SBI, Godrej Consumer top buys post Q4 results; could give 13-17% upside in 1 year

The corporate earnings scorecard for 4QFY24 has been in line so far. The earnings spread has been decent, with 70% of our Coverage Universe either meeting or exceeding profit expectations.

However, growth has primarily been led by the BFSI and Automobile sectors. The earnings growth was fuelled by the domestic cyclicals, such as BFSI and Auto.

BFSI clocked a 22% YoY growth, while Auto reported a growth of 38% YoY. In contrast, the aggregate performance has been dragged down by the O&G sector, which posted a 20% earnings decline (IOCL’s profit plunged 52% YoY).

Excluding Metals and O&G, the MOFSL Universe and Nifty have recorded a 15% YoY earnings growth.

As of 4th May’24, 28 Nifty stocks reported a sales/EBITDA/PBT/PAT growth of 10%/15%/11%/13% YoY (vs. est. of +13%/9%/10%/8%).For the 94 companies within MOFSL Universe, sales/EBITDA/PBT/PAT grew 6%/11%/5%/5% YoY (vs. est. of +8%/7%/5%/3%).Excluding Metals and O&G, the MOFSL Universe companies recorded a sales/EBITDA/PBT/PAT growth of 10%/17%/11%/15% YoY (vs. est. of +10%/12%/14%/12%) in 4QFY24 so far.Among the Nifty constituents, Reliance Industries, HDFC Bank, Coal India, Axis Bank, Kotak Mahindra Bank, Ultratech Cement, Bajaj Auto, Tech Mahindra, Nestle, and SBI Life Insurance exceeded our profit estimates.

Conversely, HCL Technologies, LTIMindtree, Titan Company, and HDFC Life Insurance missed profit estimates for 4QFY24.

Sector-wise earnings growth for private banks has remained healthy, with Axis Bank, Kotak Mahindra Bank, and RBL Bank reporting better-than-expected earnings.

However, HDFC Bank, Axis Bank, Kotak Mahindra Bank, Federal Bank, ICICI Bank, IDFC First Bank, and IIB registered a mixed margin performance.

The overall pace of NIM compression has moderated, even though funding costs continue to inch up. Most vehicle financiers have reported that the demand momentum in the vehicle segment, especially in CV, has been subdued because of the ongoing elections.

The 4QFY24 results for Automobiles have been in line so far. The growth has largely been driven by: a) healthy volume growth across most of the segments, ex-CVs, b) better product mix, c) lower commodity costs, and d) operating leverage.

We believe that margin pressures will persist in the upcoming quarters due to the expected recurrence of certain costs.

The 4QFY24 results for Tier-1 IT companies have remained weak so far due to lower-than expected growth, weak demand, and the re-scope of contracts, as well as project cancellations.

Discretionary spending shows no signs of picking up, and the near-term outlook remains bleak. The guidance for FY25 came in lower than expected, even with muted expectations.

While consumption has been improving, staple demand trends have remained largely similar to those seen in 3QFY24, with a marginal increase in volumes on a YoY basis.

The impact of the price cuts will settle down in 1HFY25 for most of the commodity-sensitive categories, and 2HFY25 may see price hikes.

The Oil & Gas sector has reported mixed 4QFY24 results so far. RIL beat our estimates primarily due to a strong O2C performance, while IOCL fell short of our earnings estimates owing to a weaker-than-estimated refining margin.

Here are a few stocks that are available for a long-term buy:

SBI: Buy| Target Rs 925| LTP Rs 818| Upside 13%

SBI has made a swift recovery in earnings, from a loss of ~INR65b in FY18 to profits of INR611b in FY24. Business growth remained robust, with healthy recovery in the corporate segment.

The management expects credit growth to remain in the range of 13-15%. SBI is well positioned to deliver steady earnings, with FY26E RoA/RoE of 1.1%/18.5%.

Godrej Consumer: Buy| Target Rs 1,550| LTP Rs 1,320| Upside 17%

GCPL clocked strong volume growth (10% YoY) in FY24 and aims to deliver high single-digit volume growth in FY25.

In India, GCPL’s medium-term aspiration includes achieving high single-digit volume growth and mid-to-high 20’s EBITDA margin.

It plans to increase its market share in rural areas by doubling outlet coverage and tripling village coverage through Project Vistaara 2.0.

(The author is Head – Retail Research, Motilal Oswal Financial Services)

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