Top 5 Nifty 50 Stocks that Beat Earnings Estimates by a Wide Margin in Q1

The Indian stock market has been on a tear in recent months, with the Nifty 50 index hitting record highs in 2023.

A key driver behind this bullish trend is the substantial growth observed in corporate earnings.

As companies reported strong financial results, indicating robust profitability and revenue expansion, investor confidence has received a substantial boost.

Usually, strong earnings trends are a sign of the underlying health of the economy. They indicate the resilience of businesses.

While some sectors such as banking, pharma and hotels reported an upward trend in earnings, others such as IT and textiles reported near-term weakness.

But some of these companies have stood out, beating market estimates by a wide margin.

Let's take a look at the top 5 Nifty 50 stocks that beat earnings estimates by a wide margin in Q1 of financial year 2023-24.

#1 Mahindra and Mahindra (M&M)

At the top of our list, we have Mahindra and Mahindra.

Mahindra & Mahindra (M&M) is the world's largest manufacturer of tractors. It also enjoys a strong presence in the utility and low commercial vehicle segment in the country.

A dominant player in the Indian tractor segment, Mahindra and Mahindra has captured a 41% market share.

The company's results for the quarter ended June 2023 were ahead of market expectations. Both sales and operating profits saw a growth of 18% and 30.5%, respectively on a YoY basis.

This was a direct result of an improvement in the operating margin for the auto and farm equipment businesses.

Going forward, the company is confident of healthy growth on the back of a strong order book.

The bookings for SUVs and tractors continues to remain strong. The SUV bookings stand at 48,000 per month with an order backlog of 281,000 units as on 1 August 2023 versus 292,000 as on 1 March 2023.

M&M Financial Snapshot (2019-23)

	2019-19	2019-20	2020-21	2021-22	2021-23
Revenue Growth (%)	14.11%	-27.78%	-1.35%	21.00%	34.28%
Operating Profit Margin (%)	15.56%	18.00%	19.12%	16.73%	17.01%
Net Profit Margin (%)	5.75%	3.43%	4.81%	7.77%	9.00%
Return on Capital Employed(%)	13.65%	9.18%	9.46%	11.92%	14.90%
Return on Equity(%)	15.77%	6.83%	9.14%	16.44%	22.09%

Data Source: Equitymaster

The business has done well over the last few years on the back of strong product launches.

While the revenue has grown at a 5-year CAGR of 5.7%, the net profit has delivered a 7.4% growth. The higher net profit is a direct result of the expanding operating margin, which is up from 15.6% in fiscal 2019 to 17% in fiscal 2023.

The margins have witnessed a jump owing to the increased volumes and higher realisation which have helped the company benefit from operating leverage.

This has also helped propel returns over the years. The 5-year average RoCE and RoE stand at 11.8% and 14.1%, respectively.

M&M is present across a wide array of sectors, apart from automobiles. The company caters to IT, finance, hospitality, real estate etc, running businesses in eleven different sectors via various listed and unlisted entities.

The automotive and farm equipment segment accounted for more than 70% of the total revenues in fiscal 2023.

The stock is available at a PE of 18x, a 9% discount to its 5-year median PE of 19.8x.

To know more about the company, check out its financial factsheet and latest financial results.

#2 Titan

Next on our list is Titan.

Titan is a leading manufacturer of watches, jewellery, and eyewear in India. It has a 60% share in the organised watch market and is the world's fifth-largest integrated watch manufacturer.

Titan's performance in the June 2023 quarter surpassed market expectations. In comparison to the same quarter last year, the company witnessed a remarkable 24.4% increase in revenue, with notable contributions from various segments: 25.8% growth in jewellery, 13% growth in watches & wearables and 11% growth in eye care.

Despite this robust revenue growth, the operating margins settled at 9.9%, declining by 3% compared to the same quarter of the previous year.

This came on the back of a fall in operating margin for the jewellery segment, which was influenced by increased investment in growth strategies.

The company has upheld its guidance of maintaining the jewellery operating margin within the range of 12-13% for the fiscal year 2024.

Additionally, it aims to achieve a market share in the jewellery sector that is in the double digits, a significant increase from the current 7%, within the upcoming three to four years.

The business has done relatively well, with the sales and net profit growing at a 5-year CAGR of 20.2% and 24.3%, respectively. The RoE and RoCE are also at a notable 5-year average of 23.9% and 23.5%.

Titan Financial Snapshot (2021-23)

	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	2.95%	33.01%	40.92%
Operating Profit Margin (%)	8.82%	12.41%	12.78%
Net Profit Margin (%)	4.50%	7.63%	8.07%
Return on Capital Employed(%)	14.66%	23.04%	27.47%
Return on Equity(%)	13.76%	26.18%	30.97%

Data Source: Equitymaster

Titan's leadership status, in tandem with an improving product mix, has facilitated sustainable expansion of its operating margins in the past few years. The operating margins have increased from 8.8% in fiscal 2021 to 12.8% in fiscal 2023.

Moreover, the company has successfully capitalised on the increasing benefits of operating leverage.

It's efforts towards brand premiumisation, the introduction of new products and stores, and digital initiatives to boost online sales, have paved the way for higher margins.

The stock trades at a PE of 84.8x, a premium of 8.5% to its 5-year median PE of 78.1x.

To know more about the company, check out its financial factsheet and latest financial results.

#3 Eicher Motors

Third on our list is Eicher Motors.

Eicher Motors is India's leading motorcycle sector, with a 29% market share. Their Royal Enfield brand manufactures cruiser bikes ranging from 300cc to 500cc engine sizes.

Apart from this, it is also involved in commercial vehicles through a partnership with Volvo, known as Volvo Eicher Commercial Vehicles.

