Strategy Report 17462

Q2FY24 Earnings Review:
Profits Party, Demand Decelerates
Prateek Parekh, CFA Priyank Shah

November-2023
prateek.parekh@Nuvama.com priyank.shah@nuvama.com
Contents
Highlights 3
Five Takeaways 6
Trends by Sector 32
Market and Portfolio Positioning 44
FY24E Earnings Revision by Sector 45
Sector Highlights Q2FY24 51
2
Highlights
Aggregate PAT for our coverage (ex-OMC) swelled 19% YoY (Q1FY24: 18% YoY growth) . We present Q2FY24’s earnings highlights below:
i) Top line tapers, profits propped up: The BSE500’s top line slowed further to 5% YoY, although
PAT surged 25% YoY. This pushed up the net profit margin to 13%—400bp above pre-covid All in all, the current profit momentum is
levels despite similar top-line growth, making it an unsustainable dynamic. Particularly so propped up by a weak base, low input
when the top-line slowdown is broadening (from exporters, end consumption to now banks) prices and much below-trend BFSI credit
and margin tailwinds fading. High-end consumption and industrials remain strong though. cost. These tailwinds are fading while
ii) OCF growth healthy, capex holding up: Lower input prices not only boosted margins, but also demand headwinds still loom.
reduced the working capital needs, propelling OCF growth to 50% YoY in H1FY24 (FY23: 8%).
Capex growth is holding up at 20% YoY (FY23: 20% YoY), but may not sustain given the Hence, we argue earnings momentum is
subdued top line. Consensus is forecasting sharp deceleration in capex going ahead. set to decelerate sharply in H2FY24, with
iii) SMID’s superior margins drive earnings outperformance to large caps: SMID earnings are SMID earnings more prone to a slowdown.
more cyclical than large caps. Despite a weaker top line (adjusting for sectoral mix), SMID
earnings have seen a stronger revival. While consensus is forecasting earnings
would moderate in H2FY24, it is building
iv) BSE500 private sector wage bill growth moderates to 11% YoY: This is close to decadal lows in a strong FY25E recovery; that, in our
(ex-covid). Private sector wage bill growth is now in single digits for most sectors, barring view, could be at risk.
banks (>25% YoY). Given the fading margin tailwinds, wage bill growth could moderate
further and potentially broaden the consumption slowdown.
v) Nifty earnings stable: FY24E EPS growth is largely unchanged at 15–16% (versus 10% in
FY23). The implied asking rate for H2FY24E is 8–10% (versus 25% in H1FY24) and hence FY24E
numbers may not be at risk. However, 15% EPS growth forecast for FY25 seems optimistic as
margin tailwinds would likely fade, while demand headwinds still loom.
3
Highlights (cont.)
Sectoral trends: In retrospect and prospects Market: Nifty earnings and portfolio allocation
Domestic consumption: Margins rose across the board, powering EBITDA Nifty earnings: FY24E EPS has been largely stable with
growth. However, demand remains subdued in low-end consumption, downgrades in commodities and IT offset by autos, pharma
wherein even price disinflation has been unable to revive demand. and cement. For H2FY24, consensus is forecasting 8–10%
Domestic investment: Cement companies’ EBITDA/t was stable QoQ (up EPS growth (versus 25% in H1FY24)—which, we think, is
YoY), whereas industrial companies’ top-line and order book momentum achievable. However, it’s the FY25E earnings that we think
held strong. Going ahead, cement companies’ profitability should are at risk given the fading margin tailwinds.
improve, whereas industrials’ could weaken as corporate capex slows.
Global exporters: IT companies delivered mixed results—weakening top Market view and portfolio allocation: High valuations amid
lines, but margins stablising. Chemicals too was weak with deep top-line slowing top line and fading margin tailwinds keep us
contraction. Pharma and export auto companies reported strong numbers. cautious. We remain defensively positioned.
Commodities: OMCs staged a strong recovery; energy companies’ OW: FMCG, IT, domestic auto, telecom, internet, pharma
earnings were stable. Metal companies’ profits improved, so did leverage. UW: BFSI, industrials, commodities, durables
Going ahead, metal companies’ profits are likely to stay under pressure.
Financials: Banks’ NIMs moderated and opex remained elevated. However
sustained credit growth and below-trend credit cost supported BFSI
earnings.
4
Q2FY24 earnings snapshot by sector
Revenue Growth EBITDA Growth PAT Growth EBITDA margin
Sector
YoY
Actual
YoY
Estimate
YoY
Actual
YoY
Estimate
YoY YoY
Actual Estimate
QoQ
Actual
QoQ
Estimate
Aggregate hides dispersion
(%) (%) (%) (%) (%) (%) (bps) (bps) Nuvama coverage universe posted 34% YoY profit growth,
Commodity sector (6) (5) 61 40 71 43 (29) (255)
OMCs (12) (1) NA NA NA NA (9) (591)
beating estimates led by strong growth across segments.
Energy (ex OMC) (3) (12) 20 18 8 5 (82) 78
Metals & Mining (0) (2) 20 22 8 25 (119) (68)
Domestic investment
Exports/High global exposure 14 15 21 17 24 22 23 (62) Power profits’ sagged, but cement and industrial profits
Auto (Export) 30 34 105 98 NA NA (13) (97)
Chemicals (17) (13) (27) (26) (40) (32) 2 (51) continued to be solid, beating estimates.
IT 6 7 5 2 4 5 65 4
Pharmaceuticals 13 13 21 15 37 20 (29) (150) Domestic consumption
Domestic Investment 6 9 13 13 11 14 128 84
Power 3 5 14 16 4 6 (164) (162) While margins increased, demand, barring autos, was
Engg & Cap Goods 14 20 18 20 32 29 120 81 tepid. This remains a key variable worth monitoring.
Cement 14 11 78 56 195 120 (80) (231)
Construction and real
estate
21 23 22 26 13 40 904 950 Exports
Domestic consumption 13 13 24 23 35 33 (64) (83)
Auto (Domestic) 17 18 41 35 53 41 85 16
Chemicals posted a soft quarter while it was mixed for IT.
Telecom 10 15 11 17 (31) (56) (40) (1) That said, pharma and exports auto growth was strong.
FMCG 1 1 10 8 8 5 (22) (44)
Durables
Internet
10
31
10
31
29
NA
31
NA
30
NA
37
NA
(64)
NA
(39)
NA
BFSI
Consumer services 19 13 45 31 80 82 (220) (285) Banks profits moderated with NIMs facing a compression.
BFSI 17 15 NA NA 19 14 NA NA
Private Banks 16 16 NA NA 17 11 NA NA Opex too remained high, but much below-trend credit cost
PSU Banks 16 12 NA NA 20 16 NA NA protected profits.
NBFC 25 26 NA NA 29 38 NA NA
Non lending financials 18 20 NA NA 13 6 NA NA Commodities
Coverage 3 4 28 21 34 25 (12) (134) Earnings bounced across the board—strongest in OMCs.
Ex BFSI 2 3 35 26 40 30 (7) (141)
Ex Commodities 12 13 16 15 22 20 (8) (43) Metal companies, profits improved sequentially but lagged
Ex BFSI and Commodities 12 13 20 19 24 24 21 (24) estimates.
Ex OMCs 7 6 17 16 19 18 (38) (24)
Nifty 6 6 17 16 22 17 (87) (107)
Source: Bloomberg, Nuvama research; Note: Estimates are for Bloomberg consensus
5
Five Key Highlights
6
1. Top line slows, but PAT holding up
BSE 500 corporate top line and PAT show a large divergence… …and a similar trend is seen in core earnings as well
50 40
40
30
30
20
(%, YoY)
(%, YoY)
20
10
10
0
0
-10 -10
Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23 Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23
BSE500 topline growth BSE500 PAT growth BSE500 topline (ex commodities and BFSI) BSE500 PAT (ex commodities and BFSI)
Source: Capitalline, Nuvama Research

Note: OMCs and fertiliser are excluded from BSE500 sample space
 Top-line growth for BSE500 and BSE500 ex-commodities and BFSI continued to be weak (in single digits). However, PAT growth was healthy
(~25% YoY) for BSE500 and BSE500 ex-banks and commodities.
 Such a large gap has historically developed owing to swings in banks’ credit costs. Historically, during periods without such swings, top lines
and profits move in tandem. Will such historical anomaly persist?
7
Top line: Even adjusting for base effects, it’s weak with poor breadth
On a trend basis (5Y CAGR) as well, top line is slowing down… …with the share of companies reporting top-line slowdown rising
20 45
China IL & FS crisis
40 devaluation 43%
40% Current
15 30%
35
(%, 5Y CAGR)
30
10
(%)
25
5 20
15
0
10
Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23
Sep-10 Nov-12 Jan-15 Mar-17 May-19 Jul-21 Sep-23
BSE500 topline growth BSE500 topline (ex commodities and BFSI) % of BSE500 companies with topline in contraction

Source: Capitalline, Nuvama Research Note: OMCs and fertiliser are excluded from BSE500 sample space
 Top-line growth adjusting for base effects is also slowing down for BSE500 and core companies. Even the level of growth on a 5Y CAGR
basis is down to just 10% YoY.
 The breadth of top-line slowdown is also quite weak. Nearly one–third of companies have reported top-line contraction, which is quite
close to pre-covid peaks of 40% during CNY devaluation and IL&FS crisis.
8
Top-line slowdown most pronounced in global-oriented sectors…
IT companies’ USD revenue growth slows sharply… …chemical companies’ top-line growth is in deep contraction
20 40
16 30
20
12
(%, YoY)
(%, YoY)
10
8
Weakest in decade
excluding covid 0
4
-10
Weakest in
0 decade
Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23 -20
IT companies USD revenue Chemicals topline growth
Source: Company filings, Nuvama research; Source: Capitaline, Nuvama research;

