Banks, autos steal limelight in Q1 profit growth, while commodity driven firms remain under pressure

• Over 68% of companies have either met or exceeded earnings expectations, says a Motilal Oswal report.
• Bajaj Finance, Maruti Suzuki were the top two companies whose profits more than doubled in April-June.
• Reliance Industries and Tata Motors, which posted weaker than-expected performance, and dragged Nifty50’s earnings.

More than half of the companies that have announced their earnings so far have either met or exceeded street expectations, according to a report by Motilal Oswal. However, the report also credits banks for leading the June quarter performance as their profitability improved as their asset quality improved.

Metal companies, however, were outliers with negative growth in profitability because of volatility in commodity prices. Most other sectors were hit by the rapid increase in global commodity prices during the quarter, but automakers overcame this hurdle.

India’s largest car maker Maruti Suzuki reported a two-fold surge in consolidated net profit at ₹1,036 crore on year while margins remained under stress due to the rise in commodity prices. Bajaj Finance too doubled its profits as consumer love for vehicles remained intact.

Tata Motors missed analyst estimates as its net loss widened by five times to ₹4,950 crore as against ₹992 crore loss reported in the previous quarter. It attributed sharp losses to inflation, China lockdowns, chip supply issues, and volatile forex and commodity prices.

This is the second heavyweight company that disappointed the street. The first is the country’s most watched company and stock – Reliance Industries, which posted weaker than-expected performance, thereby dragging down Nifty earnings.

While RIL reported strong performance of its refining and retail segments, its telecom business Jio was a drag. Considering, RIL has 11.51% weightage on Nifty 50 any impact on the company impacts overall Nifty 50 growth.

“The 1QFY23 corporate earnings have been a mixed bag thus far with miss in heavyweights, such as RIL and TAMO, driving an aggregate miss. However, the spread of earnings has been decent with 68% of our universe either meeting or exceeding profit expectations. However, the growth is being led by just BFSI with cement, auto and metals posting a year on year earnings decline while IT and oil and gas companies reporting flattish year on year earnings for the quarter,” said analysts at Motilal Oswal
(Source: Motilal Oswal)

“Amid heightened concerns over a weakening macro environment, management of most of the companies are not seeing any impact on the pipeline. A majority of the companies delivered good deal wins and highlighted a strong pipeline,” said a report by Motilal Oswal.

Banks too reported strong profit growth during the quarter as asset quality improves across the broad. This includes both public and private sector banks. In fact, public sector banks are among the top performers on the stock exchanges in the last one month with valuations reaching all time high as asset quality improves and credit offtake of corporates is also improving.

Among FMCG companies, HUL reported good growth in volumes even as the industry reported a decline, showing the company’s ability to navigate in a challenging macro environment. Currently, lack of rural recovery is the pain point for the sector. Further, earnings of Marico, Britannia Industries, Godrej Consumer will tell more truth about the industry.

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