FY24 Result Analysis: The Hottest Sectors to Watch Out For

All the results of FY24 have recently been concluded and is a good time to analyse how the overall results have been. Which sectors performed well, which sectors performed poorly, and what is the important future outlook? We will cover five sectors. There are many sectors, but we will focus more on these five selected sectors, where some notable changes have occurred, either on the good side or the bad side.

IT Sector

The IT sector is very popular among retail investors. If we analyse FY24 versus FY23 for some of the main companies in the sector, which include HCL, Infosys, LTI Mindtree, and others, you can see in the below table that most things are in single digits. This is more or less expected from the IT sector because their growth is more dependent on the US or the global economy rather than the Indian economy.

So, almost every company has shown revenue growth except Wipro. Looking at the margins in terms of basis points, you can see that the margins have remained at similar levels for all companies. TCS’s margins are generally better overall compared to other IT companies, and there has been some increase in their margins in FY24 compared to FY23. If we talk about PAT growth, it is also in single digits for all companies.

Source: Screener.in

When compared to FY23, what are the things that have been guided by the management?

The first thing is that all these companies are very similar in nature. Their entire market is mainly related to export markets. The overall guidance that has been shown by the management is that the US banks’ results indicate that their tech spending will be very conservative because their profitability depends on how much they spend. If they spend more, it benefits India’s IT sector. Currently, a very conservative stance is being seen in these sectors.

If we talk about the US banks, the macroeconomic impact, such as high inflation and high-interest rates, is also having a negative impact on the IT sector.

TCS has also indicated that there is unprecedented uncertainty about consumer spending, especially in discretionary projects. This is something they cannot predict going into FY25. Both TCS and Infosys have used the term “cautiously optimistic” to describe their future growth, which is often used when there are uncertainties. Significant deals and sector-specific trends will influence their performance going forward, and this is something they have emphasized.

Automobile Sector

If we look at FY24 versus FY23 overall, it has been a very good year for the entire auto sector. You can see how their revenue growth has been significantly better across every metric compared to FY23. This has been a very good year for the auto segment. If we look at the changes in PAT numbers, Hero MotoCorp has done quite well.

Management guidance indicates that they see a rise in EV penetration despite the PLI benefits and incentives being slightly reduced this year. Customers’ decisions still heavily depend on cost savings, and profitability has not yet been achieved in the overall electric two-wheeler segment despite PLI incentives. This will remain a major challenge for the EV side, as cost metrics are not yet in favor of EV makers. Hopefully, if costs decrease in the future, they might be able to make sense of the final selling price and achieve profitability.

Source: Screener.in

In the rest of the two-wheeler segment, the premiumization trend continues, with higher-end motorcycles and two-wheelers doing quite well. Royal Enfield has reported good success with the Himalayan motorcycle. Subsidies are helping, but Hero MotoCorp, for example, is focused on cost reduction and maintaining product competition.

In the four-wheeler segment, the trend towards premium vehicles, such as SUVs, is growing. Mahindra’s preference for these vehicles is increasing, and Maruti’s hybrids and CNG variants are gaining significant traction, contributing to 42% of their sales.

Power Sector

Moving on to the power sector, FY24 versus FY23 has also seen good growth, especially on the top line. In the bottom line, some companies have shown good growth, while some still have concerns.

Overall future expectations are very good, which has led to the re-rating of these stocks over FY23. Almost every company has shown top-line growth, with Adani Green, Adani Power, JSW Energy, and NTPC showing more significant bottom-line growth.

Tata Power showed a decline in PAT due to exceptional items, but still had around 10% organic PAT growth for FY24.

Torrent Power showed a 12% PAT decrease in FY24. Future guidance remains very strong, which is why valuations have sustained or even re-rated despite not-so-strong FY24 fundamentals. Power demand in India has seen significant growth, and to meet this demand, supply will have to catch up.

Companies like Adani Green are focusing on large-scale utility projects. Domestic market shortages of solar modules are increasing the demand-supply gap. Pricing fluctuations, land availability, and regulatory hurdles are significant challenges in this sector.

Tata Power expects larger capacity additions in subsequent years and has announced a significant CAPEX plan of Rs 20,000 crores over the next two to three years for renewables and transmission projects.

Source: Screener.in

Pharma Sector

The next sector is the pharma sector, which also had a very good FY24 compared to FY23. Top-line growth for almost every player was in the range of 9-15%, with Lupin showing 18% growth. PAT growth was also seen in almost every company, indicating margin expansion. Lupin showed around 9% margin expansion this financial year.

Companies like Dr Reddy’s Laboratories, Sun Pharma, and others also showed good growth on the margin side. The domestic formulation business has done very well, especially for companies like Dr Reddy’s Laboratories, aiming for a top-five position by FY30.

Cipla has said that their existing in-licensing partnerships have worked quite well, and they are pursuing GLP-1 licensing opportunities in the future, indicating open opportunities for them.

Source: Screener.in

Chemicals Sector

The chemicals sector had a bad FY24, with declining revenue growth driven by slower demand across various segments like specialty chemicals, agrochemicals, and industrial chemicals. Companies like Aarti Industries, SRF, and UPL showed significant drawdown in their top lines.

Margins in the chemicals sector were not impacted badly due to better pricing power and operational efficiencies. Significant PAT degrowth was seen for most companies.

Source: Screener.in

The chemical sector is currently showing signs of improvement after some corrections have already happened. Many companies have seen changes in their stock prices. It is important to see what changes will occur and if there will be improvements. Agrochemicals are currently in demand. Some companies have a lot of cash on their balance sheets. They are expecting expenses to improve. Global supply chains could start to show progress. There is potential for growth in chemical companies outside China. AFL and SRF have provided long-term guidance, focusing on fluorine chemicals.

Conclusion

In conclusion, FY24 has been a mixed year for various sectors in India. While some sectors like auto and pharma showed strong performance. The overall outlook for FY25 is cautiously optimistic, with companies focusing on innovation, cost management, and strategic investments to drive growth. Monitoring macroeconomic factors, regulatory changes, and global market trends will be crucial for sustaining growth and profitability in the coming years.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.