Note: IT companies include TCS, Infosys, Wipro, HCL, LTIM, Coforge, Persistent, LTTS, Cyient, Note: Chemical companies include UPL, PI, Coromandel, Rallis, SRF, Dhanuka, Aarti, PCBL,
Eclerx, Zensar CCLP
 By sector, the slowdown is most pronounced in external-facing ones such as IT and chemicals.
 The more surprising one is Chemicals, whose top line has slid into deep contraction (even during lockdowns, this sector had shown growth)
despite “China + 1” benefits.
9
…followed by low-end consumption-facing sectors
In FMCG, even price cuts are not reviving demand… …Consumer durables’ top-line growth is also weak
30
15 Volumes rise as
Volumes rise as
prices decline prices decline 25
10
20
(%, YoY)
(YoY, %)
5 15
10
-
No rise in volumes 5
despite prices fall
(5)
Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23 0
HUL volume growth HUL prices growth Durables topline
Source: Company filings, Nuvama Research Note: For Q1FY23, we have used 3Y CAGR to adjust for base effects. Durables include
Note: The prices growth is computed by deducting the volume growth from top line growth paints, home décor and white goods companies
and can be influenced by changes in product mix
 Apart from exports, consumption especially at lower end continues to remain weak as can be seen in very weak top-line growth of
FMCG and durable companies.
 The worrying part is that despite disinflation in prices, volume growth in FMCG is not perking up – a historical anomaly. Usually,
when prices disinflate, volumes tend to pick up. It essentially reflects the rural distress that’s going on.
10
High-end auto and consumer services stay strong
Domestic auto growth is strong, but mainly due to base effects Within Auto, premium is doing rather well
30 201
200
20 170
(Rebased to 100, 12mma)

10 140
(%)
110
0
80 78
-10 65
50
-20 Oct-18 Aug-19 Jun-20 Apr-21 Feb-22 Dec-22 Oct-23
Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23 SUV Sales 2-Wheeler Small Cars
Domestic auto topline (YoY) Domestic auto topline (5Y CAGR)
Note: Sample space is Ashok Leyland, TVS, M&M, Bajaj auto, Eicher, Maruti, Hero. Source: CMIE, Nuvama Research
Consumer services growth is now moderating
30
Consumer services growth is now moderating

 Domestic auto is still growing at a healthy clip of about 20%
20 YoY—largely due to low base. On a trend basis (5Y CAGR), the
growth is about 10%.
10
 Within autos, high-end SUVs and bikes steal the show,

0
whereas the low-end lags by a mile.
-10
 Consumer services companies are facing a similar divergence
Consumer services topline
with high-end hotels and jewellery gaining lustre and low-
ticket items (like QSR) struggling
Source: Capitalline, Nuvama Research 11
Note: Consumer services exclude internet companies
Even capex-oriented sectors are holding up
Listed companies’ pre-sales growth still holding up… … so is Industrial companies’ order book growth
60 54 25
50 46 45
20
40
15
(%, YoY)
30
(%YoY)
19
20 14 10
13
10
5
0
-1 0
-10
FY19 FY20 FY21 FY22 FY23 Q1FY24 Q2FY24 -5
Listed companies' real estate sales value Industrial companies' orderbook
Source: Company filings, Nuvama Research;

Note: Sample space includes DLF, Lodha, Godrej, Sobha, Brigade, Prestige, Oberoi, Source: Company data, Nuvama Research
Sunteck, Purvankara, Mahindra lifespace, Kolte patil, Ashiana Note: Industrial companies include L&T, Siemens, ABB, Thermax, BHEL, SKF, KEC and Voltas
 Capex-oriented segments (real estate and industrials) seem to be faring better. Listed companies’ real estate sales grew at a healthy clip 54%
in Q2FY24, sustaining the post-covid momentum. Here as well, the growth was led by premium segments. The main constraint for listed
companies is no longer demand, but rather how quickly then can get supply on board.
 Industrial companies’ order books too held strong, up 20%-plus YoY. This is mainly due to government capex and strong traction in the Middle
East orders.
12
Subdued NIMs weigh on BFSI NII growth
Banks’ NII growth moderates sharply, but credit growth stable Sequential change in NIMs across banks
35 5 1 1 0
30
-5
-4
25
-15 -12
(%, YoY)
20
(bps)
15 -25 -20
-25
10
-35
5 -35
0 -45
Sep-11 Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23 Axis Federal Indusind SBI Average BoB ICICI Kotak
bank of banks
Banks NII growth Bank credit growth
Q2FY24 change in NIMs (bps)
Source: Capitaline, Nuvama Research Source: Company, Nuvama Research
 Margins moderated sequentially across banks. Hence, NII growth decelerated further in Q2FY24. While NII growth is still strong YoY, watch out
for sequential moderation thereof.
 Going ahead as well, NIMs should moderate as liabilities reprice higher. This is likely to continue to exert pressure on banks’ top lines.
13
Margins at record-highs – A historical anomaly
Net profit margin of BSE500 at record highs, despite weak top line
 While top-line growth continued to slow in Q2FY24,

profit margins remain healthy at record-highs.
 Net profit margin of BSE500 is hovering around 13%

(pre-covid peak: 10%), despite persistent weakness
in top-line growth. Such divergence between
margins and top line is unsustainable and shall
eventually need to reconcile.
 In a nutshell, margins are close to those seen in

2000s when top-line growth was 25%-plus, while
top line is even below that seen in 2010s.

14
For core companies, EBITDA margins have now normalised
EBITDA margins have improved... …boosting EBITDA despite top-line slowdown
25 40
24
30
23
20
(%, YoY)
(%)
22
10
21
0
20
19 -10
Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23 Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23
BSE500 EBITDA margins (ex commodities and BFSI) BSE500 topline (ex commodities and BFSI) BSE500 EBITDA (ex commodities and BFSI)
Source: Capitalline, Nuvama Research Source: Capitalline, Nuvama Research

Note: OMCs and fertiliser are excluded from BSE500 sample space Note: OMCs and fertiliser are excluded from BSE500 sample space
 While top-line growth slowed, EBITDA margins improved—both sequentially and YoY. As a result, EBITDA growth for BSE500 (ex-
commodities/BFSI) sustained at 20% YoY despite slower top-line growth.
 Historically, divergence between EBITDA and top line has not sustained. Margins have now returned to pre-covid levels and input prices too
have stabilised. Hence, hereon top line shall play a critical role in shaping margins as well as EBITDA growth.
15
Margin improvement: Broad-based year over year
On a YoY basis, most sectors are now seeing improvement in margins
Chemicals -42
IT -33
Telecom 37
Consumer services
 On a YoY-basis, margins
80
improved in all sectors,
BSE500 (ex commodities and BFSI) 190
barring the global-
Industrials 202 oriented ones, wherein
Durables 227 flagging demand negated
FMCG
margin benefits.
228
Power 238
Pharmaceuticals 281
Auto 433
Paints 564
Cement 682
Source: Capitaline, Nuvama Research

-100 0 100 200 300 400 500 600 700
Q2FY24 YoY change in EBITDA margins (bps)

16
For many sectors, margins now close to higher end of last decade
In many sectors EBITDA margins are running much above trend
Q2FY24 EBITDA Last 10Y Last 10Y Last 10Y Deviation from
margin (%) median (%) max (%) min (%) 10Y median (bps)
Consumer services 17 13 18 10 402  For most sectors, EBITDA margins are now
Industrials 17 14 17 11 297 higher than their respective medians.
Auto 16 14 18 9 187
Paints 21 19 23 14 156
 Sectors like consumer services, industrials are
Pharmaceuticals 26 24 30 18 155
FMCG 26 25 28 19 98 close to their all-time high margins.
BSE500 (ex
22 21 23 20 59
commodities and  However, in sectors such as IT, margins are
Cement 17 18 24 11 -98 much-below trend.
Durables 10 11 14 8 -104
Power 36 37 42 27 -105
Chemicals 16 17 24 12 -149
 Given worsening demand conditions, we
Infrastructure 25 28 45 22 -259 argue mean reversion on margins is likely.
IT 24 27 30 24 -294

17
Despite falling NIMs, banks’ net profit margins remain strong…
BFSI net profit margin chart
55
30
 Even for banks, despite a slowdown in
45
NII growth, profit margins have held up
25
at historically high levels.
20
35
(%, YoY)
(%)
15
25
10
15
5
0 5
Banks NII growth Banks PAT margin(RHS)
18
…courtesy benign credit costs even as banks’ opex is still high
Banks’ credit costs have moderated further… …although operating costs are running strong
3.5 30
3.0 25
2.5
20
(% of loans)
(%, YoY)
2.0
15
1.5
10
At
1.0
Decade
low 5
0.5
0
-
FY13 FY17 FY21 Q2FY24
Banks(ex-HDFC bank) credit costs (% of loans) Banks(ex-HDFC bank) operating expenses growth
Source: Company, Nuvama Research Source: Capitaline, Nuvama Research
 In our view, this is owing to credit costs running significantly below trend because opex costs still remain elevated as branch expansion
remains a focus area.
 Normalisation of credit costs can adversely affect banks’ profit growth.
19
Overarching headwinds loom from demand perspective
Core companies’ top lines likely to slow given export slowdown Slowing narrow money growth points towards credit slowdown ahead
30 35 26
30
22
20
25
(%YoY,3MMA)
(%YoY,3MMA)
18
(%, YoY)
20
10
14
15
0 10
10
Demon Covid Covid
5 2nd wave 6
-10 1st wave
Jul 96 Jul 00 Jul 04 Jul 08 Jul 12 Jul 16 Jul 20 Jul 24
Sep-11 Sep-14 Sep-17 Sep-20 Sep-23
India Non-oil exports(INR terms) BSE500 topline (ex commodities and BFSI) Bank credit growth India M1 growth (advanced by 9 months, RHS)
Source: Capitalline, CMIE, Nuvama Research

