Aggregate PAT growth of ~30% YoY for 432 of BSE 500 companies in Q4FY22: IIFL Securities

Here is a detailed review of Q4FY22 results by IIFL Securities

June 01, 2022 2:52 IST | India Infoline News Service
IIFL Securities analyzed the results declared for the March 2022 quarter. Excluding financials and commodities, PAT growth was ~19% YoY for 432 of BSE 500 companies. Including the same, this metric grew 30% on a YoY basis. In terms of EBITDA growth, Refiners and Upstream oil and gas companies fared the best, followed by Utilities and Chemicals, while the largest slumps in growth were seen in Cement, Building materials, White goods, Capital goods, oil marketing companies, Paints and Tyre companies.

Aggregate ROE has improved by about 300 basis points during FY22, coming in at 15%. Exceptions, where deterioration has been pronounced, include Industrial Construction, Tyres and Paints. Sectors that saw improvement in ROE include Metals, Tech and Upstream Oil &Gas.

While other sectors saw reduction in interest burden, tyre companies saw deterioration, along with logistics, OMCs, etc. Aggregate net debt-to-4QFY22 EBITDA fell to 1.6x from 1.9x YoY.

Aggregate PAT estimates have seen a marginal 1.5% cut between March 31, 2022 and now. Companies with estimated FY23 EBITDA margins still significantly above the FY16-22 (excluding FY21) average are IRCTC, Natco Pharma, Bata and Tata Communications. On the other hand, companies with estimated FY23 margins well below recent average include Tata Power, DLF, Eicher, and Welspun.
IIFL Securities expects crude prices to remain high/trend higher in the foreseeable future, based on China demand picking up and Russia output gradually falling and there can be significant downgrades in Cement, Paints, Tyres, etc.

Here is a look at the sector-wise trends.


Agri-input companies faced a number of challenges in FY22, owing to: 1) erratic rainfall that damaged crops and impacted pesticide use during Kharif (H1FY22); 2) spiraling input costs, as sharp rise in prices of basic chemicals and intermediates led to pressure on margins for agrochemical manufacturers; and 3) proliferation in illegal and unbranded seeds as well as high sales returns. Crop realizations were remunerative in domestic as well as international markets, owing to inflationary price trends and tight supplies in global markets. Exports business turned out to be fairly positive for domestic agrochemical companies during FY22.

However, agrochemical companies faced margin pressure due to global supply-chain disruption and dependence on China for intermediates. As a result, companies initiated price hikes across categories, especially in Q4FY22, in order to pass on the rise in input costs to farmers. Despite rising input costs, indigenous fertilizer manufacturers with strong backward integration and support from government were largely able to protect margins.


The auto industry saw a mix of both positive and adverse factors in Q4FY22. While 2W and tractor volumes were sharply down YoY (weak demand, inventory correction), CV and PV volumes saw a good pick-up (buoyant end-demand, better chip supplies QoQ). Also top-line growth was aided by price hikes, but steep rise in input costs resulted in significant margin pressure and earnings decline for most OEMs and ancillary companies (exceptions: Maruti, Ashok, Eicher, BHFC).

Going forward, IIFL Securities remains positive on the revival in the overall auto cycle and expect the volume trajectory to steadily improve across segments. Near–term gross margin may remain under pressure (mainly in Q1FY23), as commodity inflation seen in Q4 would hit the P&L with a one-quarter lag. But prices of key commodities like Steel and Aluminium have subsequently cooled off and price hikes are gradually catching up with RM cost inflation. This coupled with operating leverage on volume ramp-up should drive strong rebound in margins and earnings over FY23.


Banks continued to report healthy performance in Q4FY22, with good sequential pick-up in loan growth, largely stable margins and continued improvement in asset quality. Overall growth for the system was driven by: i) continued strength in the retail segment, including higher sourcing on the unsecured front, ii) higher risk appetite on SME loans, and iii) pick-up in Industry segment credit growth to 7.1% YoY (the highest level since Nov-2014), mainly driven by working capital. Overall, margins were largely stable for most banks, driven by largely stable cost of funds, higher LDR and lower interest reversals on account of the sharp moderation in slippages across banks.

