India Inc.'s Q2 results review: How different sectors of BSE 500 index fared in the second quarter of 2024-25 Comparatively, the earnings growth was 3.2% in the June 2024 quarter and 41.6% year-on-year in the corresponding period of the previous year. The performance deteriorates further if the financial sector companies are excluded as the adjusted net profit growth contracts to 9.8% year-on-year. The energy sector significantly dragged the overall earnings growth whereas healthcare and industrial sectors provided support
Corporate India reported poor performance in the September 2024 quarter amid weak consumption, muted government spending, excess rainfall and worsening cash flows. Experts have highlighted asset quality stress in some segments of BFSI and weakness in urban demand in sectors such as FMCG and automobiles as the reasons for the moderation in earnings growth.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} Data compiled from an Emkay report shows that the aggregate adjusted PAT growth of BSE 500 companies declined by 0.5% year-on-year. Comparatively, the earnings growth was 3.2% in the June 2024 quarter and 41.6% year-on-year in the corresponding period of the previous year.
The performance deteriorates further if the financial sector companies are excluded as the adjusted net profit growth contracts to 9.8% year-on-year. The energy sector significantly dragged the overall earnings growth whereas healthcare and industrial sectors provided support.
The impact of moderation in demand is also visible in the aggregate sales growth, which grew by 4.8% year-on-year for BSE 500 index companies (excluding financials), the lowest in the last three quarters. The slowdown in sales dragged the aggregate EBITDA margins of the index companies (excluding financials) to a six-quarter low of 15.6%, according to data analysed by the Emkay report.
Despite stable commodity prices, reflected in a 1% decline in the Bloomberg Commodity Index between June 30 and September 30, 2024, most BSE 500 companies reported weaker EBITDA margins. Among 406 non-financial sector firms, 212 or 52.2% saw a year-on-year contraction in operating profit margins, based on Reuters-Refinitiv data. The index tracks global prices of oil, natural gas, copper, and other commodities.
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The tepid performance is further evident in the unfavorable beat-to-miss ratio: of 218 BSE 500 companies with earnings estimates, 125 or 57.3% missed projections for the September quarter. The quarter’s performance also led to earnings downgrades for most companies for 2024-25, which contributed to the recent market volatility and correction. Out of 410 stocks for which full year 2024-25 earnings estimates are available with Reuters-Refinitiv (compiled for a minimum of two analysts), 70.2% saw downgrades since 30 September. Out of these, 153 companies (or 37%) saw downgrades of more than 5%.
Sectors like construction materials, energy, consumer staples, autos, and chemicals faced earnings downgrades for 2024-25, while real estate and financials saw upgrades. The significant downgrades have reduced the Nifty 50 EPS estimates to a multi-year low. “Overall, Nifty EPS has seen around 7% downward revision in the last six months, which has reduced the expected 2024-25 earnings growth to just 5%, the weakest since 2019-20,” says an earnings review report by Motilal Oswal. The report has expressed concerns about the expensive valuations of the broader markets despite recent correction.
Experts are optimistic about a recovery in the second half of 2024-25, driven by government spending, rising rural demand, stable commodity prices, strong festive demand, and India’s robust macroeconomics.
“The weak earnings growth and worsening cash flows warrant a cut in our target P/E. We are not unduly alarmed though, as we see some of the factors—weak consumption, slow government capex—as temporary, and expect a bounce-back in 2025-26”, says the Emkay report. An Antique Stock Broking earnings review report expects minimal earnings downgrade in the second half of 2024-25 due to multiple growth levers such as successful wedding and festive season as compared to the last year, robust Kharif and Rabi season and likely resumption of a rate cut cycle.
Here’s how different sectors of the BSE 500 index have fared in the second quarter of 2024-25:
Banking & Financial Services
Banks
The banking sector faced higher provisioning, lower NIMs, and rising slippages. Stress in microfinance and credit cards hit retail loans, while corporate growth remained muted. Private banks saw margin pressures from slower unsecured loan growth, while public banks reported steady earnings driven by strong recoveries and upgrades. Among the banking sector stocks of the BSE 500 index, YES Bank and Punjab National Bank reported the most year-on-year growth in the consolidated net profits. An increase in core lending income and a drop in provisions helped the former to report consolidated net profit growth of 147.8% whereas lower NPAs and steady NII growth helped the latter to report 138.1% year-on-year growth in net income.
The Motilal Oswal earnings review report remains vigilant about margins and the delinquency cycle in unsecured loans for private sector banks. However, it remains positive on the sector due to robust balance sheets, strong contingency buffers and reasonable sector valuations.
Except oil and gas, commodity prices have remained stable
NBFCs and Insurance
NBFC companies saw a healthy AUM growth, but the disbursements were affected due to the impact of heat waves and a slowdown in the auto industry. Moreover, the asset quality saw marginal deterioration across sectors amid seasonality and unexpected rainfall in some regions.
Among the NBFC stocks in the BSE 500 universe, Housing and Urban Development Corporation and Capri Global Capital reported the most year-on-year jump in consolidated net profits. A substantial jump in disbursals on a year-on-year basis and sequential improvement in asset quality helped the former to report a 52.5% jump in PAT whereas strong momentum in home loan and gold loan categories helped the latter to report a 48.7% jump in the net income. An NBFC sector earnings review report by Systematix expects the collection trend to normalise gradually in the coming quarters resulting in an improvement in the sector’s asset quality.
The life insurance industry saw strong premium growth, while low auto sales hit general insurers. Health insurance demand remained steady. Among BSE 500 private insurers, SBI Life posted a 39.2% profit rise driven by higher investment income, while ICICI Lombard’s 20.2% profit growth came from solid Gross Direct Premium Income.
