Taking pole position: Auto, BFSI dominated Q4 corporate earnings circuit

Operating margins have been the primary driver of corporate earnings in India in recent quarters, despite revenue growth suffering from weak consumer demand.

Companies across sectors have reported a sharp improvement in earnings before interest, tax, depreciation, and amortization margins over the past two years, benefiting from lower commodity and energy prices.

Higher margins more than compensated for slower revenue growth, resulting in double-digit growth in net profit for five consecutive quarters. Adjusted for exceptional gains and losses, the combined net profit of listed companies rose by 11.4% year-on-year (Y-o-Y) in the fourth quarter (Q4) of 2023-24 (FY24), down from 17.3% in Q4 of 2022-23 (FY23) and 24.1% in the third quarter (Q3) of FY23. Quarterly combined revenues increased by 8.4% Y-o-Y, a decline from 13% in Q4FY23, but an improvement from 7.3% in Q3FY24. Ebitda margin for the quarter increased to 26.3% of revenues in Q4FY24, up from 24% a year ago but slightly down from 26.4% in Q3FY24.

This fourth-quarter Ebitda margin was nearly 230 basis points (bps) higher than the five-year average of 24%. Consequently, the net profit margin reached 8.9% of revenues in Q4FY24, close to an all-time high and nearly 190 bps higher than the five-year average net profit margin of 7%.

Sector-wise, corporate earnings in Q4 were driven by domestic cyclical sectors such as automotive, banking and finance, capital goods, cement, pharmaceutical, and healthcare. In contrast, global cyclicals such as metals and mining and oil and gas companies underperformed, dragging down profitability. The quarter also saw fast-moving consumer goods companies and information technology services exporters experiencing flat to low single-digit growth in revenues and profits.

Here is the earnings scorecard of top companies across 10 major sectors in the listed space for Q4FY24:

Metals & Mining

The fourth quarter (Q4) of 2023-24 was weak for metals and mining companies, with flat to negative growth in net sales and contraction in net profit, despite gains from lower energy costs. Aluminum producer Hindalco and coal miner Coal India were exceptions, reporting high double-digit net profit growth in Q4 due to lower operating expenses that offset weak sales growth. Analysts attribute the sector’s muted Q4 performance to weak price realization and high coal costs, despite higher sequential volumes. Tata Steel and JSW Steel were the biggest laggards in Q4, with net profit declines of 64.1% and 64.5% year-on-year (Y-o-Y), respectively and net sales down 6.1% and 1.5% Y-o-Y.

Automotive

The automotive sector was one of the best-performing in the fourth quarter of 2023-24, with healthy volume-led sales growth driven by Tata Motors, Maruti Suzuki India (MSIL), and Bajaj Auto. Among the sector’s categories, two-wheelers saw the highest growth, up 26% year-on-year, led by demand in the 125 cc+ segment and a favorable base. However, commercial vehicle volumes declined on a high base, while tractors fell sharply due to subdued rural sentiment and erratic weather. Gross margins were strong due to product mix and volumes, but future gains depend on stable raw material costs.

Capital Goods & Infra

The fourth quarter (Q4) of 2023-24 (FY24) was positive for capital goods manufacturers, construction and infrastructure companies. Most firms in these segments reported high double-digit growth in net profit due to lower commodity and raw material prices, besides higher revenues. Larsen & Toubro (L&T) and Bharat Heavy Electricals (BHEL) underperformed compared to peers like Siemens, ABB and Cummins India. BHEL’s net sales were flat year-on-year (Y-o-Y), with net profit down 25.6% Y-o-Y in Q4FY24. L&T’s net sales rose 15% Y-o-Y, with net up 10.3% Y-o-Y. Siemens, ABB, Cummins India, and Adani Ports reported net profit growth of 50-80% Y-o-Y in Q4, driven by higher sales and lower raw material costs.

