MUMBAI: After a recovery in corporate results during fiscal year 2021, corporate profitability should continue. According to Edelweiss Securities Ltd, Nifty’s earnings per share (EPS) improved 3-4% for fiscal 22, mainly due to metals and auto export.

The brokerage firm expects Nifty FY22 and FY23 EPS to be at ₹697 and ₹816, respectively.

“In the future, we believe that FY21-23E Nifty EPS CAGR of over 25% is achievable. However, it is likely to be more focused on cyclicals (commodities, financials, industrials, electricity) and not on a broad basis as was the case in FY21. In fact, consumer oriented sectors could experience disappointments on both demand and margin, ”he said in a note.

Profit momentum continued in the March quarter of FY21, with Edelweiss undercover companies posting 135% net profit growth despite modest revenue growth. He said the main highlights for the quarter were that organized players continued to gain market share, that margins appeared to be peaking from the decade high as input prices rise and cost rationalization takes hold. well overdue. While the costs of credit have remained broadly stable, there has been significant deleveraging among listed players.

“FY21 appears to be a turnaround year for India Inc., posting 20% ​​profit growth, 250 basis points (bps) margin expansion and significant deleveraging,” he said. .

Among sectors, cement plants continued to post record earnings before interest, taxes, depreciation and amortization (ebitda) per tonne due to the rationalization of fixed costs and market share gains of the unorganized sector. However, industrial companies continued to face headwinds, especially on the working capital front. Going forward, analysts at Edelweiss Securities believe the fortunes will turn around, with industrial / power companies outperforming cement.

Rising metal prices, gross profit margins (GRM) and inventory gains have resulted in a fourfold increase in profits for commodity-focused companies. The brokerage firm expects energy companies to be successful as the global unlock drives demand for transportation. “However, the weakening credit momentum in China and the shift in demand from goods to services could weigh on demand for metals,” he said.

According to Edelweiss Securities, the second wave of covid could impact the costs of credit. However, thanks to large emergency cushions, easy cash flow and an improving corporate balance sheet, earnings growth is expected to pick up after a decade of sluggishness.

“We continue to have a cyclical bias in our model portfolio, given strong favorable earnings winds and cheap valuations. Within these, we find the risk / reward ratio extremely attractive in the PSUs. However, we are underweight consumer goods and cement. IT remains the main defensive OW given the structural rise in technology spending, ”he said.

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