Rescue Act
A stellar show from the BFSI segment has saved India Inc. the blushes in the second quarter of FY23
INDIA INC. POSTED financial results for the quarter ended September 2022 largely in line with expectations. Earnings growth in Q2FY23 was led by BFSI (banking, financial services and insurance), automobiles and telecom players, while sectors such as metals, oil and gas, and select cement and consumer durables firms dragged down the overall growth of the Nifty 50 companies. The combined consolidated net profit of all the Nifty 50 firms retreated 1.45 per cent year-on-year (YoY) to `1.49 lakh crore during the quarter under review. But if we exclude BFSI, then the profit in Q2FY23 stands at `92,753 crore—a decline of 16.80 per cent. On the other hand, gross sales (exBFSI) jumped 27.76 per cent to `13.68 crore.
According to V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the Q2 results are broadly in line with expectations. “The banking sector posted the best results assisted by impressive credit growth, rising interest rates and significantly improving asset quality,” he says.
The 11 BFSI players that are part of the benchmark equity index together reported consolidated net profit of `56,506.81 crore in Q2FY23, up 41 per cent YoY. The consolidated net profit of Bajaj Finance grew the most—87.76 per cent YoY to `2,780.65 crore. It was followed by State Bank of India (65.94 per cent) and Axis Bank (65.67 per cent).
The second-best performance came from the auto sector. And it was all thanks to Maruti Suzuki India that managed to post a 333.87 per cent rise in its net profit due to a 47.90 per cent increase in gross sales. The net profit of the top carmaker jumped to `2,112.50 in Q2FY23 from `486.90 crore a year ago. Eicher Motors and Mahindra & Mahindra also reported 76 per cent and 43.77 per cent growth in bottom line, respectively, during the September quarter.
The consolidated net loss of Tata Motors narrowed to `944.61 crore in Q2FY23 from `4,441.57 crore a year ago. In contrast, the net profit of Baja Auto and Hero MotoCorp declined 15.71 per cent and 7.68 per cent, respectively, on a YoY basis.
“The auto sector posted good numbers in Q2FY23. Original equipment manufacturers increased
prices of almost their entire portfolio and softening commodity prices enabled earnings to grow sharply,” says Deepak Jasani, Head of Retail Research at HDFC Securities.
Coming to the other top grossers in the Nifty 50 index, Adani Enterprises, Coal India and Bharti Airtel witnessed a rise of 117 per cent, 105.78 per cent and 89.17 per cent in their net profit in Q2FY23, respectively.
Among the other major sectors, IT companies in the Nifty pack witnessed a combined jump of around 6 per cent in net profit in Q2, as gross sales grew 19.21 per cent. On the other hand, healthcare and pharma companies, including Apollo Hospitals Enterprise, Cipla, Divi’s Laboratories, Dr. Reddy’s and Sun Pharma posted 5.52 per cent growth in cumulative net profit for the quarter ended September 30, 2022.
“The numbers for the IT sector were in line with or slightly better than expectations, as the trailing 12-months’ deal and total contract value growth improved for select companies on a YoY basis. The pharmaceuticals sector was a mixed bag, with companies focussed on the domestic market reporting better numbers compared to those that cater more to the US market, fuelled by the revival of the non-Covid-19 portfolio, inflation-linked price hikes in medicines under the National List of Essential Medicines and favourable seasonality. The price erosion, however, remained intense in the US generics segment. However, favourable currency movements negated the impact of price erosion and aided profitability,” says Jasani.
Meanwhile, the rupee has tanked over 8 per cent to 81.43 against the dollar on a year-to-date basis till November 15, 2022.
Coming to the metals sector, it faced a challenging environment during the quarter, as the meltdown in global commodity prices and a slowdown in the global economy hit demand, according to market watchers. JSW Steel reported a net loss of `848 crore in Q2FY23 against a profit of `7,170 crore a year ago. On the other hand, Tata Steel reported a profit of `1,514.42 crore, down 87.29 per cent YoY.
In the oil and gas sector, ONGC reported an over 50 per cent drop in its consolidated net profit in Q2FY23 to `8,299.37 crore; Bharat Petroleum Corp. posted a loss of `338.49 crore against a profit of `3,149.28 crore a year ago; and the net profit of Reliance Industries declined marginally by 0.18 per cent to `13,656 crore. “The performance of the oil and gas sector was impacted due to commodity price correction, falling gross refining margins, unstable marketing margins and government regulations for capping profits,” says Jasani.
Data further highlighted that net profit growth for the power companies in the Nifty pack stood almost flat in Q2FY23, while FMCG companies including Britannia, HUL, ITC and Nestlé recorded a combined growth of 22 per cent YoY.
Regarding India Inc.’s performance in the next quarter, Vijayakumar of Geojit Financial Services says that the banking sector is likely to sustain the growth and earnings momentum. “The surprise in Q2 came from the PSU banks that did much better than expectations. Their stock prices, too, reacted positively to the excellent results and positive commentary. Since PSU banks had a poor decade and they were underowned, the expectation is that they are likely to do well, going forward,” he says. Jasani adds that IT will continue to do reasonably well. “Capital goods and telecom are set to improve earnings, and cement is staging a turnaround with price increases.”
Despite the tough conditions, there is still hope for India Inc. Experts believe margins could stabilise a bit in the December quarter.