18 October 2024

The Indian stock market witnessed a flurry of activity on October 17, 2024, as a host of companies, including Infosys, Wipro, Axis Bank, and LTIMindtree, announced their Q2 earnings. This article delves into the significant outcomes from these announcements, focusing primarily on Infosys, which has become a bellwether for the IT sector. Earnings Summary Major Companies Reporting on October 17 Company Net Profit (Q2 FY25) Revenue (Q2 FY25) YoY Change in Profit YoY Change in Revenue Remarks Infosys ₹6,506 crore ₹40,986 crore +4.7% +5% Guidance raised to 3.75%-4.5% Wipro ₹3,208.8 crore ₹22,301.6 crore +21.2% -0.95% Declared 1:1 bonus shares Axis Bank ₹6,918 crore ₹37,142 crore +18% +17.1% Strong growth in NII LTIMindtree ₹1,251 crore ₹9,432.9 crore +7.7% +6% Steady growth in revenue Polycab India ₹445.2 crore N/A +3.6% N/A Healthy profit increase Tata Communications ₹227.2 crore ₹5,767 crore +3% +18.4% Strong revenue growth Tata Chemicals ₹267 crore ₹3,999 crore -46.1% Flat Significant decline in profit Infosys Q2 Financial Highlights Infosys, India’s second-largest IT services exporter, reported its Q2 earnings with mixed results that raised some eyebrows in the market. Growth Guidance Despite missing profit estimates, Infosys revised its FY25 revenue growth guidance upward to 3.75%-4.5%, improving from the previous range of 3%-4%. This increase is attributed to a strong ramp-up of mega deals and positive demand from financial services. Key Metrics Metric Q2 FY25 Net Profit ₹6,506 crore Revenue ₹40,986 crore EBIT ₹8,649 crore EBIT Margin 21.1% Dividend ₹21 per share Record Date for Dividend October 29, 2024 Payout Date for Dividend November 8, 2024 Voluntary Attrition 12.9% Market Reaction Following the announcement, Infosys shares fell by 5%, closing at ₹1,869. This reaction can be attributed to: Other Notable Earnings Wipro Wipro reported a consolidated net profit of ₹3,208.8 crore, marking a 21.2% increase from the previous year, although revenue declined by 0.95%. The company also announced a 1:1 bonus share, which will attract investor interest. Axis Bank Axis Bank achieved an 18% increase in net profit, reaching ₹6,918 crore, supported by a robust 10% growth in net interest income (NII). This strong performance showcases the bank’s effective risk management and customer acquisition strategies. LTIMindtree LTIMindtree reported a 7.7% increase in net profit to ₹1,251 crore, with revenue climbing to ₹9,432.9 crore, reflecting a steady recovery in demand. Polycab India Polycab India saw a 3.6% increase in net profit to ₹445.2 crore, continuing its positive trajectory amidst competitive market conditions. Tata Communications Tata Communications reported a 3% rise in net profit to ₹227.2 crore, with revenue surging by 18.4%, indicating strong operational performance. Tata Chemicals Tata Chemicals, however, experienced a sharp 46.1% decline in net profit to ₹267 crore, reflecting market challenges despite flat revenue. Conclusion The mixed results from major players like Infosys, Wipro, and Axis Bank underscore the complexities of the current economic landscape. While Infosys raised its revenue guidance and remains optimistic about future growth, its lower-than-expected profit led to a sell-off in shares, reflecting the cautious sentiment in the market. Investors should closely monitor upcoming earnings and market conditions to gauge potential investment opportunities. Future Outlook With a total of 36 companies declaring earnings on the same day, including prominent names across various sectors, the coming days will be crucial for investors and market watchers. The performance of IT and banking sectors, especially, will set the tone for broader market trends in the remainder of FY25.