Going forward, IIFL Securities expects loan growth recovery to continue; the rising rate cycle and deployment of excess liquidity on the balance sheet should aid margins. Fee should also see improvement in FY23, on a lower base. Opex is likely to remain elevated due to branch expansion and spends on tech. Banks continue to hold large contingency provisions, and reversals of the same in ensuing quarters have not been ruled out. Banks should gain from continued growth revival, benefit of rate hikes, operating leverage and benign credit cost.
High competitive pressures on incremental business and the volatile macro environment remain key risks, though.

IIFL Securities’ top picks: HDFC BANK, ICICI BANK and SBI.


After a most difficult Q1FY22 operationally, the bounce back was equally surprising in the rest of FY22 with the recovery being the strongest in Q4FY22. Across product segments, disbursements were back to or more than pre-COVID levels and collection efficiency improved sharply. NPA levels are reverting to normalcy after a sharp rise in Q3FY22 due to change in RBI guidelines. Except MMFS, almost all NBFCs continued with the revised RBI guideline on NPA classification despite relaxation given till Q2FY23.

For most NBFCs (excluding Housing Finance), AUM growth will be under pressure in the near term due to short product duration and strong collection efficiencies. The housing segment should see immediate benefit in margins due to the unexpected rate increase by the RBI. The MFI segment, with the change in pricing guidelines, is likely to see higher margins. Vehicle finance margins are under pressure due to rise in cost of funds and fixed nature of the loan book. Opex is likely to remain elevated with higher growth and physical expansion. Overall, IIFL Securities is positive on MFI and vehicle finance companies.

IIFL Securities’ top picks: CREDAG, MMFS and CIFC.

Business Services

After a COVID-affected FY21, the sector bounced back strongly in FY22, with headcount surpassing pre-COVID levels. Staffing services, which had been the most impacted during the shutdown of the economy, delivered higher growth compared with security services (for which demand had remained more resilient during the pandemic). Growth in security services and facilities management was also impacted by the continued “work-from-home” policy with the IT/ITES industry (a key user of these services). While margins of IT staffing and services continue to showcase strength, those of facilities management are still subdued. The strong growth momentum has led to increased working capital requirements.

Building Materials          
Tiles/Sanitaryware Plastic Piping Woodpanel Industry
Ceramic companies reported muted volume growth. Kajaria Ceramics/Somany Ceramics at +2.3%/-4.5% YoY due to a combination of factors, i.e. the third COVID wave, high gas prices impacting demand and shutdown in capacity for Somany Ceramics.
EBITDA margins were weak for both the companies due to lag in passing-on the gas price increases (no price increase in Q4).
Both companies continue to be bullish on demand from a medium-term perspective, with the Morbi cluster expected to sustain focus on exports. However, EBITDA margins may remain volatile (Q1 margins likely to be weak), especially in the near term/till gas prices stabilize.
PVC/CPVC piping companies reported healthy volume growth YoY; however, gross profit and EBITDA margins contracted due to lag in passing-on the volatility in PVC prices. PVC prices have started to decline in Q1FY23 due to higher supply from China, while CPVC remains in short supply and is still seeing increases.
Demand from plumbing, housing and infra segments remains strong, while agriculture demand is expected to recover as prices cool
For FY23, companies remain confident of logging double digit
volume growth.
Plywood volume-growth was decent at 8% - 13% YoY, largely due to consolidation, although margins were under pressure owing to sharp increase in Timber prices.
The laminates segment has faced the highest impact of input cost pressures, with ~80% of inputs being imported/linked to import parity pricing.
MDF continues to enjoy healthy demand and high margins, despite increase in input costs – this is because MDF remains in short supply in India and cost of imports is high due to container availability & costs.
Outlook across Ply/Laminates/MDF remains robust for FY23; FY24 is likely to see significant capacity additions across the Wood panel segment, especially MDF.
Capital Goods

The short-cycle industrial portfolio continued its steady growth, at +22%YoY/+4% 3-year CAGR in Q4FY22. Ordering continues to be robust across end-markets, with Q4 inflows clocking 3-year CAGR of 10%. While domestic tendering activity has been brisk, lag in finalization of awards continued. The award-to-tender ratio (domestic) has dipped to 51% for FY22 vs 70% last year. However, companies continued to be optimistic on broad-based recovery across end-markets and sustained large order visibility from core sectors in FY23. While the enquiry pipeline remains fairly above pre-COVID levels, capex decisions post geo-political tensions and rising interest rates remains a key monitorable. Elevated commodity costs, semiconductor shortages and SCM volatility continue to pose short-term constraints, but companies that have planned ahead and carry a strong balance sheet have clearly outperformed.

