Key takeaways for Q2FY23: IIFL Securities

17 Nov 2022 , 10:37 AM

In terms of PAT growth – Healthcare, Banks, Retail & Logistics fared the best, while the largest slumps in growth were seen in OMCs, Media and Cement. Analysts at IIFL Securities feel that going forward, margins should recover, given easing input cost pressures for multiple sectors. Given the global slowdown concerns, they continue to prefer domestic growth-oriented sectors. With all this and looking at valuations – Banks, FMCG, Auto, Insurance, Cement and Paints – look good.

Domestic strong, global iffy

Banks reported strong numbers with robust loan growth (4% sequential/ 15% year-on-year overall, as per RBI). Within Autos, PV & CV saw robust demand, while 2W & Tractors struggled due to weak rural demand and delay in monsoon. For FMCGs, food companies reported stellar numbers, and HPC companies witnessed subdued growth. In IT, near-term demand holding up, but clarity on growth for next FY to emerge only by early CY23, as their client budgets get fixed (expected to get trimmed, given global slowdown).

Margin inflection on cards

Aggregate (ex-financials) EBITDA margins continued falling to 12.1% in current quarter (versus 13.5% in Q1FY23, 17.5% in Q2FY22). Sectorally, IT witnessed supply side pressures coupled with normalization of costs post COVID, commodity producers like metals saw margins drop after enjoying tailwinds of high prices last year. Consuming sectors like FMCG, Cement, Autos saw margins hit by high input costs with a lag. Going forward – with hiring pressures abating for IT, Commodity consumers getting lag benefit of falling commodities while stable prices expected for commodity producers – margins should improve.

De-leveraging seems to have stopped

Overall, the Net Debt/EBITDA levels across BSE500 have remained more or less flattish, over the last year at 1.7x. Sectors that have seen some improvement are Utilities, Retail, Conglomerate (RIL) and Real Estate. On the other hand, sectors that saw deterioration include Cement, OMCs and Gas Utilities.

ROE stagnant at 15%

Overall, ROE for BSE500 has again remained more or less flattish in the last year, at around 15%. During H1FY23, Financials, Automobiles, Cap Goods and Consumer Discretionary have all seen steady improvement in their ROEs, while commodity consumers, Healthcare, Cement, Consumer Goods and Building Materials have seen a drop. Ex-Financials and Commodities, BSE500 ROE has increased by 60 basis points in the last year.

Estimate changes

Aggregate FY23 PAT estimates have seen 2% cut while FY24 have seen a marginal 0.5% cut in the current results season. PSU Banks, Financial Services and Automobiles have seen estimates upgrades, while OMCs, Metals, Business Services and Consumer goods have seen downgrades.