- Indian Auto Industry ended FY21 on a strong note, but what is in store for the next few Quarters?
Indian Auto Industry was facing a slowdown in FY20 amidst transitioning to Bharat VI norms and an economic slowdown in the country. Fears of a complete slump suddenly became real with the onset of the Covid-19 pandemic. Lockdown in the entire country meant that manufacturing came to a grinding halt. Demand for passenger and commercial vehicles fell drastically. All these factors adding up led to the Nifty Auto index to fall to levels close to 4700 points from about 8000 points at the beginning of Jan2020, almost a 40% drop. It was almost October before the index could recapture the 8000 points level. With the demand picking up in the festive season, ease in the lockdown restrictions and RBI providing liquidity relief to the manufacturing sector, the sector saw a positive momentum in the 3rd and the 4th quarters of FY 21. In PV segment, for 4 wheelers, companies like Tata motors and Maruti posted 106% and 32% revenue growth YOY, respectively. Hero MotoCorp shined bright in the 2-wheeler segment with a YOY revenue growth of nearly 39%. Strong comeback in the rural economy meant that Tractor sales were robust and escort motors posted a mammoth 60.7% revenue growth YOY for FY 21.
The second wave of surge in the Covid-19 cases in India has led to country-wide lockdown restrictions and the Auto industry is faced with a similar challenge faced a year ago in the same duration. Demand seems to be tapering in the PV segment and CV segment alike. However, this time the carmakers are predicting their estimated forecasts to be more accurate on the back of last year’s experience. Cost-cutting measures implemented last year will also help them navigate these turbulent times in a safer manner. With the Covid curve flattening in the last few weeks we can be hopeful of a faster recovery.
- The government has ordered a 31.4% cut in the Sugar Export subsidy for the season-ending 30 Sept 2021
The Ministry Of Consumer Affairs, Food And Public Distribution on 20th May announced a cut in the export subsidy in the Sugar industry to Rs.4000 per tonnes down from Rs.5833 per tonne. This cut comes after the fact that India may achieve its target of exporting 6 million tonnes of the sweetener by the end of June, three months before September. When the subsidy of Rs.5833 per tonne was announced late last year there was a flurry of export deals from overseas. With the increased export demand and deals for 5.7 million tonnes export already locked in, the industry has regained momentum which can be observed in the stock market prices of the sugar companies as well. There has been no reason cited by the ministry for this cut and the only rationale that can be inferred is the cut is imposed to avoid inflation in domestic sugar prices due to export.
- BPCL likely to announce a large dividend payout; trade volumes up by 27% on expectation
BPCL share rose 2.1% as close to 99 lakh shares were traded on both the bourses on 20th May 2021. The company is expected to announce the decision on the final dividend on 26th May. BPCL recently sold the Numaligarh Refinery(NRL) in Assam for Rs.9876 cr. In two more deals, BPCL sold treasury shares worth Rs.5500 cr. and later acquired a stake in Bina refinery worth Rs.2400 cr. with estimated net cash of around Rs.13100 cr. after the three deals, if distributed entirely the dividend would work out to be Rs.55 per share.
- SFBs bid for Rs.400 cr during the RBI’s liquidity window
Out of the Rs.10,000 cr. allocated to help Small Finance Banks(SFBs) with liquidity, only Rs.400 cr. was bid on by the SFBs. RBI has mandated that the deployment of the Special Three-Year Long-Term Repo Operation (STLRO) funds within 30 day of raising which is hard due to the lockdowns and the low demand for the Loans. Moreover, SFBs have enough liquidity as the loan demands are muted. RBI will conduct the STLRO operation once every month till October with the unused portion of the Rs.10000 cr. from previous auctions.
India’s sugar production is forecast to grow 17% to 33.7 million tonnes in the year ended September 2021. Indian sugar mills may achieve their target of exporting 6 million tonnes of the sweetener by the end of June, three months before September
The surge in exports is mainly due to firm global prices and subsidy, which have made the overseas markets lucrative.
