India Inc delivered strong third quarter earnings with BSE 200+ universe recording 30% earnings growth year-on-year ahead of estimates, according to Nomura.
The earnings upgrades were observed in the autos, transport/logistics, and power/coal sectors, the research firm said in a Feb. 23 note.
Conversely, certain sectors faced downward adjustments in earnings estimates during this period; the chemicals and consumer staples sectors witnessed notable earnings cuts, the note said.
Q3 Earnings Fineprint
Corporate earnings momentum has improved significantly since FY2020. Earnings have surprised on the upside in the recent past, driven by an improvement in margins, Nomura said.
"We think, from hereon, margin levers are limited and growth will be largely dependent on volume growth. This, to an extent, is factored in FY25/26 earnings, as the street expects 12–13% year-on-year earnings growth vs. 28% in FY24F," it said.
The research firm is constructive on earnings growth in the medium term, supported by government policies and their impact on macro factors. The earnings-to-GDP ratio can continue to improve, it said.
Net earnings and Ebitda growth in the third quarter were led by a moderation of raw material costs and the impact of operating leverage, the research firm said.
On aggregate, the Ebitda margin of ex-financials expanded by 190 basis points year-on-year, it said.
Ex-telecom and commodities, the year-on-year Ebitda margin expansion was 39 basis point, Nomura said. For most commodity-consuming sectors, Ebitda margin expanded. It was particularly strong in autos and cement, which benefited from better pricing and lower costs, it said.
The Ebitda margin expansion was narrow in staples due to slow volume growth and price cuts, while it contracted the most for chemicals, Nomura said.
Top Stock Bets
Nomura has a recommended State Bank of India, ICICI Bank Ltd., Mahindra & Mahindra Ltd., Reliance Industries Ltd., and Larsen & Toubro Ltd. as its top stock picks.
The research firm's mid-cap picks includes Lupin Ltd., Medplus Health Service Ltd., Fortis Healthcare, Sansera Engineering Ltd., Dalmia Bharat Ltd., Federal Bank, Voltas and Five-Star Business Finance.
Nomura's Model Portfolio
Given the positive narrative on macro and earnings, which are largely priced in, Nomura remains selective across sectors.
Nomura replaced IndusInd Bank Ltd. with the State Bank of India in its model portfolio with a 'buy', given the prevailing tight liquidity condition and valuations.
Additionally, the research firm has extended its coverage to the industrial sector, with the coverage of ABB India Ltd. with a 'buy' rating indicating it as its preferred choice within the industrial sector.
Nomura has a 'reduce' on Gujarat Gas Ltd. and a 'neutral' on Gland Pharma Ltd. in its portfolio.
Additionally, the research firm removed Zomato Ltd. from its least preferred names in the sector, following the recent upgrade. Nomura has a 'buy' rating on the stock. This upgrade is based on the change of stance that Quick Commerce will likely be profitable and hence, should create long-term value for shareholders just like food delivery.
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