Source: CMIE, Nuvama Research
Going ahead as well, we think demand headwinds still loom for India Inc. This is owing to:
 Continued global slowdown, which is likely to hurt tradeables (manufacturing, IT, commodities, etc), account for 80% of non banking top-line
growth.
 India’s narrow money supply growth—which is essentially transaction money—too has slowed sharply; it is a lead indicator for transactions
and economic activity. This in turn is likely to weigh on credit growth going ahead.
20
Margin tailwinds may be largely behind
Rising oil prices are likely to stall margin improvement Banks’ NIMs are likely to come under further pressure
25 0 4.0
(INR thousands per barrel, 3mma)

24
2
3.8
23
3.6
22 4
(%)
(%)
21 3.4
6
20
3.2
19
8
3.0
18
Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23
Sep-16 Sep-17 Sep-18 Sep-19 Sep-20 Sep-21 Sep-22 Sep-23
BSE500(ex-BFSI and commodities) EBITDA margins Brent crude oil prices(INR, inverted)
Banking spreads (as per RBI)
Source: Capitalline, CMIE, Nuvama Research Source: CMIE, Nuvama Research

While demand headwinds loom, margin tailwinds are largely behind:
 The stabilisation of oil prices is likely to result in stalling of margin improvement sequentially. Also, the phase of falling base is now behind.
Hence, to that extent, on a YoY basis, margins should moderate.
 Apart from that, the RBI’s data suggest that banks’ margins are likely to stay under pressure for longer. Hence, even in this case tailwinds are
limited. Thus, in such a scenario, profit growth may well be peaking.
21
2. Operating cash flows improve strongly…
OCF of BSE500 improves strongly… …the improvement is even higher than EBITDA growth
70
50
60
40
50
30
40
(%, YoY)
(%, YoY)
30 20
20 10
10
0
0
-10
-10
FY04 FY08 FY12 FY16 FY20 H1FY24
FY04 FY08 FY12 FY16 FY20 H1FY24
BSE500 OCF (ex BFSI) BSE500 OCF (ex BFSI, commodities) BSE500 OCF (ex BFSI) BSE500 EBITDA(ex-BFSI)

 The tailwinds from lower input prices propelled EBITDA growth, but operating cash flows even more as even working capital requirements
eased.
 The growth in operating cash flows is at a decadal-high and not very sustainable, unless demand revives meaningfully.
22
…pushing up OCF margins back to pre-covid levels
OCF margin of BSE500 back to pre-covid; even higher ex-commodities
18
17
16  Operating cash flow margins have also perked up.
15  However, unlike profit margins, OCF margins are

not yet at record-highs, but have returned to pre-
(%)
14 covid levels.
 That said, OCF margins, excluding commodities, are

13
now close to all-time highs (ex-covid)
12
11
FY06 FY08 FY12 FY15 FY18 FY21 H1FY24
BSE500 OCF margin BSE500 (ex-BFSI and commodities) OCF margin

23
OCF growth vis-à-vis pre-covid has been healthy across sectors
OCF has seen strong growth on YoY basis and remains healthy even compared to pre-covid
H1FY24 OCF H1FY24 OCF H1FY24 OCF growth

Sector name
(INR bn) growth (%, YoY) (%,4Y CAGR)  On a YoY basis, OCF growth is strong in most
Industrials 185 21 37 manufacturing-oriented sectors to a large extent owing to
Auto 618 190 33 a low base.
Telecom 562 20 24
Power 847 73 18
Durables 144 84 14  Even when seen on a 4Y CAGR basis (versus pre-covid),
IT 617 23 13 OCF growth remains healthy in teens, with most sectors
BSE500(Ex-BFSI) 5476 51 13 posting strong growth.
FMCG 294 49 11
Metals & Mining 569 14 9
Energy 1248 50 8  Compared to pre-covid, OCF is strongest in industrials,
Pharmaceuticals 230 98 7 auto and telecoms while that of cement, chemicals and
Consumer services 103 55 7 consumer services is on the weaker side.
Cement 110 NA 6
Chemicals -51 NA NM

24
Capex growth holding up too
BSE500 capex remains strong (YoY)… …led by strong growth in Auto, Telecom and industrials
50 H1FY24 capex growth

50
40 43
40
40
30
32
(%, YoY)
30
20 30 27
(%, YoY)
22 21
10
20
0 11 10
10
-10
FY04 FY08 FY12 FY16 FY20 H1FY24 0
Auto Telecom Industrials BFSI Metals & Power BSE500 Energy Pharma
BSE500 Capex growth Mining
Source: Capitaline, Nuvama Research Source: Company, CMIE, Nuvama Research
 Strong cash flows and healthy demand in the past resulting in BSE500 capex growth sustaining above 20%.
 By sector, capex growth is strong in Autos, Telecoms and Industrials, and has tapered down in Energy.
25
Weak top line poses a risk to capex
Slowing top line could weigh on capex growth… …consensus estimating a slowdown as well
50 BSE500(ex-BFSI) capex growth

40 30
25
30
20
(%, YoY)
20 14
(%, YoY)
10
10 10
0
0
-10 -2
FY04 FY08 FY12 FY16 FY20 H1FY24 -5
-10
BSE500 Capex growth BSE500 topline(ex-bfsi) FY22 FY23 FY24E FY25E FY26E
Source: Capitaline, Nuvama Research Source: Bloomberg, Nuvama Research

Note: Estimates are bloomberg consensus
 Capex growth held up around 20%-plus in H1FY24. However, weak top-line growth is likely to pose a risk to its sustenance.
 In fact, consensus is already forecasting a sharp slowdown in capex in H2FY24 and outright contractions in FY25 and FY26.
26
3. SMID: Core companies’ top lines slow much more than large caps…
BSE500 SMID overall top-line growth is better than large caps’… …but that of core companies is slower than their large cap peers
40 40
30 30
20 20
(%, YoY)
(%, YoY)
10 10
0 0
-10 -10
Sep-11 Sep-14 Sep-17 Sep-20 Sep-23 Sep-11 Sep-14 Sep-17 Sep-20 Sep-23
Largecap topline growth SMID topline growth Largecap topline growth (ex-bfsi and commodities)
SMID topline growth (ex-bfsi and commodities)
For large caps, we have taken top 100 companies in BSE500; SMID universe refers to 101 to For large caps, we have taken top 100 companies in BSE500; SMID universe refers to 101 to
500 companies in BSE500 500 companies in BSE500
 The top-line growth of SMID too has slowed over the past year, but is higher than large caps on aggregate. However, this may perhaps be
more due to the mix. Commodities have a higher share in large caps than mid caps.
 If one looks at core companies (ex commodities and banks), the SMID is more cyclical than large caps. Their top-line growth has slowed much
more than large-cap peers.
27
…although profits accelerate faster than large-cap peers
BSE500 SMID profit growth outpaces large caps… …even core companies’ growth is higher in SMIDs
40 40
30
30
20
20
(%, YoY)
(%, YoY)
10
10
0
0
-10
-20 -10
Largecap PAT growth(ex-bfsi and commodities)
Largecap PAT growth SMID PAT growth
SMID PAT growth(ex-bfsi and commodities)
 However, with regards to profits, the bounce is much higher on both aggregate basis as well as for those excluding banks and commodities.
 The sharper acceleration may perhaps be due to the higher sensitivity of input prices in case of SMIDs vis-a vis large caps.
28
SMID profit margins at decadal-high, driven largely by banks
SMID margins relative to their history are much higher than large caps… …and it’s a similar story for core companies as well
15 15 10
17
13 9
14
15
11 8
(%, YoY)
(%)
(%)
(%)
13
13
9 7
11 12
7 6
9 5 11 5
Largecap PAT margins SMID PAT margins(RHS) Largecap PAT margins (ex-bfsi and commodities)
SMID PAT margins(ex-bfsi and commodities,RHS)
 With regards to margins, the level of SMID profit margins is lower than large-caps. Also, their margins are a lot more cyclical–perhaps rightly
so as they are more geared to growth than large-cap peers’.
 In Q2FY24, SMID margins are at a much higher levels than their own history versus large caps, both on aggregate and excluding commodities
and banks. Thus, lower oil prices seemed to have helped SMID margins much more than large caps and a reversal too may be more
pronounced in SMIDs than large caps.
29
SMID versus large caps: Summary of trends in Q2FY24
SMID versus large caps: A comparison on Q2FY24
Q2FY24 topline weights Q2FY24 topline growth Q2FY24 PAT growth
Sector (%) (%, YoY) (%, YoY)
Largecap SMID Largecap SMID Largecap SMID
Sectors where SMID earnings have grown faster than largecaps with slower topline
Auto 10 10 18 9 48 69  SMID profit growth outscores that of large-cap peers in
Energy 24 6 -2 -14 8 16
Auto, Durables and FMCG despite much slower top line. This
FMCG 5 4 5 -9 11 25
Telecom 3 3 7 -3 1 13 is essentially owing to tailwinds from lower input prices.
Financial services 1 6 26 14 22 29
Sectors where SMID earnings have grown faster than largecaps with better top line
Metals & Mining 18 13 -5 24 7 NA
Pharmaceuticals 2 8 11 17 15 56
PSU Banks 6 7 13 14 23 57
 Even in BFSI, especially PSU banks and NBFCs SMID earnings
Cement 2 4 13 13 137 NA are far outpacing large-cap peers owing to lower credit
IT 13 4 6 14 3 8
costs.
Durables 0 5 6 11 33 46
Paints 1 1 1 2 46 52
Chemicals 1 4 -14 -5 -63 -26
Sectors where SMID earnings have grown slower than largecaps with faster topline
Others 1 10 -7 7 -4 -15  IT, metals and pharma are the sectors wherein SMID is
Sectors where SMID earnings have grown slower than largecaps with slower topline
Infrastructure 1 2 28 27 31 -24
outpacing large caps even on the demand front.
Private banks 6 1 24 11 35 26
Consumer services 1 4 25 -1 22 -11
Industrials 5 7 19 8 47 21
BSE500 100 100 5 9 19 37

