EPS forecasts: Here are the biggest winners and losers for FY25 and FY26

Generally underwhelming Q2FY25 results pushed the earnings per share (EPS) downgrade-to-upgrade ratio to 2.14, dampening market sentiment.

     

The July-September 2024 quarter (Q2FY25) corporate earnings delivered an unwelcome surprise, compelling analysts to reassess forward earnings estimates for the companies under their purview.  

The outcome? A wave of downgrades to forward earnings per share (EPS) forecasts for FY25 and FY26. In simpler terms, the anticipated EPS for most top-listed companies in these financial years now lags analysts’ pre-earnings season expectations. 

Brokerages routinely revise forward earnings estimates following quarterly results and recalibrate price targets based on the projected trajectory of company earnings over the next two years. Usually, earnings downgrades result in lowered price targets, while upgrades push targets higher.  

Data from Bloomberg underscores the extent of the recent recalibrations: Among 190 BSE 200 companies analysed, 124 (or 65 per cent of the sample) witnessed EPS downgrades for FY25. In contrast, just 58 companies (30 per cent of the sample) saw EPS upgrades. 

The magnitude of these changes was striking — the sharpest EPS downgrade reached -46.7 per cent, while the highest upgrade was a comparatively modest 16.9 per cent.  

All this has yielded a downgrade-to-upgrade ratio of 2.14, signalling bearish sentiment which is likely to weigh on broader equity markets. Yet, there is a silver lining: Stocks benefitting from earnings upgrades are well-positioned to outshine in a challenging market environment.  

Here are five stocks that have witnessed the steepest upgrades in terms of earnings projections for FY25 and FY26 following their Q2FY25 results. Also, there is a set of five other stocks that have seen the sharpest downgrades: 

 

Godrej Properties 

 

 

• Demand trends reflected on Godrej Properties’ bookings for H1FY25 at Rs 14,000 crore, up 90 per cent year-on-year (Y-o-Y) and included its best Q2 booking till date 
• The key highlight for the real estate developer, according to Elara Securities, was the near breakeven cash flow print with net operating cash flow of Rs 1,850 crore for Q2 
• The improved cash flow is on account of the strong momentum in sales booking and higher economic interest (share in real estate projects), which has risen from 39 per cent in FY19 to 93 per cent in H1FY25 
• The developer has delivered 9.3 million square feet in H1FY25 and is on track to hit its guidance of 15 million square feet for FY25, given the strong pipeline across top cities with a gross development value of Rs 15,000 crore

 

Lupin 

 

• The pharma major’s outperformance in Q2 was led by the domestic formulations business which coupled with incremental sales from global tenders gave a fillip to overall growth and earnings 
• The growth in domestic sales coupled with limited competition products in the US and higher gross profitability boosted Lupin’s operating profit margins by 620 basis points to 24.1 per cent 
• The company also has one of the best launch pipelines among largecap Indian generic players which is likely to support its overall margin profile, believes Antique Stock Broking 
• Factoring the strong Q2, sharp improvement in its US business margin profile, relatively healthy limited competition opportunities in the US and raised margin outlook, PhillipCapital Research has increased its earnings estimates by 12-14 per cent for FY25-27

 

  Dixon Technologies 

 

• The better than expected performance in Q2 was led by the mobile segment as well as the integration of Ismartu India 
• Revenue and operating profit grew by 133 per cent and 114 per cent Y-o-Y respectively in Q2 
• The revenue growth going ahead would be mainly driven by electronic manufacturing services (including mobile and IT hardware), consumer electronics, and new emerging segments such as refrigerators, wearables and hearables, and telecom networking products 
• Motilal Oswal Research expects Dixon to continue gaining from its market leading position across segments on the back of addition of new segments, backward integration 
• After a stellar Q2, Systematix Research has upgraded its earnings estimates sharply by 30-70 per cent. It estimates revenue, operating profit and net profit to grow by 64%, 61%, and 74%, respectively, annually during FY24-27

 

  Colgate-Palmolive (India) 

 

• The oral care major’s performance in Q2 stood out in the consumer pack with a high single-digit volume growth in the toothpaste segment and a double-digit revenue growth in toothbrush business 
• The gains on the revenue front were on a low base over the year ago quarter and a large advertising campaign which weighed on the margins 
• Colgate’s focus on driving long-term growth is based on launching premium products to improve realisations, increasing awareness, penetration in the rural markets and expanding its personal care portfolio to mitigate risks in the oral care category  
• Axis Securities believes that this strategy will have a long gestation period and will require consistent investment in market development (higher marketing and ad spends), which will put pressure on the company’s bottom line in the near term

 

  Page Industries 

 