The government is also encouraging sugar mills to divert excess sugar and sugarcane for the production of ethanol, which is blended with petrol. This is a step towards improving the liquidity position of sugar mills, which are grappling with a cash crunch.
Steel & Iron Ore Industry
China is the world’s top steel producer and biggest consumer of iron ore, the key steelmaking ingredient. A recent spike in prices for the material, partly fuelled by supply concerns, continued with a 10% limit-up surge on Monday.
China announced a series of measures on Friday to tighten controls on steel capacity, in an effort to curb pollution in key areas as well as reduce “blind investments and disorderly constructions”. The commodity exchanges on Monday moved to raise trading limits and margin requirements for some iron ore contracts and reinstated fees on steel futures as a blistering rally in the ferrous metals complex showed no signs of stopping
India’s exports grew by 80 percent to $7.04 billion during the first week of this month. Imports too rose by 80.7 percent to $8.86 billion during May 1-7, 2021 as against $4.91 billion in the same period last year
Major export commodities which are recording healthy growth include gems and jewellery, jute, carpet, handicrafts, leather, electronic goods, oil meals, cashew, engineering, petroleum products, marine products and chemicals.
The board of directors of InterGlobe Aviation Limited, which operates the country’s largest domestic airline IndiGo has approved raising up to ₹3,000 crores through a Qualified Institutions Placement (QIP) process.
QIPs are a way to issue shares to the public without going through standard regulatory compliance.
The latest decision by IndiGo’s board of directors comes at a time when airlines are struggling with a declining passenger demand due to an unabated rise in fresh covid cases across the country.
The second wave of Covid-19 is spreading beyond urban areas to rural belts, resulting in automobile registrations across the country.
Automobile registrations across the country dropped by 32 percent last month as compared to April 2019 with passenger vehicles showing a decline of over 11 percent.
Commercial vehicles witnessed a downswing of 34.58 per cent to 51,436 registrations versus 78,630 in the same period.
Two-wheeler registrations totaled 8.65 lakh last month compared to 13.38 lakh in April 2019, marking a downturn of 35.35 percent. Passenger vehicle registrations edged lower by 11.56 percent to 2.08 lakh from 2.36 lakh in the two-year-ago period.
However, tractor registrations rose by 3.52 percent to 38,285 last month compared to 36,984 in April 2019. That took overall vehicle registrations to 11.85 lakh in April 2021, down 31.83 percent from 17.38 lakh in April 2019.
Telecom sector is looking at another potential turnaround as Airtel’s net subscriber additions in the past quarter are the highest. Last week Airtel declared an addition of 13.9 million subscribers mostly in 4G as compared to Jio’s 7.3 million additions. In addition, Airtel has done well to keep its churn ratio to an all-time low level of 1.7%. Retention of Postpaid users is the biggest contributor. Airtel is all set to take on Jio in the FTTH broadband segment and is developing its own 5G open radio access network. A few months delay in Jio’s deal with Google to develop a low-cost Android device has given a window of opportunity for Airtel to capitalize on its subscriber base acquisition from Vodafone Idea.
In its current state, the industry is faced with chronic oversupply. High production cost has led to using subsidies for selling sugar in the international market. Moreover consumption in India has stagnated to 19 kg per capita per year on the back of increased scrutiny for its impact on health and obesity. To counter these issues, the mills have begun an online campaign with the help of nutritionists, medical practitioners and health experts to deliver webinars and conduct workshops to boost domestic demand. This will cut overseas sales and save the government money by reducing export subsidies.
Starting Nov 1, ICICI will start charging Rs.50 per cash deposit to its customers on all non-working days and outside of the working hours on other days. This comes on the back of Axis bank doing the same from August 1. This comes as a major step towards pushing digitization of banking and discouraging physical presence for the customers. This will have a huge impact in reducing fixed costs for the banking sector as they can reduce the number of Brick and Mortar branches along with the ATMs. Charges after certain limits have also been introduced by PSBs and charges on Locker visits post a certain number is also in the process of implementation.