Cement volumes for IIFL Securities’ coverage universe were flat YoY, albeit up 16% sequentially in a seasonally strong quarter; volume saw a gradual pick-up through the quarter, with March reporting the highest volumes. Capacity utilization for the sector stood at 86% (capacity base of 327mtpa) vs. 90% a year ago (capacity base of 314mtpa). Blended Ebitda per tonne for the industry fell 20% YoY as the cost increase was much higher than the price increase. Sharp increase in fuel costs – petcoke, imported coal, diesel prices −weighed on margins. Going ahead, given the spur in fuel prices from March, companies have increased cement prices by Rs 25-30 per 50-kg bag, to pass-on the cost pressure; analysts at IIFL Securities believe this would partially offset the margin pressures.


Specialty chemical companies experienced continued pressure on margins amid rising input costs and a lag in passing these on to customers. On the other hand, certain commodity chemical sectors (e.g. soda ash, PVC, caustic soda, refrigerants, ammonium nitrate) benefitted from these very factors, even experiencing strong expansion in margins in some cases. Currently, there is some moderation in prices of certain commodity chemicals which augurs well for downstream specialty chemicals and agri-input companies. Exports businesses continued to trend strong across several specialty chemical companies. The sector continues to invest in large-capex projects, in order to penetrate further into downstream products for import substitution and to grab share of the exports markets.

Consumer Discretionary

Paint companies reported Q4FY22 results below IIFL Securities’ estimates on both, sales and EBITDA fronts, as volume witnessed declines YoY (except for Asian Paints) and gross margins were under pressure given steep inflation in major commodities. Most QSR sector players fared better than IIFL Securities’ estimates, even as Omicron impacted operations in January. Apparel retail continues to track below pre-COVID levels on a per-sqft basis, while Titan faced the impact of Omicron in January and high volatility in gold prices in March. While inflationary pressures are being witnessed across companies, demand remains relatively buoyant given exposure primarily to urban and mid-to-high income consumers, shift from unorganized to organized, and normalization of the economy post COVID.

Consumer Electricals

Demand picked up towards the end of March for FMEG players led to 3-year CAGR of 13% for Q4FY22. A strong and steady summer, low channel inventory and pent-up demand after two years have aided healthy off-take of the seasonal portfolio (Fans, Air Coolers and RAC). While the demand momentum continues to be healthy, companies have turned cautious post fresh uncertainties imposed by the Russia-Ukraine war on inflation and liquidity tightening. While 15-20% price hikes have been taken in FY22, margins continued to witness pressure with the lag in cost increase pass-through in a few categories. Commodity prices have cooled off from the peak in March, yet remain elevated and would be a key monitorable for the sector.


Both sales and EBITDA for the sector were broadly in line with IIFL Securities’ estimates in Q4FY22. Topline has been predominantly driven by pricing across categories, as volume growth has been impacted by consumers titrating consumption in a sharp inflationary scenario as well as effective price hikes taken by companies in the form of grammage reductions. Companies across the board have highlighted demand being impacted more in rural and are hopeful of a recovery driven by factors such as increased government spending and a favorable monsoon. While agri inflation should positively influence demand, we are yet to hear about any green-shoots related to demand pick-up.

