baroda.

Like the previous quarters, higher raw material costs continue to be a drag. The rise in commodity prices, however, led to high input costs that had an impact on the profitability of companies.

“There seems to be divergence on the profitability frontier. Higher input costs have impinged on the PAT numbers which showed moderation in growth to 8.5% in Q2FY23 from 21.1% in Q1FY22 and pre-pandemic growth of 27.9% (supported by softer input prices at that time),” said Mazumdar.

While many sector companies have delivered moderate growth in the latest quarter, analysts believe banks have outpaced them with better results.

“Sector-wise, banks seemed to have performed better. Banks’ showed a double digit growth of PAT by 41.6% in Q2FY23 against 35.3% in Q2FY22, supported by higher interest income in the rising rate cycle,” said Mazumdar.

Recently, ICICI Bank reported a 26.5% YoY increase in its NII to ₹14,787 crore, its peers HDFC Bank reported an 18.9% surge to ₹21,021 crore while Axis Bank reported a 31% increase to ₹10,360 crore during the period.

She added that net sales of FMCG companies remained buoyant, growing by 19.3% in Q2FY23 compared to 12.1% in Q2FY22.

While most FMCG firms delivered healthy earnings reports in the September quarter, companies remain wary of an inflationary environment.

Recently, in September quarter earnings, HUL said that it remains cautious of inflation impacting the demand environment and says it is ‘cautiously optimistic in the near-term’.

For auto companies, Mazumdar believes, “While net sales have shown some moderation, it still maintained a double digit growth rate of 20.3% compared to 32.8% in Q2FY22.”

However, she highlighted that festive cheer could not lift the consumer durables segment which saw an increase of just 0.7% in net sales for Q2FY23 compared to 35% in the same period of previous year.

Q2 corporate earnings report
Source: Ace Equity, bank of Baroda Research

Stock markets cheer earnings
Meanwhile, Indian equity markets have also performed pretty well as Sensex has gained more than 4% in the last one month, amid good corporate earnings and despite weak global cues.

“Markets have managed to put on a good show so far amid the mixed global cues, however we’ve been seeing restricted participation. It’s banking which is leading from the front while others are playing a supportive role in between. The broader indices too are showing a mixed trend at present. Amid all, we feel the market tone would remain positive, however the focus should remain on stock selection and risk management,” said Ajit Mishra, VP - Research at Religare Broking.

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