BSE500(ex-BFSI) 88 87 3 8 13 35
BSE500(ex-BFSI and
45 69 10 7 16 24
commodities)

30
4. Wage bill growth: Private sector growth slows sharply…
BSE500 wage bill growth for private sector moderates sharply …while that of general staffing remains weak
25 25
20 20
15 15
(%, YoY)
14
(% YoY)
11
10 10
5 5
0 0
Sep 13 Sep 15 Sep 17 Sep 19 Sep 21 Sep 23 FY12 FY14 FY16 FY18 FY20 FY22 H1FY24
BSE500 wagebill growth BSE500 private sector wagebill growth Teamlease revenue/associate
 Moderation has now set in wage bill growth. Overall BSE500 wage bill growth has slowed to 14% (versus 20% a couple of quarter ago). The
worrying aspect of wage bill growth is the sharper moderation in private sector wage bill growth.
 Private sector wage bill growth has moderated to 11% YoY – a decadal-low (ex-covid). Such a sharp slowdown, if sustained, could weigh on
consumption, particularly high-end.
31
…with wage bill moderating across the board, barring BFSI
Wage bill growth breakdown by sector
Q2 FY24 Share of
Wage bill growth (%, YoY)
Sector wage bill size Q2FY24 wage
(INR bn) bill (%) Q2 FY23 Q1 FY24 Q2 FY24
IT 739 32 24 13 8
BFSI 746 32 8 32 29
PSU Banks 428 18 2 34 31  By sector, wage bill growth is strong only in BFSI (25-30%
Private banks 214 9 18 31 27 YoY growth).
Financial services 104 4 18 25 25
Commodities 322 14 6 13 9  The moderation is most pronounced in IT with wage bill
Metals & Mining 198 9 6 14 9
Energy 124 5 7 13 8
growth now at just 8% YoY. Also, for IT companies
Domestic consumption 255 11 16 14 12 headcount is now contracting YoY. Hence, if demand
Consumer services 62 3 24 19 17 does not revive, IT wage bill growth is likely to moderate
Auto 87 4 9 14 15
further.
Durables 44 2 11 11 15
FMCG 43 2 28 11 -2
Telecom 19 1 11 9 10
 Apart from IT, wage bill growth is moderating in most
Domestic investment 169 7 9 11 6 other spaces as well. For most sectors, wage bill growth
Industrials 104 4 13 13 5 is below the levels seen a year ago.
Power 37 2 2 7 4
Cement 22 1 2 3 11
Real estate 6 0 21 21 13
Exporters 102 4 9 6 6
Pharmaceuticals 75 3 8 8 6
Chemicals 27 1 12 0 4
BSE 500 wage bill growth 2,333 100 14 18 14
32
Moderating gross profits and NII growth to weigh on wage bill growth
Moderating gross profits could weigh on non-BFSI private wage bill… …while slowing NII growth to hurt wage bill growth of BFSI sector
25 35
20 30
25
15
(%, YoY)
(%, YoY)
20
10
15
5
10
0 5
Sep 13 Sep 15 Sep 17 Sep 19 Sep 21 Sep 23 Sep-11 Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23
BSE500 private sector(ex-BFSI) wagebill growth BSE500 pvt. Sector(ex-BFSI) gross profits Private banks NII growth Private banks wagebill growth
Source: Capitaline, Nuvama Research Source: Capitaline, Nuvama Research
 Weakening NII growth is likely to weigh on wage bills of banks, else their margins shall be under pressure.
 With regards to the rest, the fading tailwinds from lower input prices amid weak demand are likely to result in corporates focusing on
cutting costs elsewhere to boost profits.
33
5. Earnings estimates: Downgrades on aggregate level stall
At aggregate level, SMID’s FY24 earnings have been upgraded… …however, excluding commodities and banks, there have been downgrades
FY24 earnings estimates FY24 earnings estimates
104 100
104
(Rebased to 100)
(Rebased to 100)
102 98
100 96
95
98 94 94
97
96
Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 92
Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23
Largecap stocks SMID stocks Largecap (ex-BFSI and commodities) stocks SMID (ex-BFSI and commodities) stocks
Source: Bloomberg, Nuvama Research Source: Bloomberg, Nuvama Research

Note: Estimates are Bloomberg consensus Note: Estimates are Bloomberg consensus
 With regards to earnings estimates, FY24 numbers have been revised up marginally for SMID, whereas large caps have seen some
downgrades. However, its worth noting that most of SMID upgrades have come from PSU banks and are not broad-based.
 In fact, excluding banks and commodities, SMID earnings have actually seen sharper downgrades than large caps.
34
By sector — Upgrades and Downgrades
Change in FY24E EPS forecasts across sectors
Chemicals (12)
Telecom (10)
Metals & Mining (6)
IT (2)
Durables (2)
Consumer services (2)
FMCG (2)
Energy (ex OMC) (0)
Construction and real estate (0)
Coverage 1
Power 1
Engg & Cap Goods 1
Cement 2
BFSI 2
Pharmaceuticals 3
Auto (Domestic) 5
Auto (Export) 6
(15) (10) (5) 0 5
Change in FY24 Estimates post Q2FY24 results
Source: Bloomberg, Nuvama Research 35

Stocks whose numbers we revised
Top 10 stocks with FY24E EPS upgrades Top 10 stocks with FY24E EPS downgrades
Top 10 stocks with FY24E EPS upgrades Top 10 stocks with FY24E EPS downgrades
Stock name Sector Change in FY24E EPS (%) Stock name Sector Change in FY24E EPS (%)
India cements Cement 79 Tata steel Metals & mining -63
Zomato Internet 57 Gujarat fluorochemicals Chemicals -59
Shree cements Cement 28 Adani wilmar FMCG -50
Trent Consumer services 27 Sharda cropchem Chemicals -49
Punjab national bank PSU banks 24 Bajaj electricals Durables -44
NMDC Metals & mining 23 UPL Chemicals -34
ACC Cement 21 Jubilant ingrevia Chemicals -33
LIC housing finance NBFC 19 Sterlite technologies Telecom -28
MGL Energy 19 Power grid Power -25
UTI AMC Non lending financials 16 TechMahindra IT -23
Source: Nuvama Research
36
Stocks whose ratings we revised
Changes in ratings
Rating upgrades Rating downgrades

Stock name Sector Pre-result rating Post-result rating Stock name Sector Pre-result rating Post-result rating
Ambuja Cement Cement Hold Buy Supreme Industries Engg & cap goods Buy Hold
Nippon Asset Management Non lending financials Hold Buy Deepak Nitrite Chemicals Buy Hold
Ceat Ltd Auto (domestic) Reduce Buy GAIL Energy Buy Hold
Exide Industries Auto (domestic) Hold Buy Britannia Industries FMCG Buy Hold
Apollo Tyres Auto (domestic) Hold Buy Greenpanel Industries Durables Buy Hold
Petronet LNG Energy Hold Buy Jubilant Foodworks Consumer services Buy Hold
NBCC Construction and real estate Hold Buy Coromandel International Chemicals Buy Hold
JSW Steel Metals & mining Reduce Hold Sharda Cropchem Chemicals Buy Hold
Sona BLW Precision Forging Limited
Auto (domestic) Reduce Hold IndiaMART Internet Buy Hold
Shoppers' Stop Consumer services Reduce Hold GE T&D Engg & cap goods Hold Reduce
Sheela Foam Durables Hold Reduce
Mahindra & Mahindra
NBFC Hold Reduce
Financial Services
Source: Nuvama Research 37

Nifty earnings asking rate still elevated
Street still forecasting 15–16% Nifty EPS growth over next two years
40
 Nifty has delivered a strong mid-teens’ EPS
35
growth in H1FY24. However, despite this,
24 25 overall earnings have only seen a mild
25 downgrade.
(%, YoY)
14
15 11  The implied asking rate for H2FY24 is in
10 9 8 single digits. We do not see much risks to
5 3 2 1
it.
(5) -1  However, FY25 earnings seem elevated to

us, and achieving mid-teens growth could
-10 be challenging if global growth fades and
(15)
FY14 FY16 FY18 FY20 FY22 H1FY23 FY25E support from banking earnings also stalls.
Nifty EPS growth

Source: Bloomberg, Nuvama research; Note: Bloomberg consensus estimates are used herewith
38
Nifty earnings estimates: Breakdown by sector
Share in Nifty EPS (INR) EPS growth (%, YoY)
FY24 EPS FY22 FY23 FY24E FY25E FY22 FY23 FY24E FY25E
BFSI 41 249 339 379 429 32 36 12 13