The company's performance exceeded market expectations in the June 2023 quarter.

In comparison to the same quarter last year, it reported an impressive 42% surge in consolidated net profit thanks to lower-than-anticipated marketing costs in the Royal Enfield division and increased profitability in VE Commercial Vehicles segment.

This upsurge led to an expansion in the gross margins (from 24.5% in June 2022 to 25.6% in June 2023), despite a less favourable product mix.

The expansion was predominantly steered by price increases and the benefits of raw materials, effectively countering the impact of the less favourable mix.

The Royal Enfield segment of the business plans to introduce a series of innovative products in the next year, aiming to uphold its market share.

Equally promising, the VE Commercial Vehicles business is also set to deliver robust outcomes driven by consistent demand.

Eicher Motors Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	10.77%	-5.31%	-5.40%	17.06%	40.03%
Operating Profit Margin (%)	34.16%	29.64%	25.52%	25.25%	27.79%
Net Profit Margin (%)	22.66%	19.89%	15.38%	16.20%	20.05%
Return on Capital Employed(%)	40.58%	24.69%	16.71%	18.31%	27.48%
Return on Equity (%)	28.05%	19.47%	12.67%	14.02%	21.19%

Data Source: Equitymaster

Over the past 5 years, the company has grown substantially. While the sales have grown by 10.2%, net profits have delivered a growth of 6%.

The RoE and RoCE also stand at an admirable 5-Yr average of 19.1% and 25.6%, respectively.

The stock trades at a PE of 28x, a discount of 24% to its 5-year median PE of 37.1x.

To know more about the company, check out its financial factsheet and latest financial results.

#4 ICICI Bank

Fourth on our list is ICICI Bank.

ICICI Bank is one of the prominent private-sector banks in India, holding a 6% share of sector loans. The bank maintains a robust presence in retail banking, accounting for nearly 55% of total loans.

Additionally, it also engages in project financing and offers overseas services to its Indian clientele.

Beyond its core banking operations, ICICI's subsidiaries and joint ventures play a vital role in the non-banking financial services arena, encompassing areas like life and general insurance, asset management and equity broking.

The bank has achieved exceptional results in the first quarter of fiscal 2024, with a remarkable 37% growth in core pre-provision operating profit (PPOP).

The margin experienced a slight moderation, falling from 57.6% in the corresponding quarter last year to 55.9% in June 2023. The deposits also grew handsomely, increasing by 18% over the same period.

ICICI's performance continues to be remarkable, characterised by robust growth in both loans and deposits. Their allocation of 1.25% of loans as a contingency buffer not only contributes to stability but also enhances the predictability of earnings.

Going forward, the management is confident of strong growth, predominantly driven by retail activities.

ICICI Bank Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Advances Growth (%)	14.13%	9.16%	12.11%	16.23%	17.77%
Deposits Growth (%)	16.31%	17.53%	19.87%	13.69%	10.95%
Net Profit Margin (%)	7.90%	13.23%	22.68%	27.03%	28.47%
Return on Capital Employed(%)	5.90%	9.08%	10.91%	12.96%	15.34%
Return on Equity(%)	5.20%	9.72%	14.74%	15.49%	17.71%

Data Source: Equitymaster

The advances and deposits have grown substantially, reporting a 5-year CAGR of 13.8% and 15.6%, respectively.

The net profit has also grown well, with a 5-year CAGR of 30.5%. This has helped the lender boost its return on equity (RoE) which has a 5-year average of 12.6%.

The stock trades at a P/BV of 3x, close to its 5-year median P/BV of 3x.

To know more about the company, check out its financial factsheet and latest financial results.

#5 Cipla

Last on our list is Cipla.

Cipla is a leading pharmaceutical player in India. The company has secured a spot within the top 5 Indian branded formulations market.

Around 40% of its revenues stem from the domestic market, while the rest is derived from exporting formulations and active pharmaceutical ingredients to countries including South Africa, emerging markets, and the United States.

Cipla's results were ahead of the estimates drawn by the market due to a lower-than-expected decline in Indian sales and lower research and development and selling, general and administrative expenses costs.

The June 2023 quarter saw healthy underlying growth in the company's India (9% in comparison to the corresponding quarter last year) and the US segment (11% in US dollar terms).

However, the South African segment is expected to pick up in the upcoming quarters.

Going forward, the company is on track for growth from the big-ticket US launches and growth in its peptide injectable filings.

A strong pipeline in the US in tandem with a strong positioning in India and South Africa gives us confidence in the company's future.

Cipla Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	8.55%	3.93%	11.02%	13.67%	5.34%
Operating Profit Margin (%)	14.95%	13.09%	16.01%	16.26%	17.79%
Net Profit Margin (%)	6.31%	5.70%	8.51%	8.61%	9.17%
Return on Capital Employed(%)	11.94%	12.53%	17.85%	17.24%	18.19%
Return on Equity(%)	10.37%	10.09%	14.13%	13.10%	12.85%

Data Source: Equitymaster

The business has done well in the past 5 years. While the sales have grown at a 5-year CAGR of 8.4%, the net profit has grown at 14.8%. The RoE and the RoCE have reported a 5-year average of 12.1% and 15.6%, respectively.

The stock trades at a PE of 31.1x, close to its 5-year median PE of 30x.

To know more about the company, check out its financial factsheet and latest financial results.

Conclusion

The strong earnings growth reported by Nifty 50 stocks in Q1 is a welcome development for the Indian stock market.

It suggests that corporate earnings growth is likely to remain strong in the coming quarters, which could support further gains in the stock market.

However, the performance of individual sectors and companies can vary. Investors should carefully evaluate the prospects of each company before making investment decisions.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...