What's In Store For IT, Cement, O&G, Auto, Pharma Sector & More Ahead Of Q3 Results: Motilal Oswal's Analysis

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Motilal Oswal Report

Earnings highlights – Q3 FY25E - BFSI to drive modest earnings growth aided by Capital Goods, Technology, and Healthcare; Commodities continue to drag

• We expect our coverage earnings to grow 6% YoY, while those of Nifty would also grow 6% YoY in Q3 FY25. Excluding global commodities (i.e., Metals and O&G), our universe and Nifty are likely to report 10% and 8% YoY earnings growth, respectively, for the quarter.

• Sales and Ebitda of our universe are likely to grow 8% and 9% YoY, while for the Nifty, we expect sales and Ebitda to improve 5% and 9% YoY, respectively. Ex-Commodities, Ebitda of our universe/Nifty is likely to grow 13%/12% YoY.

• The modest earnings growth is likely to be driven once again by BFSI, with positive contributions from Technology, Capital Goods, Healthcare, and Real Estate. The earnings growth of PSU Banks, NBFC-Lending, and Private Banks is expected to be 13%, 8%, and 2% YoY, respectively. The 2%/13% earnings growth in Private/PSU Banks is the lowest in 13/10 quarters. Also, NBFC Non-lending (Capital market players’) earnings are likely to rise 39% YoY, primarily led by exchanges and brokers.

• The Auto sector’s earnings are likely to rise 3% YoY, the lowest in 11 quarters.

• The Capital Goods sector is projected to report an earnings growth of 26% YoY for the quarter, the seventh consecutive quarter of 20%+ earnings growth.

• The Healthcare universe is likely to report strong 19% YoY earnings growth; its seventh consecutive quarter of robust earnings growth.

• The Real Estate universe is likely to deliver another quarter of strong earnings growth of 58% YoY.

• The Technology sector is likely to deliver earnings growth of 9% YoY in 3QFY25.

• The Metals universe is projected to report an 8% YoY earnings decline on a high 3QFY24 base.

• The O&G Universe is expected to report a 4% YoY earnings decline, dragged down by Indian Oil and others but partially offset by BPCL and HPCL.

• The Cement universe is expected to report a 45% YoY earnings decline. The sector is likely to clock the third consecutive quarter of sharp earnings decline driven by low pricing and a high base of margins YoY.

• The Telecom universe is likely to post the lowest loss figure of Rs 3.3 billion since Jun’18, mainly led by improved margins in Bharti Airtel.

• The Chemicals sector is likely to report a 4% YoY earnings growth; the first quarter of earnings growth after declining for six consecutive quarters.

• We expect Ebitda margin (ex-Financials) to remain flat YoY for our universe at 17.1%. Conversely, for Nifty-50, excluding Financials, margin is likely to expand 30bp YoY to 20.2% during the quarter.

• In Q3 FY25, our large-cap/mid-cap Universe is likely to register a PAT growth of 5%/17%, while the small-cap Universe is projected to report a 3% YoY PAT decline during the quarter. Moreover, sales for large-/mid-/small-caps are likely to grow 8%/4%/9% YoY, and their Ebitda to clock 8%/13%/10% YoY growth.

• Sales/Ebitda/PAT of our universe are expected to report a two-year CAGR of 7%/12%/17% over Dec’22-Dec’24.

• FY25E earnings highlights: Our universe is likely to deliver a sales/Ebitda/ PAT growth of 6%/5%/4% YoY. Financials, Metals, Technology, Automobile, Capital Goods, and Healthcare, are likely to be the key earning drivers with 13%, 13%, 9%, 8%, 25%, 21% YoY growth, respectively. These six sectors are projected to contribute 223% of the incremental earnings for our universe in FY25.

• Nifty EPS cut for FY25E/26E: We reduce our FY25E and FY26E Nifty EPS estimates by 0.6%/1.7% to Rs 1,050 and Rs 1,220, respectively. O&G has led to 80% of the 0.6% cut in FY25E Nifty earnings. We estimate the Nifty EPS to grow 4.5%/16.1% in FY25/FY26.

Our Top Ideas: Largecaps – ICICI Bank, SBI, L&T, HCL Tech, M&M, Trent, Bharti Airtel, Titan Company, Sun Pharma, and Dixon Tech.

Midcaps and Smallcaps – Indian Hotels, Cummins India, BSE, Godrej Properties, Coforge, Metro Brands, Ipca Labs, Angel One, Anant Raj and JSW Infrastructure.

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