On October 18, 2024, the shares of Manappuram Finance Ltd (MGFL) took a significant hit, plunging 16.85% to touch a low of ₹147.50 on the Bombay Stock Exchange (BSE). This sharp decline follows a regulatory action by the Reserve Bank of India (RBI), which imposed restrictions on the lending operations of its microfinance subsidiary, Asirvad Micro Finance Ltd. The directive from the RBI came in light of what it described as “major supervisory concerns,” leading to a substantial drop in the stock’s value and a wave of downgrades from financial analysts. Asirvad Micro Finance contributes a substantial portion to Manappuram Finance’s consolidated assets under management (AUM), accounting for approximately 27%. Given this considerable contribution, the ban on Asirvad’s lending activities sent shockwaves through the market, raising concerns over the company’s growth prospects, profitability, and overall market sentiment. RBI’s Regulatory Crackdown: What Led to the Ban? The RBI’s decision to halt loan disbursements at Asirvad stems from concerns over the company’s pricing practices, specifically regarding the weighted average lending rate and the interest spread over its cost of funds. These were found to be excessively high and non-compliant with RBI regulations, particularly the Fair Practices Code. Additionally, Asirvad’s governance, risk management, and compliance practices were brought into question. The RBI’s investigation further revealed non-adherence to norms around assessing household income and considering repayment capacity in microfinance loans. Alongside Asirvad, the RBI also banned the lending operations of Arohan Financial Services, DMI Finance, and Navi Finserv, all of which were found to be engaging in similarly questionable pricing practices. The bans are set to take effect from October 21, 2024. Impact on Manappuram Finance’s Financials With Asirvad contributing to over a quarter of Manappuram’s AUM, this regulatory action has a direct impact on the company’s financial health. According to Motilal Oswal Financial Services (MOFSL), Asirvad accounted for 21% of Manappuram’s profit after tax (PAT) in FY24, making it a crucial arm of the parent company. Asirvad’s AUM, which includes microfinance and gold loans, stood at ₹12,300 crore as of June 30, 2024, with around ₹1,200 crore attributed to its gold loan portfolio. The ban on Asirvad’s operations is expected to severely restrict growth in the coming quarters, leading analysts to cut their earnings projections. MOFSL has downgraded Manappuram Finance’s stock from ‘Buy’ to ‘Neutral’ and revised the target price to ₹160. They have also slashed FY25 and FY26 PAT estimates by 9% and 17%, respectively, factoring in lower loan growth and diminished profitability at Asirvad. Similarly, Jefferies, another major brokerage, downgraded the stock to Hold, reducing its price target to ₹167. They warned that Manappuram may have to inject capital into Asirvad if microfinance loans face increased defaults, further impacting the company’s financial stability. Market Reactions and Investor Sentiment Investors reacted swiftly to the news, leading to a major sell-off in Manappuram Finance’s stock. By the end of trading on October 18, the stock had plummeted to ₹150.73, a level not seen in 11 months. Analysts from Morgan Stanley downgraded the stock to Equal Weight, cutting the price target to ₹170. The firm also lowered its consolidated earnings forecast by 20% for FY25 and 30% for FY26 and FY27, citing the potential long-term impact of the RBI’s embargo on Asirvad. Morgan Stanley highlighted that while Manappuram’s standalone valuations remain attractive, investor interest could take a long time to recover due to the negative sentiment surrounding the ban. Long-Term Outlook for Asirvad and Manappuram Finance Asirvad’s management has pledged to implement the corrective measures mandated by the RBI in a time-bound manner. The board has committed to conducting a thorough review of the company’s governance, risk management, and regulatory compliance framework. However, market analysts estimate that the ban could remain in place for six to nine months, during which time loan growth will be heavily constrained, further denting the company’s bottom line. Asirvad is expected to focus on servicing existing customers and managing collections during the ban period. The RBI will reassess the situation once Asirvad demonstrates full compliance with regulatory guidelines. However, it is unclear how quickly the company will be able to recover from the damage caused by the halt in its operations. Impact on the Broader NBFC Sector The RBI’s action against Manappuram and its subsidiary comes at a time when the central bank has been increasing scrutiny over non-banking financial companies (NBFCs). During the recent Monetary Policy Committee meeting, RBI Governor Shaktikanta Das expressed concerns that some NBFCs were prioritizing rapid growth at the expense of prudent risk management, thereby posing a potential risk to financial stability. The crackdown on Asirvad, as well as the other three NBFCs, signals the RBI’s growing intolerance for aggressive pricing strategies, particularly in the microfinance sector, where borrowers are often from lower-income segments. These actions highlight the importance of fair pricing practices and stringent compliance with regulatory norms. What’s Next for Manappuram Finance? With Asirvad contributing a significant portion to Manappuram Finance’s overall profitability, the company faces an uphill battle in the months ahead. Analysts agree that the focus will be on how quickly Asirvad can implement the necessary corrective measures and restore its lending operations. However, the broader impact on investor sentiment may take longer to resolve. As of now, Manappuram’s other businesses, such as gold loans and vehicle loans, remain unaffected. Yet, with microfinance forming such a large part of its business, the company’s growth prospects are likely to be subdued in the near term. Table: Manappuram Finance – Key Financial Figures (FY24) Metric Value Consolidated AUM ₹45,600 crore Asirvad’s Contribution to AUM 27% Asirvad’s AUM ₹12,300 crore Asirvad’s PAT Contribution (FY24) 21% Manappuram Standalone Net Worth ₹10,700 crore Asirvad’s Net Worth ₹2,250 crore Conclusion Manappuram Finance’s sharp stock decline is a direct result of the RBI’s intervention in its subsidiary Asirvad Micro Finance. With key regulatory concerns and the suspension of loan operations, the company’s earnings and future growth potential have been called into question. Despite the ongoing challenges, Asirvad’s commitment to rectifying its compliance issues offers some hope