Automobiles and Ancillaries
The sector saw a moderation in domestic demand, especially in CVs and PVs. Moreover, the exports are affected for both automobile and ancillary players due to challenging demand conditions in Europe.
Among the automobile (and ancillaries) companies in the BSE 500 universe, Samvardhana Motherson International and TVS Motor reported the most year-on-year jump in consolidated net profits. A strong momentum in the automotive segment drives 222.6% PAT growth for Samvardhana whereas strong 2W and 3W sales and healthy exports helped TVS Motor report 41.4% growth in the net income. There are visible signs of revival in the rural demand (supported by a healthy monsoon), which will bode well for the domestic demand for 2Ws and tractors. Also, the CV demand is expected to revive in the second half of 2024-25 with the likely jump in government expenditure.
Energy sector was a drag on the performance of companies
Healthcare
The pharma sector saw growth in domestic formulations driven by chronic therapies and price hikes, while US generics faced price erosion. Hospitals reported strong occupancy and ARPOB growth, and diagnostics saw healthy revenue gains from improved realisations and volumes. Among the healthcare companies in the BSE 500 universe, Piramal Pharma and Natco Pharma reported the most year-on-year jump in net profits. The former reported a 350% jump in PAT driven by traction in the CDMO segment whereas a strong performance in the export formulation business and stable domestic pharma business helped the latter to report 83.3% growth in the bottom line. Going forward, India-focused pharma companies are expected to perform better in the second half of the current financial year whereas hospitals will benefit from the demand-supply mismatch.
Oil and Gas
The sector weighed on corporate performance as OMCs reported a sharp PAT decline due to weak refining (low GRMs, inventory losses) and LPG under-recoveries. Combined net profit for three OMCs fell to Rs.1,991.1 crore in the September 2024 from Rs.27,783.6 crore a year earlier..
Reliance Industries reported a 4.8% year-on-year decline in consolidated PAT due to the weak performance of its O2C, telecom and retail segments. While softer refining and petrochemical cracks impacted O2C, a higher subscriber churn (after the recent tariff hike) impacted the performance of Jio. On the other hand, weak demand in the fashion & lifestyle category hit the retail segment. The upstream player ONGC reported a 17% year-on-year jump in standalone PAT supported by stable production levels and operational efficiencies. Going forward,the weak refining segment will continue to impact performance in the near term. However, expansion projects will support the performance of OMCs in the medium term. Moreover, increased production levels from the KG Basin are expected to benefit upstream players.
Consumer staples
The sector faced demand challenges from adverse weather and inflation. Rural demand improved slightly, but urban demand weakened due to high prices, while rising raw material costs squeezed gross margins.
Among the consumer staples companies in the BSE 500 universe, Zydus Wellness and Gillette India reported the most year-on-year jump in net profit growth. Strong performance across brands helped Zydus Wellness to report a 254% jump in net profit growth whereas strong demand for its grooming products helped Gillette India report 43.5% growth in the bottom line.
Analysts expect the demand environment to remain weak in the near term, which will impact profitability. Moreover, a price hike is expected in the second half of 2024-25 to offset the rising raw material prices. A gradual recovery in the volume growth is expected in the future.
Five of top 10 Nifty 500 companies missed earnings estimates
IT
The sector reported a good performance with all top IT companies reporting sequential revenue growth in constant currency (CC) terms. TCS, Infosys, HCL Technologies, Wipro and Tech Mahindra reported revenue growth of 1.1%, 3.1%, 1.6%, 0.6% and 0.7% respectively in CC terms on a quarter-on-quarter basis. An uptick in the BFSI segment and traction in manufacturing, energy & utilities verticals supported the revenue growth.
The sector faces margin pressures from wage hikes and furloughs in the December quarter, with cautious demand outlooks amid geopolitical uncertainties. However, companies anticipate 2024-25 to outperform 2023-24. On the positive side, client sentiments have improved following the Fed rate cut, leading to some recovery in the BFSI sector and discretionary spending. The Antique Stock Broking report expects the trend to further improve as inflation starts to ease.
Metals
The performance of ferrous companies was impacted due to a decline in sales volumes amid muted construction activities due to monsoons, weak realisations and higher imports from China. Despite the softening of input costs (lower coking coal prices), the weak ASP (average sales prices) dented the operational performance. On the other hand, the availability of higher linkage thermal coal and firm prices amid the tightening of the supply-demand balance supported the performance of non-ferrous players.
Among the steel companies of the BSE 500 index, Jindal Saw and Lloyds Metals and Energy reported the most year-on-year jump in net profit. Steady demand in the MENA region and contained expenses helped the former to report 33.7% growth in PAT whereas strong iron ore and sponge iron volumes helped the latter to register 33.7% growth in the bottom line. Among non-ferrous companies, National Aluminium Company reported a 458.3% jump in the net profit driven by strong aluminium prices and cost efficiencies. On the other hand, Hindalco Industries reported a 78% jump in consolidated net profit supported by strong operational performance. Analysts expect steel demand to improve in the second half of 2024-25 with the resumption of construction activities (post-monsoon). For non-ferrous, captive coal mining, and lower input costs will support margins in the future.
Cement
The sector witnessed muted volume growth and weak realisation due to heavy monsoon and a slowdown in infrastructure spending by the government. Cement prices continue to remain under pressure, and this coupled with negative operating leverage and higher depreciation impacted the overall operational performance of the sector. Out of 15 cement companies in the BSE 500 universe, five reported net losses whereas 10 companies reported a year-on-year decline in the PAT. Pick-up in construction activities will boost demand in the future.
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This story originally appeared on: India Times - Author:Faqs of Insurances
