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Earnings Wrap Q2FY21: Earnings outperform, post Covid recovery picks up steam - ICICI Direct

Posted On: 2020-11-20 04:06:59 (Time Zone: Arizona, USA)

- Corporate earnings in Q2FY21 came in better-than-expected wherein companies benefitted from low raw material cost and realised operating leverage benefits with management commentary positive on pace of demand recovery and retaining some part of operating leverage gains in the post Covid world. At the index level, excluding the BFSI space; net sales fell ~10% YoY, primarily driven by double digit topline decline in the oil & gas space. On the profitability front, EBITDA margins at the index level came in at a multi-quarter high at 18.9%, up 410 bps YoY. Savings were realised in raw material costs, which, for the quarter, came in at 44.4% of sales, down ~650 bps YoY. At the PAT level, growth was limited to just ~2% YoY due to exceptional low tax rate in the base quarter (~11% in Q2FY20) amid change in corporate tax rate regime last year. On the PBT front, which is more realistic to look at in Q2FY21, profitability growth came in pretty strong at ~31% YoY. Growth in profitability at the PBT level was also supported by higher other income, primarily factoring in gain on sale of one business segment at an engineering conglomerate

- On the sectoral front, in the banking space, business activity saw improvement. However, loan growth for the industry remained modest at ~5.8% YoY in Q2FY21. Asset quality improved as GNPA reduced 13.4% YoY, 2.4% QoQ with improvement in PCR, reducing NNPA by ~37.4% YoY, 15.1% QoQ. In the auto space, demand outstripped supply for most major players. Dispatches picked up sharply in September in the run up to the festive period. In the FMCG space, volume growth came in healthy tracking robust demand in the packaged good as well as immunity booster segments. In the cement space, volume growth came in positive YoY. This, coupled with firm realisations and cost control, led to robust EBITDA margins

- Post Q2FY21, we marginally revise our FY21E-22E estimates and introduce FY23E numbers. Going forward, we expect Nifty earnings to grow at 17.5% CAGR in FY20-23E. From the low base of FY21E, Nifty earnings CAGR is at 22.7% in FY21E-23E. We now value the Nifty at 13,350 i.e. 20x P/E on FY22E-23E average EPS of | 668 with corresponding Sensex target at 45,500.

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Source: Equity Bulls

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