Banks 34 205 284 315 354 37 38 11 13
NBFC 7 41 52 60 70 17 26 15 17
Insurance 0 3 3 4 4 (4) 12 17 18
Exports 16 100 126 152 175 25 26 21 15
Information technology 11 96 102 105 121 16 7 3 15
Pharma 3 16 22 27 31 31 41 21 15
Export Auto 2 (12) 1 20 23 (19) 106 2,469 16
Commodities 21 230 164 194 214 87 (28) 18 10
OMCs 2 12 3 21 11 (33) (74) 558 (47)
Energy (ex OMC) 13 105 107 118 131 48 2 11 11
Metals and mining 6 113 55 56 72 233 (52) 2 29
Domesitc Consumption 13 69 96 118 138 83 38 23 17
Domestic Auto 5 23 34 46 51 42 51 36 11
Consumer staples 5 37 46 50 56 12 23 9 11
Telecom 1 4 8 12 20 128 93 43 64
Consumer discretionary 1 6 8 10 11 27 42 24 14
Domestic Investment 9 74 76 83 99 12 3 10 19
Utilities 4 37 36 33 36 30 (3) (8) 8
Agro Chemicals 1 6 6 5 7 26 (2) (14) 36
Industrials 4 21 27 36 46 (23) 27 35 26
Cement 1 10 7 9 11 67 (27) 26 19
Nifty 100 722 801 927 1,055 46 11 16 14
Nifty ex financials 59 472 462 548 626 54 (2) 19 14
Nifty ex financials and commodities 38 243 297 353 412 32 22 19 16
Source: Bloomberg, Nuvama research; Note: Estimates are for Bloomberg consensus
39
Trends by Sector
40
1. Domestic consumption: Top line moderates, but EBITDA improves
Top-line growth slowed across the board in Q2FY24… …but EBITDA growth held up
25 60
52 53
20 49
19 50
20 18
16 40 40
40
15
(%, YoY)
(%, YoY)
30
24
10 9
6 20 15
4 12
5 3
10
0
0
Consumer services Domestic auto Durables FMCG
Consumer services Domestic auto Durables FMCG
Q1FY24 topline Q2FY24 topline Q1FY24 EBITDA Q2FY24 EBITDA
Source: Capitaline, Nuvama research;

Note: Consumer services includes airlines, QSR, media, retail, hotels, logistics, etc. Durables includes paints, ceramics, white goods, ready made garments and textiles, plastic, etc.
 In the domestic consumption space, demand was weak across the board, barring autos and consumer services, wherein pent-up was late
to begin with. However, the benefits of falling input prices are starting to play through, resulting in an EBITDA boost.
 Hereon, input prices are stabilising and, to that extent, demand will play a much more critical role in shaping the margin outlook.
41
Valuations: Moderated, yet expensive
FMCG valuations are 1SD expensive… …while those of domestic auto companies have moderated
60
27
55
50 24
(x)
(x)
45
21
40
18
35
30 15
Nov-13 Nov-15 Nov-17 Nov-19 Nov-21 Nov-23 Nov-13 Nov-15 Nov-17 Nov-19 Nov-21 Nov-23
FMCG - 12m bf PE 10Y avg. +1SD -1SD Domestic Auto - 12m bf PE 10Y avg. +1SD -1SD
Consumer discretionary valuations are still close to 1SD expensive… …so are consumer services’ valuations
75
65 80
55 65
(x)
(x)
45 50
35 35
25
20
Nov-13 Nov-15 Nov-17 Nov-19 Nov-21 Nov-23
Nov-13 Nov-15 Nov-17 Nov-19 Nov-21 Nov-23
CD (ex-Autos) - 12m bf PE 10Y avg. +1SD -1SD
Consumer services 10Y avg. +1SD -1SD
Source: Bloomberg, Nuvama Research

42
Notes: 1) The forward PE numbers are market cap based on the constituents of BSE100 2) All details are updated as on August 18, 2022; Note: FMCG sample
space excludes sin stocks like ITC and UNSP; Note Domestic Auto includes all Auto stocks except Tata motors, motherson Sumi and Bharat Forge.
2. Domestic investment: i) Industrials: Strong quarter, but…
Industrial companies’ top line improves, margins stay steady Global slowdown could weigh on industrial companies’ orders
22
25
25
20 56
20
20 Current
15 China
European devaluation Powell 54
(x, 3MMA)
18 10 tightening
(%, YoY)
(%YoY)
15 debt crisis
(%)
5 52
16
10
0
50
5 14 -5
-10 48
0 12 Mar-11 May-13 Jul-15 Sep-17 Nov-19 Jan-22 Mar-24
Sep 15 Sep 17 Sep 19 Sep 21 Sep 23
Industrial companies' topline Industrial Companies' margins (RHS) Industrial companies' orderbook Global PMI (adv by 2Q, RHS)
Source: Bloomberg, Capitaline, Company data, Nuvama Research

Note: Industrial companies include L&T, Siemens, ABB, Thermax, BHEL, SKF, Carborundrum, Source: Company data, Bloomberg, Nuvama Research
Cummins, Honeywell, CG power, GE T&D, Greaves cotton, Grindwell, Supreme ind., Timken Note: Industrial companies include L&T, Siemens, ABB, Thermax, BHEL, SKF, KEC and Voltas
india, BEL, solar industries, hitachi energy and KEC International; 2Y CAGR has been used
from Mar’21 and 3Y CAGR for Mar’22
 Industrial companies posted another strong quarter. The highlight this time was the healthy execution and strong order book.
 However, the challenge lies in the outlook. At present, capex is mainly driven by the public sector and orders from the Middle East. Going
ahead, momentum in these (particularly public capex) could slow.
 More importantly, as argued in the initial part of the report, corporate capex already seems to be peaking. Hence, one needs to see if the
current buoyancy can sustain or not.
43
…slowing WPI could hurt tax revenues and hence working capital cycle
This in turn could weigh on working capital cycle of industrials
15 40  Moderation in tax revenues could weigh on the

working capital cycle of some industrial
17 companies.
30
19  This is an important indicator to look out for
(4QMA, YoY, %)
going ahead.
(%, of sales)
20
21
23 10
25 0
27
-10
Sep-14 Mar-17 Sep-19 Mar-22 Sep-24
L&T Net working capital to sales (Inverted) Gross Tax Revenue (advanced by 4Q) (RHS)
Source: Company, CMIE, Nuvama research;
44
Meanwhile consensus estimates are high and valuations elevated
Acceleration forecasted in industrial companies’ EBITDA growth Industrial companies tend to underperform during global slowdowns
25 1.3 58
20
20 18 18 56
1.1
15 14
54
(%, YoY)
(x)
(x)
10 0.9
52
5
0.7
1 50
0
-1
0.5 48
(5)
Apr-06 Apr-09 Apr-12 Apr-15 Apr-18 Apr-21 Apr-24
FY20 FY21 FY22 FY23 FY24E FY25E
Industrial companies' EBITDA growth Industrials relative to Nifty Global PMI (advanced by 6 months, RHS)
Source: Capitaline, Bloomberg, Nuvama research; Note: Industrial companies include L&T, Source: Bloomberg, Nuvama Research
Siemens, ABB, Thermax, BHEL, SKF, Carborundrum, Cummins, Honeywell, CG power, GE
T&D, Greaves cotton, Grindwell, Supreme ind., Timken india, BEL, Titagarh wagons, solar
industries, hitachi energy and KEC International
 Industrial companies’ margins are sensitive to demand. Hence, if top-line growth starts to disappoint, then industrial companies’ margins too
could remain under pressure.
 This does not seem to be factored in consensus forecasts, which is forecasting a very sharp EBITDA acceleration going ahead. Also, industrial
companies typically tend to underperform headline indices during global slowdowns. This time around, the underperformance is delayed just
like its outperformance was. High valuations further strain the margin of safety.
45
ii) Cement: EBITDA/t remains stable
EBITDA/t sees marginal improvement
1,500
1,350
1,200
(INR/tonne)
1,050
900
750
600
Sep 13 Sep 15 Sep 17 Sep 19 Sep 21 Sep 23
Cement companies' EBITDA/tonne
Source: Capitaline, Company data, Bloomberg, Nuvama Research

Note: Cement companies included are UltraTech Cement, ACC, Ambuja Cements and Shree Cement
 Cement companies’ EBITDA/ton remained largely stable on a sequential basis, but improved YoY.
 Going ahead, we think EBITDA/t is likely to remain healthy. This is because, while input price tailwinds have stalled, companies have
effected price hikes, which are sustaining. While this may have a bearing on volumes, it shall support the sector’s profitability.
46
iii) Real estate: Listed companies continue to have a good run
Real estate sales continue to remain strong…
70  Listed companies’ real estate sales grew in teens in

Q2FY24, despite a high base. While the growth was
lower than the industry, it was healthy. Their
50
commentary suggests that the premium segment is
leading the recovery in sales.
30
(%, YoY)
 The constraint for real estate sales is supply rather

10
than demand at present. However, it needs to be
seen if this can sustain amid slowing private sector
-10 wage bill.
-30  The recent rally in real estate stocks has made

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Q1FY24 Q2FY24
Listed companies' real estate sales value Top 7 cities real estate sales value valuations quite expensive (+1SD from long-term
average). Given that rates are still elevated, real
Source: Capitaline, Company data, Bloomberg, propequity, Nuvama Research
estate sales could slow, hurting lofty valuations.
Thus, we maintain UW stance on the sector.
47
3. External sectors – IT: Margins stabilise despite weak growth
IT margins are stable despite moderating top line

40
27
Post COVID:
30
Pre COVID:
Margins lead
 IT’s growth slowed sharply in the quarter
Topline drives margins and
earnings cycle with most companies either cutting
earnings
guidance or indicating a soft demand
25
(%, YoY)
outlook ahead.
(%)
20
 However, margins remained stable for
these companies.
23
10
 Going ahead, we think margin deterioration
is largely behind as companies are lowering
0 21 headcount, and this could provide a cushion
Sep 13 Sep 15 Sep 17 Sep 19 Sep 21 Sep 23 to earnings.
IT Topline growth (ex TechM) IT EBITDA margins (ex TechM, RHS)

