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Q4FY22 Earnings Review: Sequential growth trend continues in January-March, Nifty target revised to 18,700!

ICICI Securities 06 Jun 2022

What's Buzzing

Corporate earnings for January-March 2022 (Q4FY22) were satisfactory with topline growth at the Nifty level (ex-financials) coming in at 9.8% QoQ. Operating profit, however, was up 3.4% QoQ factoring in the pressure on margins, which for the quarter was at 18.2%, down 110 bps QoQ. PAT for the quarter was up 5.3% QoQ, primarily tracking a decline in margins and other income, partially aided by lower effective tax rate. At the Nifty level (including financials), broader sequential growth trend continued with 8.8% QoQ growth in topline. PAT growth, however, was a tad higher (6.1% QoQ) than ex-financials (5.3% QoQ) on account of outperformance by BFSI domain, tracking better-than-expected credit growth & improving asset quality.

Context

Global equity markets witnessed a sharp correction in the recent past, primarily driven by the elongated geopolitical conflict, consequent rise in key commodity prices namely crude, metals, agri commodities and resultant central banks action to tame unprecedented inflation. Corporate earnings, a true barometer of economic health, on the other hand, have been quite resilient with weighted average Nifty EPS for Q4FY22 coming in on broadly expected lines at Rs 207/share, up 10% QoQ and YoY. The management commentary across businesses was positive on the demand outlook amid a pick-up in economic activity, aggressive infrastructure spend outlay by the central government, revival in private capex cycle but was wary of further input costs inflation resulting in broader price hikes and a tad soft margin trajectory.

Our Perspective

With satisfactory earnings performance by Corporate India in Q4FY22, incorporating revised PAT estimates post Q4FY22, our forward estimates at the Nifty level do not undergo major change. Single digit downgrades across most sectors was made good by the upgrade in the index heavy BFSI domain. Over a three-year horizon (FY21-24E) Nifty earnings are seen growing in excess of 20% CAGR while in FY22-24E, albeit on a high base, earnings CAGR is at ~14%. Rolling over our valuations to FY24E and trimming our forward PE valuation multiples amid rising rate hike scenario we now value the Nifty at 18,700 i.e. 20x PE on FY24E EPS of Rs 935. Corresponding target for Sensex is at 62,300. These are our rolling 12 months’ index targets. We firmly believe the present market volatility offers an attractive opportunity to build a long term portfolio of quality companies, which have lean balance sheets, are capital efficient and have growth longevity.

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