India set to exit FY24 with a GDP of $3.6 trillion; Tata Consumer, Birla Corp top bets

India is set to exit FY24 with a GDP of USD 3.6 tn and an underlying growth of 7.6%+. Capital markets signed off FY24 with a stellar 29%/60%/70 % returns in Nifty/Nifty Midcap 100/Nifty Smallcap 100.

India’s market cap has reached $4.4tn, making it the fifth largest in the world. India’s capital markets have witnessed vibrant participation from domestic retail savers, with Demat accounts surging to 151 million in March 2024 from 36 million in March 2019.

India Inc. has raised USD92.9b through primary markets over the last five years. India now boasts a unique combination of ‘size and growth’.

As the 4QFY24 earnings season is set to begin, we see three important factors namely Political continuity, Consumption slowdown and Institutional flows are likely to dominate investor conversations.

We estimate Nifty earnings to grow 6% YoY each in 4QFY24. Margin tailwinds are likely to narrow due to a high base. It is projected to remain flat for Nifty at 19.8% (+10bp).

Overall earnings growth is likely to be driven once again by domestic Cyclicals, such as BFSI and Auto. Private Banks and NBFC-Lending would mainly lead BFSI’s earnings, with 14% and 23% YoY growth, respectively.

Earnings growth of Private and PSU Banks, at 14% and 12%, while healthy, is the lowest in the 10th and 8 quarters, respectively.

The Auto sector’s earnings are expected to grow 20% YoY. The Healthcare universe is likely to report a strong 33% YoY earnings growth – the highest since March 2021 – on a low base.

The cement universe too is expected to report a strong 32% YoY earnings growth on a weak base. The sector is likely to clock its third consecutive quarter of strong earnings growth after posting earnings decline for seven quarters.

The metals universe is projected to report a 12% YoY earnings decline on a weak base of 4QFY23. The capital goods sector is expected to report earnings moderation at 5% YoY for the quarter (the lowest in nine quarters) dragged by L&T.

The technology sector is expected to clock a modest earnings growth of 4% YoY, mainly due to weak global macros.

The specialty chemicals sector too is expected to post an earnings decline of 38% YoY; the sector is likely to report earnings decline for the fourth straight quarter.

For Nifty, we expect sales and EBITDA to improve 9% YoY each. EBITDA margin for Nifty-50, excluding financials, is likely to remain nearly flat YoY at 19.8% during the quarter.

Our FY24 Nifty EPS remains stable at Rs 980, while our FY25 EPS has seen a cut of 1% to Rs 1,132. We expect the Nifty EPS to grow 21% and 16% in FY24 and FY25, respectively.

India is currently experiencing a mini-Goldilocks moment due to solid macroeconomic conditions, healthy corporate earnings, peaking of interest rates, moderate inflation print, and ongoing policy momentum.

We firmly believe in the medium-term India story and have conviction in selected domestic cyclical themes, such as financialization of savings, private capex revival, rising discretionary consumption, strengthening real estate cycle, and the massive development of digital and physical infrastructure.

Tata Consumer: Buy| Target Rs 1,370| LTP Rs 1,146| Upside 20%

The company is strengthening its three strong legs – Tata Tea (adding organic tea & infusions), Tata Salt, & Tata Sampann (pantry category) through organic and inorganic routes.

It expects to take the contribution of new businesses to 30% of India’s Branded business, led by a 30% revenue CAGR in them.

We expect revenue for the India-branded tea business to grow 7% YoY, led by volume growth of 3% YoY in Q4. EBITDA margin is likely to improve to ~15.4% in 4QFY24 vs. 14.1% in 4QFY23.

Birla Corp: Buy| Target Rs 1,700| LTP Rs 1,531| Upside 11%

The company is witnessing steady progress in Mukutban plant operations. It is focusing on improving its profitability supported by cost-saving initiatives and increasing premium product share.

We estimate a volume growth of 12% YoY in Q4FY24. EBITDA/t is likely to be at Rs 801 vs. Rs 618 in 4QFY23. Adj. PAT is estimated to increase 103% YoY.

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

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)

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