Note: IT companies included herewith care Infosys, TCS, HCL Tech, Tech Mahindra, Wipro, Birlasoft, Eclerx, Coforge, First Source
Solutions and Persistent Systems
48
IT tends to outperform during global downturns
IT outperforming during crisis
30 29
20
10 7
-
(%)
-10
-13 -11 -13
-20 -15 -15
-19
-30 -23
-28
-40
European Debt Crises Taper Tantrum China Devaluation ILFS Crises Current
Nifty Return NSE IT Return (%)
Source: Bloomberg, Nuvama Research; Note: For current period denotes October 2021 to November 2023
 Also, consensus earnings estimates for IT companies, which have been cut in recent quarters, are now quite reasonable and hence have
limited downside risks.
 Apart from that, during all global slowdowns in the past, IT tends to outperform given its cash-rich nature. Low earnings downgrade risk
along with the sector’s large underperformance last year underpins our OW on IT.
49
4. BFSI: Purple patch could be ending
FY24 – Margins contract
FY23 – All cylinders fired
NIMS
NIMS
BFSI earnings’
BFSI earnings’
key vectors
key vectors
Credit growth Credit costs

Credit growth Credit costs
 For banks, FY23 was a purple patch with improving NIMs, accelerating credit growth and moderating credit costs (to below trend).
However, in FY24 some chinks in its fabled growth seem to be cropping up.
50
Weakening NIMs to drive moderation in NII growth
Banks’ NII growth …sequential change in NIMs across banks
35
5 1 1 0
30
-5
25 -4
-15 -12
20
(%, YoY)
(bps)
15 -25 -20
-25
10
-35
5 -35
-45
0 Axis Federal Indusind SBI Average BoB ICICI Kotak
Sep-11 Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23 bank of banks
Banks NII growth Q2FY24 change in NIMs (bps)
 Margins moderated sequentially across banks. Hence, NII growth decelerated from its peak in last quarter. While the growth in NII is still strong
on a YoY basis, the sequential moderation thereof needs to be monitored.
51
More moderation likely in spreads
Banks’ cost of deposits likely to reprice higher… …which could further weigh on banking sector spreads
10 4.0
9
3.8
8
3.6
(%)
(%)
7
3.4
6
5 3.2
4 3.0
Nov-13 Nov-15 Nov-17 Nov-19 Nov-21 Nov-23 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20 Sep-21 Sep-22 Sep-23
Weighted average deposit rate India 2Y yield Banking spreads (as per RBI)
Source: Capitaline, Nuvama Research Source: CMIE, Nuvama Research
 Going ahead as well, NIMs should moderate as liabilities are likely to further reprice higher.
 Also, data from RBI’s loan spreads suggests a sharp moderation in banking spreads going ahead.
52
Credit growth holding strong, but no longer accelerating
Banks’ credit growth now stabilising at high levels
20
 Banks’ credit growth continues to

remain strong, but it is no longer
15 accelerating and now stabilizing at
high levels. Going ahead, we expect it
(%, YoY)
to moderate in line with the nominal

GDP slowdown.
10 Source: Capitaline, Nuvama Research
5
Bank credit growth
Source: CMIE, Nuvama Research
53
Credit costs running way below trend – is this sustainable?
Banks’ credit costs continue to remain benign… …although operating costs are running strong
30
3.5
3.0 25
2.5 20
(%, YoY)
(% of loans)
2.0 15
1.5
10
At
1.0
Decade
5
low
0.5
0
- Sep-13 Sep-15 Sep-17 Sep-19 Sep-21 Sep-23
FY13 FY17 FY21 Q2FY24
Banks(ex-HDFC bank) credit costs (% of loans) Banks(ex-HDFC bank) operating expenses growth
Source: Company, Nuvama Research Source: Capitaline, Nuvama Research
 Finally, operating costs continue to run high. This could probably moderate given the weakness in NII growth.
 However, credit costs are running much below trend. This is not sustainable and could rise going ahead.
 On balance, levers on the costs front are limited and profit growth would move largely in tandem with top-line growth.
54
FY25 consensus estimates seem optimistic
Consensus still forecasting high PAT growth… …as well as NII growth
Bank PAT Growth
60 23 22
48
50 20
(%YoY)
40 17 16
31 15
(%YoY)
30
14
21 21
20 11
14
11 10
10
8
0 FY21 FY22 FY23 FY24E FY25E
FY21 FY22 FY23 FY24E FY25E Banks NII growth
Source: Bloomberg, Nuvama Research Source: Bloomberg, Nuvama Research
 The above trends do not seem to be factored in consensus estimates. Consensus is forecasting an NII CAGR of 10-15% for the next
two years, despite a high base, which could disappoint, particularly in FY25.
 Also, PAT growth is forecasted higher despite rising opex and limited tailwinds of credit costs. This poses downside risks; hence, we
remain UW on BFSI.
55
5. Resources: Metals move out of deflation, but debt increases
Metal companies’ top line remains weak, but EBITDA improves Metal companies’ debt now rising
90 3000
65 2500
40 2000
(INR bn)
(%, YoY)
15 1500
1000
(10)
500
(35)
0
(60) FY03 FY06 FY09 FY12 FY15 FY18 FY21 H1FY24
Sep 13 Sep 15 Sep 17 Sep 19 Sep 21 Sep 23 Metals Net Debt
Metals Topline growth Metals EBITDA growth
Source: Capitaline, Bloomberg, Nuvama Research Note: Metals companies included are Tata Steel, SAIL, Vedanta, Hindustan Zinc, NMDC, Jindal Stainless, JSPL, JSW Steel and Shyam Metallics
…valuations are now expensive relative to global growth

1.7 57
1.4 55
 Leverage in metal companies has begun to rise, despite
1.1 53
EBITDA growth being weak.
(x)
(x)
Large
0.8
gap
51  While the starting point of balance sheet is strong, if global
growth remains weak, then valuations of metal companies
0.5 49
could come under pressure.
0.2 47
Nov-11 Nov-14 Nov-17 Nov-20 Nov-23
Metals 1 yr fwd PB ratio Global PMI(RHS)
56
Model Portfolio Stocks Mkt Cap Price Portfolio wt Nifty wt Rel wt P/E (x) P/E (x) P/B (x) P/B (x) RoE (%) RoE (%) Div Yld (%)
(USD bn) (INR) (%) (%) (bps) FY24E FY25E FY24E FY25E FY24E FY25E FY24E
Information Technology 16.8 13.8 300
Coforge 4 5,701 1.5 0.0 150 39 28 9.5 7.8 27 30 1.3
LTIMindtree 20 5,520 1.6 0.6 100 32 26 8.3 6.8 28 29 1.2
Tata Consultancy Services 154 3,498 5.1 4.1 100 27 24 13.2 10.3 50 48 3.2
Infosys Technologies 72 1,445 7.1 6.1 100 24 22 7.1 6.3 31 30 2.3
HCL Technologies 43 1,311 1.5 1.5 0 23 20 5.4 5.2 24 27 3.9
FMCG 12.1 9.1 300
ITC 66 439 5.5 4.5 100 25 23 7.5 7.2 31 32 3.7
Britannia 14 4,702 1.6 0.6 100 51 45 23.2 17.8 53 44 1.3
Colgate 7 2,129 1.0 0.0 100 44 38 31.3 28.9 74 79 1.9
Godrej consumer 12 980 1.0 0.0 100 46 40 6.3 5.4 15 14 0.0
Hindustan Unilever 70 2,491 3.0 2.6 40 51 47 11.4 11.1 22 24 1.5
Telecom and Internet 5.6 2.5 300
Bharti Airtel 67 950 4.4 2.5 190 38 22 5.7 4.9 13 24 0.4
Zomato 13 122 1.2 0.0 120 343 NM 5.0 4.7 1 6 0.0
Domestic auto 6.8 4.8 200
Hero MotoCorp 8 3,280 1.6 0.4 120 17 16 3.7 3.5 22 23 3.2
TVS Motors 10 1,684 1.0 0.0 100 39 31 10.4 8.2 30 29 0.3
Maruti Suzuki 38 10,485 2.6 1.6 100 25 23 4.8 4.2 20 19 0.9
Mahindra & Mahindra 23 1,570 1.6 1.6 0 21 18 3.9 3.3 20 20 1.0
Cement 3.9 1.9 200
Grasim 15 1,943 3.9 0.8 310 15 13 1.3 1.2 7 8 0.5
Health Care 5.6 4.0 150
Cipla 12 1,235 2.2 0.8 140 25 21 3.7 3.2 16 16 0.7
Sun Pharma 34 1,190 2.4 1.4 100 30 24 4.5 4.0 16 18 0.9
Torrent Pharma 8 2,040 1.0 0.0 100 42 34 9.6 8.1 25 26 1.3
Utilities 2.3 2.3 0
NTPC 29 252 2.3 1.3 100 12 11 1.5 1.4 13 13 3.0
Chemicals 0.0 0.4 (40)
Export auto 0.0 1.2 (120)
Energy 10.0 11.3 (130)
Reliance Industries 192 2,361 10.0 9.4 60 23 20 2.1 1.9 10 11 0.4
Durables 1.2 3.2 (200)
Polycab India 10 5,269 1.2 0.0 120 47 39 9.9 8.2 23 23 0.4
Metals & mining 0.9 2.9 (200)
Jindal Steel & Power 8 647 0.9 0.0 90 12 9 1.5 1.3 13 15 28.9
Industrials 2.0 5.5 (350)
L&T 52 3,051 2.0 3.8 (180) 30 23 4.4 4.0 16 18 0.9
BFSI 32.9 36.9 (400)
SBI Life 16 1,360 3.2 0.7 250 65 56 8.3 7.6 13.2 11.5 0.2
ICICI Bank 79 936 10.0 7.8 220 16 16 2.8 2.8 18.4 16.9 0.9
IndusInd Bank 14 1,499 2.1 1.1 100 13 11 1.9 1.6 15.2 15.9 0.9
Axis Bank 38 1,026 3.6 3.1 50 13 12 2.1 1.8 17.4 16.1 0.1
Kotak Mahindra Bank 42 1,773 3.0 3.0 0 27 24 3.7 3.3 14.9 14.4 0.1
SBI 63 585 1.0 2.6 (160) 8 8 1.4 1.2 18.8 16.9 2.0
HDFC Bank 138 1,508 10.0 13.7 (370) 19 16 2.7 2.4 17.0 15.7 1.3
Model Portfolio 100.0 100.0 0 57
Nifty 100.0 0
FY24E: Earnings Revisions by Sector
58
Resources companies: Energy earnings stabile, metal continue to be cut
Earnings downgrades continue for resources companies
105 FY24 earnings estimates
100
(rebased to 100)
95
90 91
85
82
80
Nov 22 Feb 23 May 23 Aug 23 Nov 23
Energy (ex OMC) Metals & Mining

