IT sector
Kotak Institutional Equities expect divergent performance across companies in June quarter on a sequential basis due to seasonal factors, while YoY growth is likely to be strong.
Margins remained pressured as companies deal with elevated attrition resulting in high retention costs and increase in travel and discretionary expenses. and TCS may perform well but many others face risk of growth downgrades, Kotak said. IT stocks have corrected and already build in a slowdown in spending, however, a recessionary environment is not fully captured in stock prices. Risk: reward in Infosys, and is favorable and the stocks are Kotal’s top sector picks.
Pharma
Domestic branded formulations sales in 1QFY22 benefitted from a favorable impact of fresh upsurge in Covid cases, said Nirmal Bang Institutional Equities. On account of a higher base, this brokerage expects most pharma names in 1QFY23 to deliver a subdued performance in the domestic market on a YoY basis.
However, those with a larger chronic presence, like JB Chemicals,
and should be relatively much better off, Nirmal Bang said. In the US market, select companies should see growth. would grow fast in the US, led by gRevlimid.
Sun Pharma’s US sales may grow in low single digits before it picks up meaningfully in Q2FY23. and , which had relatively larger exposure to Covid drugs, may see a flat to negative growth trend in sales. Raw material inflation and higher freight costs may continue to affect performance.
Multiplex
For Q1FY23,
said the multiplex industry is likely to register sequential improvement. The quarter would mark revival in footfalls, and saw less disruption on the whole-after almost eight quarters of disruption for multiplexes. ATP has already crossed pre-covid levels, and given a healthy movie line-up, we expect FY23 to be a strong year for the multiplex industry.
Broadcasters meanwhile would have a tough time. ZEE’s margins would be under intense pressure. Inflation has led to cut in ad spends. Furthermore, extension of NTO 2.0 implementation to November means no hikes are possible on the subscription side. The brokerage prefers multiplexes over broadcasters, and our top picks are PVR and
.
Construction
Nirmal Bang expects 1QFY23 to be a moderate quarter for the construction companies as execution is expected to remain muted whereas higher input costs (cement, steel, bitumen and sand/aggregates) are likely to weigh on margins. While there has been some respite in cost inflation, owing to reduction in steel prices, it believes the impact of the same on margins will be visible by Q2FY23 only.
“Within our coverage universe, we expect
(ASBL) to report better revenue growth compared to peers whereas KNR is likely to report better margins. Given the sharp uptick in order inflow in March 2022 and decent order books, we expect FY23 to be a much better year in terms of execution and expect execution growth to kick in from 2HFY23,” the brokerage said.
Consumer durables
Prabhudas Lilladher said some demand softness was witnessed towards the end of the quarter, due to commodity price correction (10-15 per cent in June month) and offset of summer season. Overall companies had been reluctant in taking price hikes. Although commodity cost correction has begun, PL’s channel check indicates that further price hike will be inevitable going forward, it said.
Rural demand remains weak and PL said its consumer durables universe may register sales growth of 70 per cent YoY (low base due to COVID 2nd wave). With sustained raw material inflation, inability to increase prices due to weak demand and return of some discretionary costs, we expect margins to remain under pressure (+10bps QoQ) for our coverage universe.
It expects EBITDA/PAT growth of 98/103 per cent YoY across its coverage universe. Although we remain structurally positive on long term prospects, we see demand headwinds due to high inflation in near term
Chemicals
For chemical companies, Q1FY23 would have been their first full quarter of elevated crude prices along with continued supply chain challenges, said
.
It would have been a challenge for most chemical companies to simultaneously manage volumes and margins, the bropkerage said. Only a handful of players within JM’s coverage namely SRF,
, Clean Science, and may report both QoQ and YoY Ebitda growth. SRF, JM Financial said, will continue to benefit from high ref gas prices while Navin will benefit from gradual contribution of HPP and specialty chemicals contracts. PI’s domestic business will perform well owing to seasonality offsetting weakness in CSM business. Clean Science will benefit from price hikes amidst a sequential drop in phenol prices.
Cement
said the cement industry may see 16-17 per cent volume growth YoY during Q1FY23 on a low base, implying 4.5 per cent volume CAGR on a 3-year basis. South and West regions are likely to see strong YoY growth on a low base impacted due to the second covid wave, while rest of the regions are likely to see high single digit growth YoY in Q1FY23. It doesn’t see much risk to consensus estimates of 8-9 per cent YoY industry volume growth for FY23.
This brokerage said that industry average Ebitda per tonne is likely to decline by over Rs 50 per tonne QoQ in Q1FY23 to Rs 950 per tonne, given 6-7 per cent QoQ price increase would broadly offset similar QoQ cost increases. However, industry profitability may dip sharply QoQ further in Q2FY23 in the absence of any price hike, as overall costs/te would still increase QoQ while exit Q1FY23 prices are 3 per cent lower than average Q1FY23 prices. While the consensus FY23-24E earnings may be at risk, they seem adequately priced-in, ICICI Securities said.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)