Q3 FY23 Results Review - Consumption Slowdown A Worry; Autos Reviving: Motilal Oswal

Motilal Oswal Report

• India Inc.'s profitability moderated in Q3 FY23. Corporate earnings were below our expectations during the quarter dragged by commodities while financials and autos held the fort. Broad-based slowdown in consumption, expressed that the likely good rabi harvest along with a decline in consumer price index inflation would spur staples demand, albeit, gradually. Both staples and discretionary, also hit corporate earnings. The spread of earnings has been decent with 57% of our universe either meeting or exceeding our profit expectations.

• Most of the banks have guided for a sustained momentum in loan growth powered by continuous traction in the retail, business banking and small and medium enterprise segments. Corporate segment is witnessing a healthy recovery driven by working capital loans and healthy pipeline of sanctions.

• The lending Institutions guided for a sustained momentum in disbursements across product segments even though there was some sluggishness in prime mortgages. Within vehicle finance, disbursements remained strong across product segments though the two-wheeler volumes have not yet fully recovered.

• The commentary for the consumer sector indicated continued weak rural demand but most of the companies also stated that there were some green shoots on rural consumption towards the end of the quarter that persisted into Jan-23.

• The outlook for technology services sector remains positive given the long-term growth in technology-related spending resulting in sustained spends on associated IT services.

• Automobile volumes in Q3 FY23 recovered across segments except two-wheelers, supported by improvement in the supply of semiconductor chips and healthy demand momentum in the domestic markets.

• In the healthcare domain, managements indicated that price erosion will continue to impact the U.S. base business; though, the pace of erosion has decreased sequentially.

• For the telecom industry, the accelerated capex will remain an overhang on the stock performance and the managements reiterated the need for average revenue per user improvements.

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