FMCG

The sector posted low single-digit revenue growth due to an extended winter, food inflation, competitive pressures, and uneven economic recovery.
While paints and cigarettes saw volume growth on a strong base, it remained muted for health drinks and beauty and personal care. Lower input costs led to higher gross margins, but operating levels did not reflect this due to competitive pressures and the need to boost volumes, resulting in price cuts and higher promotional spending. A positive for the sector is the revival in rural markets. With expectations of better monsoon and Government incentives, rural demand is expected to improve steadily in the quarters ahead.  It prefers Britannia Industries, ITC, Emami and Asian Paints.

Consumer & Retail

Consumer sentiment and discretionary spendings were sluggish, especially in the first two months of the fourth quarter of 2023-24. Wedding demand was weaker than last year, leading to muted premium-category sales for lifestyle brands (Aditya Birla Fashion and Retail) and Vedant Fashions. The jewelry sector-maintained momentum in footfall and revenue. Quick-service restaurant chains and footwear companies struggled due to local competition. Thus, an improving outlook leads to prefer Titan Company, Kalyan Jewelers, V-Mart, Metro Brands and VIP Industries.

IT Software

The performance of information technology (IT) services majors in the fourth quarter of 2023-24 was impacted by cancellations, ramp-downs, and changing project scopes. The Big 6 IT majors reported sequential constant currency growth — ranging from minus 2.2% to 1.1%. On the profitability front, Tata Consultancy Services and Wipro performed well, while Infosys and LTI Mindtree disappointed due to deal cancellations. Margin gains could be challenging as IT majors indicate little scope for further gains on sub-contractor costs.

Oil & Gas

The fourth quarter (Q4) of 2023-24 (FY24) was a muted quarter for oil and gas companies, with flat-to-low single-digit growth in revenues and a decline in margins and profits. Among top producers, Oil and Natural Gas Corporation (ONGC) and GAIL (India) were outliers, reporting strong profit growth thanks to gains from lower operating costs that more than compensated for the lower revenue growth. Public sector oil-marketing companies such as Indian Oil Corporation (Indian Oil) and Bharat Petroleum Corporation (BPCL) reported a decline in margins due to lower gross refining margins in Q4, which was partly offset by an improvement in marketing margins. The oil-to-telecommunications major Reliance Industries (RIL) was also a laggard with a 1.8% year-on-year (Y-o-Y) decline in net profit in Q4, while its net sales were up 11.1% Y-o-Y during the quarter.

Banking

The fourth quarter (Q4) of 2023-24 was mixed for banking, with public sector banks (PSBs) outperforming private sector peers in net profit growth. Private sector banks such as ICICI Bank, Axis Bank, Kotak Mahindra Bank, and IndusInd Bank reported faster growth in loan books and gross interest income in Q4. In Q4, State Bank of India’s net profit rose 24% year-on-year (Y-o-Y), while Punjab National Bank’s net profit increased by 159.8% Y-o-Y. Earnings growth for PSBs was driven by a continued decline in provisions and contingencies for bad loans, along with faster growth in high-yield personal loans. Most banks, however, reported a contraction in net interest margins, as interest expenses grew faster than gross interest income.

Finance & Insurance

The fourth quarter (Q4) of 2023-24 was mixed for finance and insurance companies, with non-banking lenders showing faster earnings growth while insurance firms reported relatively slower revenue and profit growth. In Q4, SBI Life Insurance and HDFC Life Insurance’s net profit increased by 4.4% and 13.7% year-on-year, respectively. In the non-banking lending space, vehicle financiers like Shriram Finance and Sundaram Finance showed faster revenue and profit growth compared to diversified lenders and housing finance companies.

Pharma & Healthcare

Pharmaceutical companies showed a strong performance in the fourth quarter of 2023-24, with 10-12% revenue gains and 25-27% operating profit growth. This marked the seventh consecutive quarter of healthy double-digit year-on-year growth in US generics at an aggregate level. The India business saw mid-to-high single-digit growth but was impacted by a muted showing of acute therapies. Hospital chains showed robust performance at the operating level due to stable occupancies, higher average revenue per bed and improved surgical revenue.