59
Domestic consumption: Earnings stabilise/improve
Domestic auto companies’ earnings witness upgrades
115
FY24 earnings estimates
112
110
105
(rebased to 100)
100
99
95
94
90
88
85
80
Durables Consumer services FMCG Auto (Domestic)
60
Domestic investment: Earnings downgrades stabilising
Earnings are now stabilising across the board
100
99
(rebased to 100)
97
95
90 90
85
Engg & Cap Goods Construction and real estate Cement
61
Exporters: IT and chemicals’ earnings cut; pharma’s earnings upgraded
IT and chemical companies witness sharp earnings cuts

100 100
95
93
(rebased to 100)
90
85
80
75
70
67
65
IT Pharmaceuticals Chemicals
62
Banking sector: Earnings estimates continue to be upgraded
Both banks and NBFC earnings improving
111
110
(rebased to 100)
105
103
100
Banks NBFC/Insurance
63
Sector Highlights
64
Sector Highlights
Agri Inputs
Positive highlights Negative highlights/concerns/risks
With pick up in monsoon in Jul-Aug, domestic agri input companies posted strong results led Fertiliser players have been adversely impacted due to sharp reduction in subsidy rates. With
by volume growth current inventories, companies have taken inventory write down which have adversely
impacted the profitability
With softening RM prices, revenue growth however remain muted to negative despite solid As subsidy rates remain lower and RM prices have started going up, margins for fertiliser
volume growth. However margins have improved and lower RM prices to boost margins fro players to remain muted in near term
domestic agrochem players
Global agrochem players have been adversely impacted due to inventory destocking and
sharp fall in input prices leading to inventory losses
Top picks: Dhanuka Stocks to avoid: Rallis, Coromandel
Auto
Positive volume growth YoY across segments. 2Ws, 3Ws and MHCVs are recovering, but still Tractor industry to be flat due to high base and lower Kharif production
below previous
Realizations highs.
growth was supported by premiumization and better net pricing Global HCV cycle outlook subdued to weak macros
Margin performance was supported by better realizations/mix and commodity easing Tyres companies expect higher RM cost in Q3FY24
benefits
Management commentary is positive for festive season demand
Top picks: Escorts, Tata Motors, Maruti Suzuki and Hero MotoCorp Stocks to avoid: Bharat Forge
Banking & Financial Services

Strong loan growth across banks and NBFC CoF continues to rise putting pressure on margins
Better than expected treasury income for banks CASA stabilization appears delayed
Benign credit environment with credit cost falling for some on an already low base Opex continues to remain elevated
Mid sized PSU banks posted better core earnings than other large PSU and private banks
Top picks: ICICI, HDFC Bank, Shriram Finance Stocks to avoid: AU SFB, SBI Cards
65
Sector Highlights
Construction
Execution remains healthy despite heavy monsoons. Awarding from NHAI remians muted, leading to reduction in order inflow guidance by the
road EPC players.
Order inflows remained healthy for the construction players
Top picks: NCC, Ahluwalia, Titagarh Stocks to avoid:
Cement
Q2FY24 saw realisations marginally improving QoQ/YoY despite being a seasonally weak while prices have improved, their sustainability needs to be monitored
quarter.
Volume growth reamins healthy in the run up to elections with government expenditure on Petcoke and non coking coal prices have started rising since July 2023. This can put pressure
infrastructure/PMAY and due to good real estate demand on fuel costs going ahead. (Q4FY24)
Top picks: JK Cements, Ambuja and ACC Stocks to avoid: India Cements and Shree Cements
Consumer Goods
A shift in festive season impacted Q2FY24, but is likely to have a positive impact on demand Rural demand continues to be challenging. Some green shoots, which started in Q1FY24,
in Q3FY24 given the full benefit of festivals. seem to have witnessed a pause.
With corrections in raw materials prices, the good expansion in gross margins continues. Local players are back in categories such as detergent bars, tea. We expect local players to
With this, ad spends have started to ramp up YoY. also have an impact on biscuits, edible oils and hair oils.
E-commerce continues to do well driven by Quick Commerce Edible oils players undertook heavy price cuts and are facing the impact of local players
Top picks: Nestle, Tata Consumer, Godrej Consumer, Colgate Stocks to avoid: Marico
66
Sector Highlights
Energy
RIL witnessed strong performance across verticals. O2C EBITDA grew 36% YoY led by Implementation of EV policy for cab aggregators in Delhi to impact 15% of total volumes by
gasoline cracks (+47% YoY) and advance feedstock sourcing partially offset by weak petchem FY30. Similar policy announcements in Maharashtra and Gujarat region could impact
margin. Gas EBITDA rose 50% YoY on a 22% YoY price hike. Gas segment shall stay strong, as volumes for MGL and GGL.
new MJ field shall lift volumes 60% by end-FY24. The New energy segment has also seen
steady progress. The company’s schematics shows progress at its Dirubhai Ambani Green
Energy Giga Complex in Jamnagar. It has received in-principle approval for 0.07mn ha. in
Kutch, supporting 37GW RE power/1.5MMTPA G-H2.
CGDs witness recovery in volumes led by decline in gas prices on back of lower input cost ONGC oil/gas production fell 2%/3% YoY. Additionally, despite commencement of oil/gas
(KPC implementation and low spot LNG prices). Increase in alternate fuel - propane prices production from KG-98/2 basin it has substantially lowered the guidance. For FY25,
further boosts GGLs volumes. management lowered the peak oil production guidance by 40% to 45kbpd, and peak gas
production guidance by 28% to 12mmscmd.
GSPL, PLNG witnesses volume growth as spot LNG prices eases, while tariffs remain high.
PLNG received approval to set up petchem plant with total PDH capacity of 750ktpa and PP
capacity of 500ktpa at a capex of INR200bn (project IRR: 20%).
GAIL: Strong transmission segment led by volumes growth and increase in tariffs. Trading
also saw strong growth as GAIL moved all its cargoes to hugh margin domestic market given
high demand
OMCs: EBITDA aross OMCs surged led by strong GRMs of USD18/19/13 for IOCL/BPCL/HPCL
partially offset by relatively weak retail margins.
Top picks: RIL, MGL, Stocks to avoid: ONGC
67
Sector Highlights
Engineering & Capital Goods
Public capex driven sectors such as power generation (both thermal and renewables), power Short-cycle distribution led businesses enters in de-stocking phase ahead of general elections
T&D, railways & metros, defence etc. in support with new-age segments including energy to be held during Apr-May 2024.
efficient systems, data centres, electronics, water & wastewater treatment etc. continue to
be high growth areas.
While longer-term underlying demand is strong, short-cycle order growth are showing signs Valuations seem to be rich for the cap goods index along with our coverage universe however
of fatigue with de-stocking ahead of general elections. Exports demand has also been slowing key reforms – Make in India initiative, Production Linked Incentives (PLI) scheme, Green
down barring O&Gs capex in Middle East and rising momentum of power T&D (especially energy transition, supply chain shift to India etc.) along with better balance sheets, capital
HVDC) in Europe and North America regions. availability, better working capital management, higher ROE/ROCEs indicate the ongoing
capex cycle to be in a superior position compared to previous cycle.
Better efficiency, higher capacity utilization / operating leverage, better product mix (incl. Supply chain disruption driven by geopolitical risks, input cost volatility, India general
exports & services), easing commodity prices, etc. all aided to sustenance or increase of elections etc. may disrupt/delay the ongoing ordering momentum.
OPMs as execution continues to be robust across names.
Top picks: Stocks to avoid:
Home Décor
Stable PVC prices help boost volumes - with most companies reporting strong double-digit
High timber costs continue to hurt wood panel players
volume growth
Strong demand from agri, housing segment, infra and Govt schemes (Nal se Jal especially)
Competition from imports intensify in MDF hurting margins
keeping the runway clear for pipes companies
Strong demand for wood panel segments too - plywood saw strong growth after many Although, demand is strong in pipes and now got positive even for wood panel players, tiles
quarters, MDF and Laminates too saw healthy demand segment is yet to see demand pick-up
Moderating gas prices expand margins for tiles players
Capacity additions across players (mainly from internal accruals) to strengthen growth while
keeping balance sheet strong
Top picks: Venus Pipes, Prince Pipes and APL Apollo Tubes Stocks to avoid:
68
Sector Highlights
Information Technology
Q2 came in flat, Deal pipeline improved across all the IT companies and continues to see Clients still remain cautious due to macro uncertainty causing delay in execution of deals
strong deal wins
We expect revenue growth going ahead on the back of strong deal wins. Demand outlook A key risk is any adverse currency movement, sharp appreciation of INR vis-à-vis USD and
remains strong despite geopolitical issues other currencies, can negatively impact financials.
Utilization has improved for the IT companies. Attrition continues to moderate
Top picks: LTIM, Coforge, TCS Stocks to avoid:
Media
Multiplexes had the best ever quarter with ATP, SPH and footfalls reaching all time high. The Ad revenues for multiplexes and broadcasters are still below precovid levels
content pipeline for H2FY24 is decent.
Subcription revenue for broadcasters witnessed growth on YoY basis after a muted On going cricket world cup impacted ad revenues for broadcasters
quarter.
Top picks: PVR INOX Stocks to avoid:
Metals & Mining