Quarterly Results (Auto Sector):
The Indian Auto sector has seen signs of recovery with sales numbers for passenger vehicles have been positive for most of the major players. There is still some weakness when viewing the commercial vehicles sales figures.
Revenues for Maruti have been up 10% yoy and profits up by 1% yoy. The onset of festive season is boding well for the Auto players as Diwali has traditionally been a hot time for car sales in India.
Most of the companies including Maruti Suzuki seem to have missed the demand estimates and it still remains to be seen if they can convert this pent up demand into regularizing revenue streams.
India’s Foreign Exchange reserves touched an all time high of $560.532 billion in the week ended October 23rd. During the reporting week, reserves saw a major increase in the foreign currency assets (FCA) which rose by $5.202 billion. Gold reserves were up by $175 million to $36.860 billion as per RBI.
This is welcome news as there is an increasing pressure on Indian Government to maintain the fiscal deficit in a manageable range. On top of which the increase in government borrowings has been another worrying factor.
The country’s reserve position with IMF has climbed by $27 million and the special drawing rights rose by $8 million. This will provide further scope for the Government to help out with their borrowing woes.
GE Power: Shares of GE Power India Ltd. snapped a six-session losing streak after the company said it will continue to pursue opportunities in a business segment that focuses on reducing sulphur dioxide emissions even as its promoter plans to exit the new-build coal power market globally.
The total flue-gas desulphurisation market (including captive power plant) in India is 225 GW, out of which about 82 GW (Rs 33,000 crore) has been already been ordered till date by majorly central public sector utilities with a few state utilities and IPP (independent power producer),” according to an exchange filing.
GE Power India, it said, to date has been awarded 10 FGD projects, amounting to about 13 gigawatts (representing about 15% market share), which are now in various stages of execution. The balance potential market for FGD in India, which remains to be ordered in the next three to five years, is estimated to be around 143 GW, the filing said.
Pidilite Industries: Pidilite Industries — the manufacturers of the popular Fevicol brand of adhesives — has signed a definitive agreement to acquire the US-based Huntsman Group’s Indian subsidiary for ₹2,100 crore on Thursday.
Huntsman operates a 100% subsidiary in India, Huntsman Advanced Materials Solutions, which directly competes with Fevicol, as it manufactures and sells adhesives, sealants and other products under brands such as Araldite, Araldite Karpenter and Araseal in the country.
Pidilite Industries share price rose 2% in the early trade on Thursday after the company acquired Indian subsidiary of Huntsman Group, namely HAMSPL.
ANT Group: The Chinese giant is likely to pull off the largest initial public offering (IPO) in history, hoping to raise $34.4 billion. If successful, it will overshadow the IPO debut of Saudi Aramco in December 2019, which had raised a then-record $29.4 billion.
The Ant Group provides digital payment services and operates digital finance technology platforms. Ant Financials IPO would value the company at about $315 billion, which will be bigger than the largest bank in the United States – JP Morgan Chase & Co, whose market cap was $296 billion as of October 30, 2020. Ant is set to be larger than payment rival PayPal Holdings Inc., media giant Walt Disney Co. The company’s valuation will be among the largest financial companies in the world like Visa and MasterCard.
Alibaba Group Holding: Alibaba Group Holding Ltd. helped modernize brick-and-mortar retail with consumer data and online services. Now it hopes to do the same for China’s multi trillion-dollar manufacturing arena. Alibaba’s newest line of business offers data analytics and back-end technology to manufacturers so they can customize and fine-tune factories in response to consumer demand.
Alibaba is betting that its years of observing consumer behavior will be useful to the country’s producers. Smaller manufacturers are struggling to adapt to changing consumer needs in a slowing economy. Alibaba’s starting point is apparel but it eventually aims to help more manufacturers parse data, automate logistics and maintain just-in-time inventory, much as it already does for Chinese convenience chains and big-box retailers.