Short Call | Earnings season, a harsh reality check? Coforge, Varun Beverages, City Union Bank in focus

Short Call

It’s been almost two weeks into earnings season and the results so far have left little to cheer. With more disappointments and misses than beats, the steam in the earnings engine seems to be sputtering out.

For FY24, the frontline index Nifty 50 saw earnings growth of 20.3 percent. According to Kotak Institutional Equities, that number is likely to tumble to 5.8 percent for FY25.

So far, during the quarter gone by, consumer companies have had little to cheer, as a continuing slowdown in demand weighs heavy.

Auto companies have seen poor volume growth, while consumer staples have been plagued by relentless down-trading as they continue to hike prices. Additionally, rising competition and quick commerce impacted sales for the quarter gone by.

On the IT front, green shoots in demand can be seen, however, it is still a few quarters away. On the other hand, private banks are among the few that have done well.

According to Kotak Institutional Equities, HDFC Bank and Axis Bank’s earnings report have kept fears of deteriorating asset quality away for another day.

The key culprit? A broad-based economic slowdown. A recent analysis by Japanese brokerage Nomura found that all high-frequency economic indicators pointed to slowing consumption and waning demand.

With more misses than hits, the earnings season feels like a reality check for all the retail investors who have remained valuation-agnostic so far.

Follow our live blog for all the market action

Coforge (7,555.4, +11.11%)

The stock surged after the company reported strong Q2FY25 results.

Bull Case: Coforge’s niche expertise in high-growth verticals, combined with its revamped sales strategy, positions it to win larger digital transformation deals. With a strengthened leadership team and deeper client relationships, it’s well-placed to outperform amid rising tech demand.

Bear Case: Coforge faces risks from reduced US tech spending, particularly in digital. Visa restrictions and supply-side challenges could hamper its ability to deliver projects profitably, while currency fluctuations might erode margins, slowing its growth momentum.

City Union Bank (Rs 167.99, -0.3%)

Profit booking post 13% surge in previous session

Bull case: Q2 was characterised by better-than-expected growth outcomes - whether it was credit growth, expansion of margins, or better NII, all of them put up a convincing case for the lender being on a predictable growth path. The company's investment in revamping retail team and setting up digital infrastructure will be strong re-rating drivers.

Bear case: Negative slippages and rising credit costs are some of the challenges that the lender needs to navigate and can dampen the positive sentiment if it is unable to deliver these metrics. Sustanence of growth metrics compared to peers will also be a critical parameter for the bank's future performance.

Varun Beverages (Rs 630, +5.96%)

Shares rose after the company reported strong earnings for the September quarter.

Bull Case: Planned QIP of Rs 7,500 crore is earmarked for debt reduction, acquisitions, and capacity expansion within India. The newly commissioned greenfield facility in the Democratic Republic of the Congo (DRC) is already operating at full capacity. Expects reasonable growth in South Africa from October, which is the peak season.

Bear Case: Heavy rains throughout the quarter resulted in weak volume growth in India. Campa Cola's aggressive pricing strategy, offering PET bottles at Rs 10 compared to Rs 20 from Varun Beverages, is disrupting the market.

(With inputs from Neeshita, Lovisha, and Harshita.)