Earnings Wrap Q1FY22: Resilient earnings, limited impact of second Covid wave - ICICI Direct

Corporate earnings were resilient in April-June 2021 (Q1FY22) amid Covid resurgence pan-India. It was primarily driven by limited impact on economic activity wherein Corporate India largely operated unabated during the second Covid wave. This is in comparison to the central government led pan-India total lockdowns in April-June 2020 (Q1FY21). At the Nifty index level, excluding financials, net sales decline was limited to 7.5% on a sequential basis (QoQ) with Covid impacted low base in Q1FY21 making YoY comparison rather redundant. On the operating profit front, the decline was limited to 6.7% amid ~15 bps expansion in EBITDA margins to 19.2%. Savings were realised in other expenses, which declined ~160 bps QoQ amid ~145 bps increase in employee costs with RM costs remaining at similar levels (46.5% of sales). At the PAT level, net earnings declined 14.5% QoQ led by a double digit QoQ decline in other income. With state specific unlocking under way, the management commentary was optimistic and hopeful of a strong rebound in rest of the year (9MFY22E)

On the sectoral front, in the BFSI space, for Q1FY22, slippages came in at elevated levels, which for most large banks remained in the range of 2-2.5% while GNPA increased ~15-35 bps QoQ. PSU banks, on overall basis, outperformed private counterparts on asset quality and profitability but lost market share in terms of business. In the IT space, companies continued to report robust growth with Tier-2 companies growing at almost double the rate of Tier-1 companies on organic basis. In the metals space, the sector reported a strong Q1FY22 performance primarily on account of healthy realisations. In the pharma domain, the key highlight was substantial growth in the domestic branded formulations segment driven by Covid portfolio and spike in patient footfall at hospitals. In the auto space, earnings were muted due to ~34% decline in volumes and twin impact of negative operating leverage and substantial rise in key commodity price on margin profile

Going forward, keeping our index earnings estimates intact, we expect Nifty EPS to grow at 24.2% CAGR in FY21-23E. We retain our Nifty target of 17,500 with corresponding Sensex target at 58,300

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Source : Equity Bulls

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