Ferrous companies benefitted on lower coking coal price due to lag effect partially offset by Q3FY24 to see a rise in coking coal price which will offset the higher steel prices thereby
lower steel realisation, while Non ferrous benefited with improved cost of production keeping the EBITDA more or less at par with Q2FY24
partially offset by lower base metal prices
Top picks: Coal india and JSPL Stocks to avoid: SAIL
69
Sector Highlights
Pharma and Healthcare
US price erosion stabilising at mid-single digit for most players; benefit from drug shortages
India - weak acute season and NLEM impacted growth
which are at all time high
Excess gRevlimid cash may result in high priced/irrational acquisitions or bad capital
India - growth picking up in Oct, Nov. Field force expansion to drive volume growth in India
allocation resulting in subdued returns
Hospitals: entering investment mode which could lead to some dilution in EBITDA per bed
Softening input costs and lower freights resulting in improved margin
initially
Hospitals - seasonally strong quarter. Brownfield expansion to fuel growth going forward
without much dilution in RoCEs.
Diagnostics - Much awaited double digit volume growth came in Q2. Competitive intensity
Diagnostics - lower volume growth vs pre covid times; aiming to protect margins
from online players reducing. positive impact of price hikes also reflected in numbers.
Top picks: Sun Pharma, Apollo Hospitals, Vijaya, HCG Stocks to avoid: Dr reddy's, Lupin
Real Estate
Most of the developers recorded their best-ever quarterly pre-sales and remains on track to Launches remained soft during the quarter however, launch pipeline remains healthy.
achieve their sales guidance for FY24.
Debt continued to reduce and focus now shifts on business development
Unsold inventories continues to correct.
Top picks: DLF, Prestige Estates Stocks to avoid:
70
Sector Highlights
Retail
Jewellery saw a strong growth despite the slowdown.Titan and Kalyan Jewellers both posted Weak Quarter for QSRs on account of slowdown.Burger King India reported the highest SSSG
robust growth in sales and the same flowing to EBITDA on account of operational leverage. for the quarter. Pizza category facing intense competition on top of slowdown and hence PH
Sales growth was on account of SSSG improvement. This was also aided by the benefit of India reported the lowest SSSG for the quarter.
shift of ‘Shraad’ to October.
Apparel and Innerwear category is facing demand slowdown and excessive inventory in the
system. Trent despite the slowdown reported the highest SSSG and strong set of numbers.
Top picks: Sapphire Foods, Trent Stocks to avoid: Page
Telecom
ARPU growth was strong for Bharti and VI primarily driven by customer upgrades from 2G to Heavy capex investments in 5G and no tariff hike keeping returns on capital suppressed
4G, migration to higher 4G plans and increased data consumption VI continues to struggle with heavy debt and no funds for 5G capex
Operating margins for Bharti's India mobility business remained strong at 54.9%
Top picks: Bharti Airtel Stocks to avoid: Vodafone Idea
Utilities
Sofeting international coal prices and cooling E-auction coal prices led to lower power
generation cost. While rising PLFs and merchant rates led to better project level profits
As per CERC's approache paper (April 24 - March 29 ) : indicative of stable normative RoE of
15.5% and explores incentives for higher generation from older plants/pit-head thermal and
hydro plants (Positive of NTPC & NHPC). Expecting a final paper by November - Decemeber
Top picks: NTPC Stocks to avoid: IEX
71
Sector Highlights
Business Services
Strong headcount addition in General staffing led by BFSI and consumer sectors IT Staffing continues to face headwinds
Margins improve QoQ for both Quess and Teamlease
Top picks: SIS, Teamlease Stocks to avoid:
Logistics
Container rail saw strong volume growth in Q2 and as a result Concor saw sharp uptick in PTL/FTL players saw margin contraction.
profitability.
On the road side, demand was reasonably modest given festive season being spilled over to
Q3.
Top picks: Blue Dart Stocks to avoid:
Specialty Chemicals
Though inventory destocking continues, end use demand from agrochem industry has yet Overall players have been adversely impacted by inventory destocking across the regions
not been impacted
Domestic demand remain solid across the regions Players catering to end use industry like agrochem (Anupam, SRF) and refrigerant gases (GFL,
SRF) has seen several impact on profitability due to low demand and price pressure
Players catering to end use industry like FMCG, personal care (Like Galaxy) remains buoyant Aggressive supplies from China have kept pressure on prices.
With inventory destocking continuing, mainly in agrochem and global players focusing on
reducing year end balance sheet, we expect Q3F24 to remain challenging
Top picks: Galaxy surfactant Stocks to avoid: Anupam rasayan, Aarti ind, Deepak Nitrite
72
Sector Highlights
Internet
Just Dial's paid campaigns addition remained decent with further improvement in IndiaMART's subscriber addition was far lower than expectations. Besides, the company also
realisations. Margins further expanded QoQ with operating leverage withdrew the quarterly subscriber addition guidance
Zomato clocked strong GOV growth across both food delivery and quick commerce
IEL's billings growth for IT segment continued to be muted
segments. Profitability improved even further for both the segments.
IEL billings growth was supported by double digit growth in non-IT segment partially
offsetting the impact of slowdown in IT hiring. Margins improved as a result of reduction of
marketing spends in matrimony and real estate
Route clocked double digit growth in domestic volumes despite increase in NLD prices.
Top picks: Zomato, Info Edge Stocks to avoid: Just Dial
Asset Management
Strong capital markets (Nifty +13.1% YTD) and continued inflows aided AUM growth for the Revised SEBI TER regulations still a overhag.
sector.
Yield contraction moderated aiding blended yields on QoQ basis
Top picks: HDFCAMC, NAM Stocks to avoid:
Insurance
High margin individual protection business witnessing strong growth. VNB margins seem to have peaked out for the sector as share of NPAR products have
reduced in the mix
Strong equity markets aided growth in ULIP products. Base is high for H2 and especially for Q4
Growth for retail health insurance has moderated, whereas competitive intensity remains
high in motor segment
Top picks:HDFCLIFE, MAXF, STARHEAL Stocks to avoid: IPRU, ICICIGI
73
Disclaimer
ABNEESH Digitally signed by
ABNEESH KUMAR ROY
Abneesh Roy Head of Research Committee Abneesh.Roy@nuvama.com
KUMAR ROY Date: 2023.11.16
21:54:12 +05'30'
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Q2FY24 Earnings Review:

Profits Party, Demand Decelerates

Prateek Parekh, CFA Priyank Shah

Market and Portfolio Positioning 44

FY24E Earnings Revision by Sector 45

Sector Highlights Q2FY24 51

Source: Capitalline, Nuvama Research

Source: Capitalline, Nuvama Research

Source: Company filings, Nuvama research; Source: Capitaline, Nuvama research;

(Rebased to 100, 12mma)

Consumer services growth is now moderating

 Within autos, high-end SUVs and bikes steal the show,

Source: Company filings, Nuvama Research;

Source: Capitaline, Nuvama Research Source: Company, Nuvama Research

 While top-line growth continued to slow in Q2FY24,

 Net profit margin of BSE500 is hovering around 13%

 In a nutshell, margins are close to those seen in

Source: Capitalline, Nuvama Research

Source: Capitalline, Nuvama Research Source: Capitalline, Nuvama Research

On a YoY basis, most sectors are now seeing improvement in margins

Source: Capitaline, Nuvama Research

Q2FY24 YoY change in EBITDA margins (bps)

Source: Capitalline, Nuvama Research

Source: Capitalline, Nuvama Research

 Normalisation of credit costs can adversely affect banks’ profit growth.

Source: Capitalline, CMIE, Nuvama Research

(INR thousands per barrel, 3mma)

Source: Capitalline, CMIE, Nuvama Research Source: CMIE, Nuvama Research

While demand headwinds loom, margin tailwinds are largely behind:

Source: Capitalline, Nuvama Research Source: Capitalline, Nuvama Research

16  Operating cash flow margins have also perked up.

15  However, unlike profit margins, OCF margins are

 That said, OCF margins, excluding commodities, are

Source: Capitalline, Nuvama Research

H1FY24 OCF H1FY24 OCF H1FY24 OCF growth

Source: Capitalline, Nuvama Research

50 H1FY24 capex growth

Source: Capitaline, Nuvama Research Source: Company, CMIE, Nuvama Research

50 BSE500(ex-BFSI) capex growth

Source: Capitaline, Nuvama Research Source: Bloomberg, Nuvama Research

BSE500 100 100 5 9 19 37

Source: Capitalline, Nuvama Research

Source: Capitaline, Nuvama Research Source: Company, Nuvama Research

Source: Capitaline, Nuvama Research Source: Capitaline, Nuvama Research

FY24 earnings estimates FY24 earnings estimates

Source: Bloomberg, Nuvama Research Source: Bloomberg, Nuvama Research

Metals & Mining (6)

Consumer services (2)

Energy (ex OMC) (0)

Construction and real estate (0)

Engg & Cap Goods 1

(15) (10) (5) 0 5

Change in FY24 Estimates post Q2FY24 results

Source: Bloomberg, Nuvama Research 35

Rating upgrades Rating downgrades

Source: Nuvama Research 37

(5) -1  However, FY25 earnings seem elevated to

Nifty EPS growth

BFSI 41 249 339 379 429 32 36 12 13

Source: Capitaline, Nuvama research;

Source: Bloomberg, Nuvama Research

Source: Bloomberg, Capitaline, Company data, Nuvama Research

15 40  Moderation in tax revenues could weigh on the