Q1 Results: Analysts Downgrade EPS Estimates Of Nifty Companies

Most analysts downgraded earnings per share estimates of Nifty 50 companies for the ongoing and next financial years after the index constituents reported their worst performance in at least three years in the quarter ended June.

While Elara Capital cut EPS estimates of Nifty 50 companies for FY20 and FY21 by 4.3 percent and 4.1 percent, respectively, Antique Broking downgraded by around 5.6 percent and 3.6 percent, according to their research reports.

Earnings of 23 Nifty companies missed estimates in the three months ended June, the highest since at least September 2016, as fewer sales of biscuits to cars, liquidity stress and poor asset quality of lenders, among others, dragged their financials. Only seven constituents beat estimates—also the lowest in at least a year—while 20 met forecasts.

Here’s what brokerages have to say about Nifty companies’ performance in the first quarter:

CLSA

• Earnings downgrades (55 percent) were nearly thrice than the upgrades (19 percent).
• Forecast 18 percent earnings growth for FY20, while consensus forecasts 21 percent growth.
• Positives: Cement, paintmakers, consumer appliances, insurance and pharma.
• Negatives: Auto, auto ancillaries, consumer staples and banks.

Antique Broking

• Earnings downgrade across sectors but expects revival in second half of FY20.
• Downwards current year end Nifty target at 12,300 from 12,800.
• Antique’s coverage of 152 stocks (ex-financials) saw a profit “de-growth” of 13.7 percent versus expectation of 10.7 percent decline.
• Disappointment in PSU bank, private corporate bank, metals, infrastructure, industrials, consumer durables and auto.
• Better-than-expected performance was reported by cement, FMCG, IT, oil and gas and pharmaceuticals.
• Overall margin was better than expectation largely due to benign commodity prices.

Citi

• Lowers Sensex target to 39,000 (earlier 39,600) to factor in earnings changes.
• Nifty earnings rose around 3 percent year-on-year, missing estimates by 4 percent.
• Sensex earnings rose 13 percent year-on-year, missing estimates by 10 percent.
• Just 33 percent of BSE-100 earnings beat expectations, while 51 percent missed.
• Revenue missed expectations across sectors, barring energy, financials.
• Ebitda missed expectations across sectors, barring energy, healthcare and telecom.
• Earnings missed across all sectors, barring energy.
• Expects earnings growth to decelerate in FY20 in materials, energy, IT, staples, industrials and utilities.

Elara Capital

• Auto, metals, materials and energy drag bottom line.
• Overall profitability was 7 percent below expectations primarily due to auto.
• Major contributions to PAT growth came in from financials, healthcare, industrials and consumer discretionary.
• Auto (volume decline), telecom (competitive intensity) and metals are the laggards.
• Ebitda margin expanded in telecom, utilities and staples, while declined in energy, materials, metals and auto.

Goldman Sachs

• First quarter results came in weak amid demand slowdown and tighter liquidity.
• MSCI India first quarter sales growth (ex-financials) grew the slowest in past two years.
• MSCI India average EPS surprise came in at -3 percent, below past 10-year average of -0.3 percent.
• Insurers, cement, paints, metal stocks reported beat in earnings.
• Banks, autos, telecom and pharma reported weak earnings.
• Management comments show slowdown driven by tighter liquidity and softer consumer sentiment.
• Expects MSCI India earnings to grow 13 percent this year and 15 percent next year—4 percentage points lower than consensus.

ICICI Securities

• Earnings growth trajectory has bottomed out.
• Estimates Nifty 50 EPS growth to be 14 percent in FY20.
• Earnings growth will be led by financial services, industrials, utilities and consumption.
• September 2020 Nifty 50 target stands at 12,400 based on one-year forward P/E of 17.7 times.

JPMorgan

• Aggregate earnings miss subdued expectations.
• PAT miss was driven largely by a significant loss at Tata Motors.
• First quarter recorded single-digit top line growth at 7 percent (year-on-year) for the first time in eight quarters (average 18 percent).
• Aggregate PAT growth disappointed mainly due to financials, utilities, autos and materials.
• Forecast earnings growth in the low teens for FY20 led by lower credit costs for financials.
• Reiterates expectations of modest returns from Indian equities in a high volatility environment.

UBS

• First quarter FY20 Nifty earnings growth at 9 percent year-on-year missed the consensus expectation of 14.5 percent.
• The big disappointment was that, excluding financials, earnings have declined 10 percent year-on-year.
• Breadth continued to narrow (beats to misses at 1:1 versus 4:3 in fourth quarter).
• Earnings downgrades continued, accompanied by muted commentary, reflecting a weak demand overhang.
• Bottom-up Nifty earnings estimates are too high; expects further cuts and from a top-down perspective.
• Pegs Nifty earnings growth at 16 percent/15 percent for FY20/21; implying further downgrades of 8-9 percent in the rest of the year.
• Nifty Dec-2019 target is 11,000 with upside/downside scenarios of 12,400/9,400, implying unattractive risk-reward.