IT Services

IT Services companies reported a healthy quarter, with companies under IIFL Securities’ coverage clocking revenue growth averaging 3% sequentially. Leading indicators like headcount addition continued to be strong, as companies added ~100,000 employees in Q4FY22, implying net employee addition of ~330k in FY22 (or 23% of total headcount in FY21) which is higher than the aggregate net employee addition over the preceding 4 years. Deal wins for most companies were higher sequentially as well as YoY and management commentary continued to indicate strong demand despite macros headwinds. Margins in Q4 started to witness some pressure due to higher costs from stronger hiring and continued supply-side pressures. Large-caps saw 90 basis points margin contraction, though midcap margins were resilient, potentially due to better growth. Companies have resorted to significant fresher hiring, which takes a couple of quarters to be fully billable. Further, while costs related to higher travel, visa and S&M rise with businesses normalizing in the post-pandemic world, levers in the form of easing attrition level, better pyramid, pricing, lower subcontracting costs and operating leverage should be the offsetting factors through the course of FY23. However, downside risk to IIFL Securities’ FY23/24 growth expectations owing to rising macro concerns in developed markets cannot be ruled out, and analysts continue keep a close eye on the macro indicators.


The three largest private life insurers delivered APE growth of 5% YoY on a steady base. Renewal premiums also remained healthy, growing 10% YoY. VNB grew 13% YoY, primarily due to strength in high-margin guaranteed offerings. While group protection clocked solid numbers, retail protection saw divergent trends across players − remaining weak for HDFC Life, while showing healthy traction for SBI Life and ICICI Prudential Life. Management commentary suggested that retail protection will further pick up in FY23. IIFL Securities expects coverage companies to deliver strong APE growth of 18% YoY and steady margin improvement, reflected in the 20% YoY growth in VNB over FY22-24.

General Insurance coverage companies saw GDPI growth of 14% YoY in Q4, upon adjusting ICICI Lombard’s base for Bharti-Axa’s business. While BAGIC aspires to sustain combined ratio below 100%, ICICI Lombard’s change in strategy to focus on growth over RoE will prolong reversion of combined ratio to 100% level. Although calibrated focus on CVs within the motor segment and strength in corporate health is aiding growth for players, overall growth is predicated on revival in the new auto sales cycle, as both companies are major players in the segment. High competitive intensity in the industry may affect general insurers’ ability to grow earnings in the near term.


TV ad-revenue growth has come under pressure due to rising raw material costs for key advertiser categories like FMCG and cost-cutting measures undertaken by start-ups amid tightening liquidity conditions. Subscription revenue growth has remained weak for many quarters, as the uncertainty and delay around NTO 2.0 implementation has prevented broadcasters from raising channel/pack prices. The ad and subscription outlook remains weak for H1FY23, but broadcasters (especially Zee) would continue spending on TV and OTT content. The IPL TV and digital rights auction for the 2023-27 cycle (scheduled in June 2022) is a key event to watch, with implications on OTT competitiveness for Zee-Sony, while high clearing price would benefit Sun TV, which has its own IPL franchise.

Multiplexes witnessed a sharp recovery in footfalls in March, as Omicron-related restrictions were lifted and there was a strong flow of content. This strength has continued in April and May, and analysts at IIFL Securities expect Q1FY23 to be better than pre-pandemic levels for the exhibition and F&B segments, though in-cinema advertising would take longer to fully recover. There could be some near-term cost pressures, but FY23 outlook still remains robust. The key trigger would be news-flow around the progress of the PVR-Inox merger.

Oil & Gas

Consumption for Q4FY22 was up 3% YoY, driven by the auto fuels and LPG, regardless of the run-up in oil prices. This was partly due to unchanged pump prices (key state elections) and opening up of the economy post COVID. Globally, due to supply constraints (Russian exports), petroleum product prices remained firm and despite the volatility in oil prices, GRMs averaged at US$8/bbl (one of the highest in the past 17 quarters). On this backdrop, upstream companies registered 32-92% YoY growth in PAT largely due to sharp run up in oil prices; OMCs’ earnings fell 31-82% YoY, as they incurred losses on selling auto fuels and LPG. Standalone refiners however witnessed exceptional profit growth, as GRMs spiked. CGDs had a mixed quarter − while Gujarat Gas reported 27% YoY growth, PAT growth for IGL and MGL was much more moderate; their volumes however were strong, registering a growth of 10-14% YoY. RIL’s O2C and E&P businesses also benefitted from the uptick in GRMs, petchem deltas, and reset in domestic gas prices.


