Strongest profit growth in 12 quarters leads to Nifty EPS upgrades: Motilal Oswal

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Motilal Oswal has raised its Nifty EPS estimates for both FY27 and FY28 after reviewing early results for the July-September quarter, signalling that the earnings recovery is gaining traction and is broader than many expected.

230 companies in the MOFSL Universe (covering 71% of estimated PAT) and 35 Nifty companies (66% of Nifty PAT) had reported.

For the MOFSL Universe, sales rose 26%, EBITDA 24% and PAT 33% year-on-year (well ahead of the firm’s estimates of 19%, 14% and 19%). This was the highest PAT growth in 12 quarters. Even after excluding oil marketing companies, PAT still grew 30% against an estimate of 22%.

The beat was broad-based across market-cap buckets.

Large-caps (66 companies) grew PAT 30% (in line with the overall universe and ahead of the 22% estimate). Mid-caps rose 26% (versus 23% estimated). Small-caps led with 34% growth (versus 28% estimated), helped by a soft base from the previous year.

On the Nifty, the 35 companies that reported delivered sales growth of 22%, EBITDA growth of 17% and PAT growth of 22%, compared with estimates of 16%, 14% and 20%. Five companies (Reliance Industries, JSW Steel, ICICI Bank, Coal India and Axis Bank) accounted for 59% of the incremental year-on-year profit. The main drags were Jio Financial, Cipla, Dr Reddy’s, Maruti Suzuki and InterGlobe Aviation.

Sector concentration was high. BFSI, Metals and Oil & Gas together contributed 78% of the incremental PAT for the MOFSL Universe. Metals delivered the standout number with PAT up 115%. Oil & Gas rose 56%. Healthcare and Cement were the only sectors that pulled overall growth lower.

The beat-miss ratio was healthy: 43% of companies beat PAT estimates and only 24% missed. The pattern held across large-caps (43% beat), mid-caps (41%) and small-caps (46%).

These results prompted Motilal Oswal to raise its Nifty EPS forecast for FY27 by 1.1% to Rs 1,247 and for FY28 by 1.6% to Rs 1,428.

The biggest FY27 upgrades were JSW Steel (+17.7%), Reliance Industries (+9.4%), Trent (+5.7%), Bajaj Auto (+5%) and HDFC Bank (+3.5%). On the downside, Eternal was cut 56.6%, InterGlobe Aviation 35.9% and Maruti 6.8%.

For the broader MOFSL Universe, FY28 PAT estimates were raised 1.3%, led by Financials, Metals, Oil & Gas and Automobiles. Large-cap estimates rose 1.8%, while mid-cap and small-cap estimates saw marginal cuts of 0.7% and 0.3% respectively.

Margin performance was mixed but not alarming. Ex-financials, EBITDA margin contracted only 20 basis points year-on-year to 16.1%. Many sectors managed to protect or expand margins despite cost pressures, supported by volume growth and selective price hikes.

The early results paint a picture of a recovery that is real, broad across market caps, but still heavily dependent on a few sectors for the bulk of the incremental profit.

The fact that analysts are already raising full-year numbers while a large part of the universe is still to report suggests the upgrade cycle has begun. Whether the breadth improves further when the remaining companies report will determine how sustainable the recovery looks into the second half of the year.