Q1 FY 23 Earnings Update: In Line but Waning; NIFTY target revised to 17k admist rich valuations

01 Sep 2022

Corporate earnings for India Inc were in line with estimates for April -June’22 quarter but the momentum waned. On an aggregate, BSE-100 earnings were up 8% YoY however high-cost pressure marred the show. Consensus/Citi EPS estimates for NIFTY have been revised downwards by c3/4% through the earnings season. FY23E NIFTY EPS growth is now projected ~10% YoY. Citi analysts have revised their target PE multiple for NIFTY up to 18x (16.5x earlier) accounting for expectation of earnings revisions and a more supportive inflation and rates outlook.

Key Highlights:

• 1. Q1 Earnings Trends: Delivering a decent top line growth, BSE-100 earnings came in largely in line with estimates at 8% y-o-y albeit with margin compression. The outlook for 2HFY23 has improved owing to input price correction. Top-line growth of companies (excluding commodities) was at 30% YoY (EBITDA: 7% YoY and PAT: 27% YoY). This was primarily led by Financials due to lower credit costs. The most notable beats on EBIDTA were witnessed in Energy, Materials & Industrials Sector.



• 2. Earnings Revisions: The start of the earnings seasons saw the Consensus/Citi estimates for NIFTY FY23E EPS being revised downward by ~3%/4%. Consensus EPS is down for 65% of NIFTY stocks vs the start of 1Q reporting season, (c35% of stocks seeing >5% FY23E EPS downgrades).
• 3. Valuations: NIFTY is up ~11% in the last 1m, on account of returning FII inflows, improving margin expectation and a growth outlook in sectors like Autos. However NIFTY valuations are expensive on an absolute (>19x 1yr fwd) & relative (>2sd premium to EM/ >1sd above S&P 500; >1sd bond yield gap) basis. Citi analysts expect consensus earnings downgrades to persist. Citi analysts have revised NIFTY target to 17k and expect a mid-single digit 12m forward returns.

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