• A healthy 7 per cent volume growth led to a 11 per cent revenue growth in Q2. While the festival season aided demand, investments in improving the inventory efficiency of distributors and order fulfilment boosted growth 
• Gross margins expanded by 80 basis points Y-o-Y on stable input costs while improved operating efficiency led to 180 basis points Y-o-Y expansion in operating profit margins to a 10-quarter high of 22.6 per cent 
• The company believes it can deliver an operating profit margin of 19-21 per cent in the medium term on the back of operational excellence, improved store throughput and efficient supply chain management 
• With volume growth pressure bottoming out and benign input costs likely to lead to a better margin print, Motilal Oswal Research expects the earnings cycle to pick up from hereon

     

  Biocon 

   

• Pharma major Biocon was a laggard and reported a net loss in Q2FY25 compared to a net profit during the same period a year ago, making it the first quarterly net loss by the company in the last seven quarters
• The company’s net sales growth of 4.5 per cent Y-o-Y in Q2FY25 was also sub-par and among the lowest among the top pharma makers
• Analysts at Motilal Oswal attribute Biocon’s poor earnings to lower-than-expected business across the segments and higher interest costs
• The company's revenues and earnings were lower than market expectations leading to a sharp downgrade in its forward earnings estimate and share price target for FY25 and FY26
• Biocon's EPS in FY25 and FY26 are now likely to be 46.7 per cent and 12.6 per cent lower than anticipated earlier 

 

  Tata Steel 

 

• Tata Steel saw its FY25 and FY26 earnings estimates getting downgrade after the global steel major posted a lower-than-expected net profit in Q2FY25 
• The steel maker reported a net profit in Q2FY25 compared to a net loss in Q2FY24 but the profit was down 25 per cent compared to Q1FY25 
• The company’s net sales were down 2.9 per cent Y-o-Y due to weak price realisation in India and Western Europe 
• Tata Steel’s earnings per share in FY25 and FY26 are now expected to be 45.6 per cent and 9.4 per cent lower than what the analysts had estimated prior to the Q2 result 
• The stock is down 25 per cent from its 52-week high and most analysts remain neutral while seeing limited upside from the current level

 

JSW Steel 

   

• JSW Steel was also a laggard in the Q2FY25 and reported Y-o-Y and quarter-on-quarter (Q-o-Q) decline in revenues and profits 
• The steel major's consolidated net sales was down 10.8 per cent Y-o-Y in Q2FY25 while its net profit was down 84.1 per cent Y-o-Y in the quarter 
• JSW’s net sales in Q2FY25 were the lowest in last seven quarters while its net profit was lowest in the last eight quarters
• A decline in JSW’s revenues and profits is attributed to cheap imports and nearly Rs 1,500 to Rs 2,000 per tonne decline in domestic steel prices 
• Lower steel prices are likely to hit the steel makers' earnings in H2FY25 as well, leading to a downgrade in JSW Steel’s expected earnings in FY25 and FY26 
• JSW’s EPS for FY25 and FY26 are now expected to be lower by 29.2 per cent and 6.1 per cent respectively, which could weigh on its stock price

   

  IDFC First Bank 

   

• IDFC First Bank’s earnings in Q2FY25 was hit by a sharp rise in provisions for bad loans, which were significantly higher than market expectations 
• The bank’s provision for non-performing assets (NPA) was up 227.8 per cent Y-o-Y in Q2FY25 leading to 71.6 per cent Y-o-Y decline in its net profit during the period 
• The bank’s net profit in Q2FY25 was lowest in the last three years while provision was the highest in the last 13 quarters, raising concerns about its future earnings outlook 
• On the brighter side, the bank's gross interest income was up 21.8 per cent Y-o-Y in Q2FY25 while net interest income (NII) grew 21 per cent Y-o-Y. Net interest margin, however, moderated by 4 basis points Q-o-Q due to higher borrowing costs
• Rise in bad loans and pressure on margins from higher borrowing costs have triggered a downgrade in IDFC First Bank’s forward earnings 
•  The lender's EPS for FY25 and FY26 are now expected to be 23.6 per cent and 12.9 per cent lower than what analysts had estimated prior to Q2FY25 earnings, which is likely weigh on its stock price

      

  Gujarat Fluorochemicals 

 

• The chemicals producer reported a double-digit growth in net sales and net profit in Q2FY25, yet analysts cut their EPS estimates for FY25 and FY26 due to slower recovery in the Fluoropolymers market versus previously expected and also due to some quarters of delay in battery chemicals plants 
• Gujarat Fluorochemicals also surprised on the margins front and its earnings before interest, taxes, depreciation, and amortisation margin was up nearly 700 basis points to reach 25.6 per cent (of total income) in Q2FY25, which is close to an all-time high 
• However, this was not enough for the market given the company's record high equity valuation with a price-to-earnings multiple of nearly 110x and price-to-book value ratio of more than 7x
• The company will need to grow its revenue and net profit in double digits for many years to justify these rich valuations 
• This seems challenging due to the cyclical nature of demand for fluorochemicals and delay in ramp-up of its electric vehicle battery chemical plant