Owing to continued price erosion in the US generic market and elevated raw-material, energy and logistics costs, most Pharma companies faced significant margin pressures in Q4; EBITDA margins for IIFL Securities’ Pharma coverage universe declined ~180 bps sequentially. Despite the challenging macro and cost inflation environment, JB Chemicals and Zydus delivered EBITDA margin expansion of ~110bps sequentially in Q4. JB Chemicals and Ipca reported 30% and 27% YoY growth in their India formulations businesses in Q4, significantly outperforming the domestic pharma market growth of 10% during the quarter. Both Cipla and Dr Reddy’s delivered 7% sequential growth in their US businesses, aided by market share ramp-up in the respiratory portfolio.

For Diagnostic companies, growth in non-COVID business remained below pre-COVID levels, with non COVID organic revenue for Dr Lal/Metropolis/Thyrocare growing 9/7/3% on a 3-year CAGR basis in Q4.

For Hospital players, Omicron-led disruptions in early Q4 led to sequential decline in patient volumes, deferment of elective surgeries and muted domestic medical travel, thereby driving lower patient occupancies, which led to Apollo/KIMS Hospitals’ overall revenue declining 3%/5% sequentially.

IIFL Securities’ top-picks: JB Chemicals, Alkem, Cipla, KIMS and Apollo Hospitals.


During FY22, India added 13.3GW to its installed capacity, of which 10.7GW was solar capacity followed by 1.4GW of thermal capacity and wind projects of 880MW. In all, power generation was up by 7.8% YoY, where RE generation grew by 14% YoY, whereas gas plants generated 30% lower power YoY, offset by higher growth in Thermal. Plant load factor at solar plants declined by ~150bps YoY, while increasing by ~150bps YoY for Wind. Despite increasing losses and fuel costs, the tariff increase was 1.2% for all India discoms combined. Discoms’ overdue (o/s >45days) positions increased by 13% YoY to Rs940 billion. The sector continues to be swarmed with persistent issues like fuel shortage, payment delays by SEBs to gencos, T&D losses, etc.

Real Estate
Residential Commercial
Listed developers continued to clock-in new highs, reporting the strongest-ever pre-sales in Q4FY22, up 28% YoY (for the top-10 developers). This was driven by strong launches and sustenance sales. For FY22, listed developers have reported ~47% YoY increase, the highest ever pre-sales by gaining significant market share (Industry volumes just back to pre-COVID levels). Collections were also up, by 36% YoY; this has led to strong operating cash flows and net debt for listed developers has sharply declined, down 17% YoY. Further, developers have also reported steady decline in their borrowing costs, down 91bps YoY to 7.9% on average for Q4FY22. Most developers have been able to take 5-7% price hikes across projects during the year, largely to pass on the higher input cost; construction cost has gone up by 12-15% YoY.
For FY23, developers are broadly guiding to double-digit growth in sales value despite a high base, impact of rising interest rates and higher input cost.
Office occupancy levels remained weak for Q4FY22, with physical occupancy and ‘return to office’ being interrupted by the third wave of COVID. Rental income has remained flat YoY, with lower occupancy offset by increase in rentals due to contractual escalations. Malls continued to witness a steady recovery in consumption for Q4FY22, and are now
above the pre-COVID levels.


Q4 saw healthy sequential revenue growth for all 3 telcos, as the December 2021 tariff hikes flowed through. SIM consolidation seems to be largely complete. The healthy data traffic growth for the 3 telcos despite the tariff hikes suggests that down-trading to packs with lower data allowances was limited. The other common observation was the double-digit QoQ increase in S&D expenses as the industry has stepped up competitive intensity on channel payouts and customer acquisition. Capex remains elevated except for Vi that continues to grapple with a stretched balance sheet.

The near-term headwinds are: 1) a slowdown in smartphone uptake due to chip shortage and rising prices; and 2) higher diesel costs (every 10% increase in diesel cost results in a 25-40bps mobile EBITDA margin hit). Another round of tariff hikes later this year could happen, providing a fillip. The key event to watch is the upcoming 5G spectrum auction. IIFL Securities does not see any bids for the pricey 700MHz and 3.6GHz bands, but the cheap 28GHz band could see bids if it comes with significant (300bps+) spectrum usage charge savings. Bharti and JIO may top up spectrum in select circles in some of the other bands currently in use.

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