3 Aug 2022 , 10:53 AM
Key takeaways include:
Sectoral estimate changes
Aggregate FY23 PAT estimates for BSE500 were downgraded by 2.6% in July, mainly driven by Upstream O&G (12.5%), Financial Services (8.6%), Building Material (6.9%) and Metals & Mining (5.7%). On the other hand, sectors that saw PAT upgrades include Paints (2.4%), Retail (2.2%) and OMCs (1.5%). July saw PER re-rating in almost all sectors, mainly driven by sharp price gains and earnings downgrades. Upstream O&G and Gas utilities saw some de-rating during the month.
Upgrade momentum
The earnings upgrade momentum has seen a significant slow-down in the past few months, and a downgrade cycle is well under way. The number of upgrades per 100 downgrades in July was only 50 for FY23, clocking even lower for FY24 at 42. For companies that saw an upgrade, the avg PAT upgrade was only 3.8% in July, while the downgrade was 6.2% for players that saw earnings cut.
Stocks that look good
On examining stocks that have seen earnings upgrade over the past 3 months, albeit with poor stock performance, Gujarat State Petronet, Aptus Value Housing Finance and Century Ply look good.
Given the strong market performance in July, overall, a risk on sentiment seems to have taken grip, but it is too early to say if the Fed will be forced to halt the sequence of rate hikes (as commodities have come off, and there are signs of a slowdown), or will other data like high level of inflation and employment compel it to continue the tightening.
Summary of estimate changes in July
FY23 estimates (%) | Sales | EBITDA | PAT |
BSE500 | 0.2 | (2.1) | (2.6) |
BSE500 (ex-financials) | 0.2 | (2.1) | (3.5) |
BSE500 (ex-fin. & comm.) | 0.3 | (1.1) | (1.4) |
FY24 estimates (%) | Sales | EBITDA | PAT |
BSE500 | (0.5) | (1.8) | (1.7) |
BSE500 (ex-financials) | (0.5) | (1.8) | (2.3) |
BSE500 (ex-fin. & comm.) | 0.1 | (0.9) | (1.2) |
Source: Bloomberg, IIFL Research
FY23 PAT upgraded, but stock performance weak in the last 3 months
Companies (%) | Performance | FY23 PAT change |
Gujarat State Petronet | (11.3) | 11.7 |
Aptus Value Housing Finance | (13.7) | 4.5 |
Century Plyboards India | (6.9) | 3.9 |
Godrej Agrovet | (4.9) | 2.9 |
Source: Bloomberg, IIFL Research
FY23 PAT downgraded, but stock performance strong in the last 3 months
Companies (%) | Performance | FY23 PAT change |
MRF | 15.5 | (18.8) |
Navin Fluorine | 11.7 | (9.4) |
KEC International | 17.0 | (29.5) |
Britannia Industries | 21.0 | (5.3) |
Source: Bloomberg, IIFL Research
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