Top 1000 Companies : Economic Review For The First Half of 2020-2021

Economic & Sectoral Review

Methodology 

We bring you the Vital Financial Data of Top 1,000 companies categorised by market capitalisation, as these are the stocks where liquidity is higher, and they represent a substantial portion of the trade. These companies are then categorised in 24 sectors to provide you with an insight into the general trend of the financial performance for the first half of FY21. The raw data has been sourced from Accord Fintech Pvt Ltd (Ace Equity). The focus of financial data was more on the revenue and profitability as many companies do not provide a balance sheet on a half-yearly basis. We hope that our readers get an overall perspective of the different sectors so that they are able to take stock and sectoral calls effectively!

Compiled by - Apurva Joshi, Shashikant Singh, Anthony Fernandes, Chinmayee Deshmukh, Abhinav Lahoti, Ganesh Vaybase, Geyatee Deshpande, Deepti Shidore, Shreya Chaware

​To download  Databank of Top 1000 Companies Economic  Review 20-21 Click Here 

Agriculture

The agriculture sector plays an important role in rural livelihood, employment and national food security. It is the largest source of livelihoods in India. Around 70 per cent households still depend primarily on agriculture for their livelihood with 82 per cent of the farmers being small and marginal. India is one of the largest producers of spices, pulses, milk, tea, cashew and jute. Disruption in the economy caused by the pandemic led to lockdown in the country which impacted various sectors in the country. However, farming and agriculture sector was given highest priority even during this crisis. The sector experienced growth in H1FY21 given the on-time arrival of monsoon, high kharif sowing and high reservoir levels. 

According to the Economic Survey 2020, the share of agriculture and allied sectors in the gross value added (GVA) of the country at current prices declined to 16.5 per cent in 2019-20 from 18.2 per cent in 2014-15 mainly due to higher growth performance of non-agricultural sectors. The export of essential agricultural commodities from April 2020 to September 2020 registered a growth of 43.4 per cent to Rs 53,626.60 crore as against Rs 37,397.30 crore in the corresponding period last year. Commodities like groundnut, refined sugar, wheat, Basmati rice and non-Basmati rice witnessed positive export growth during April-September 2020 compared to the corresponding period last year. 

Bombay Burmah Trading Corporation Ltd., the largest company in the sector in terms of market capitalisation, reported 16.94 per cent growth in its net sales of Rs 6,847.71 crore in H1FY21 compared to Rs 5,855.82 crore in H1FY20. The company’s net profit witnessed growth of 51.94 per cent to Rs 880.05 crore in H1FY21 from Rs 579.22 crore in H1FY20. EID Parry (India) Ltd., engaged in the business of sugar and nutraceuticals, recorded stellar growth of 82.45 per cent on YoY basis for H1FY21. Dalmia Bharat Sugar and Industries Ltd., one of the fastest-growing sugar businesses, recorded significant growth of 61.26 per cent in its net sales of Rs 1,601.05 crore in H1FY21 as against Rs 992.81 crore in H1FY20. 

The company’s net profit increased by 73.56 per cent to Rs 181.41 crore from Rs 104.52 crore in the corresponding period previous year. The government’s support during the pandemic has provided a boost to the sector. It has launched initiatives like Pradhan Mantri Kisan and Sampada Yojana that provide subsidy-based support to create strong modern infrastructure for agriculture and agro-based industries along the entire supply chain which is expected to reduce wastage of agriculture produce, increase the processing level, improve the export of the processed foods and enable availability of hygienic and nutritious food to consumers at affordable prices. 

Additionally, the government has increased the minimum support prices (MSP) of kharif crops for the marketing season of 2020-21 to ensure remunerative prices to the growers for their produce. Moreover, to encourage crop diversification, differential remuneration is proposed for niger seed, sesamum, urad and cotton (long staple). The government’s ‘per drop more crop’ initiative focussing on efficient water usage in farming through drip and sprinkler irrigation systems not only saves water usage but also reduces usage of fertiliser, labour expenses and other input costs to the farmers. The sector is expected to continue growth momentum in H2FY21. 

Automobile

Since March 2020, the Indian automotive industry has been reeling under a series of unprecedented problems that have crippled production, productivity and sales. Between the challenges of the transition to BS VI norms, the corona virus pandemic, nationwide lockdown, supply chain constraints and labour migration, the industry has been beset with economic uncertainty. However, though the year began with zero production and negligible sales, the sector has got back on its footing faster than expected with sequential growth in month-on-month sales. The revival can largely be attributed to pent-up demand, preference for personal mobility during the pandemic, easing of supply chains, labour availability, new launches, pushing up of stocks at dealerships and the high expectations from the festive season towards the end of the year.

Demand for medium and heavy commercial vehicles (MHCV), particularly heavy trucks weighing 16 tons or more, has started picking up as well. This has been attributed to increase in manufacturing, freight transport and government investments in infrastructure. This segment was among the worst hit among all vehicle categories, with demand declining significantly following the Infrastructure Leasing and Financial Services liquidity crisis nearly two years ago. While the MHCV segment posted a 42 per cent decline in volumes last fiscal year – the steepest year-on-year fall in at least a decade—volumes fell 76 per cent in H1FY21 following the pandemic-induced crisis.

As per the latest data by the Society of Indian Automobile Manufacturers (SIAM), the total production of passenger vehicles, commercial vehicles, three-wheelers, two-wheelers and quadricycles in April-September 2020 was 81,85,672 units as against 1,44,22,179 units in April-September 2019 with a decline of 43.24 per cent. Sales of passenger vehicles (PVs) stood at 8,79,966 units April to September compared to 13,33,304 units in the same period last year, down by 34 per cent. Commercial vehicles (CVs) too saw a decline in sales of 56 per cent, with 1,65,160 units being sold in April-September 2020 compared to 3,75,483 units in the year-ago period. 

Similarly, three-wheeler sales during the period were down by 82.26 per cent and two-wheeler sales in April-September 2020 were 59,83,678 units, down by 38.28 per cent. The pandemicrelated disruptions globally brought about interruptions in international trade as well. PV exports from India were down 57.52 per cent in the first half of the fiscal year as disruptions hampered dispatches to various global markets. PV exports in the first half of 2020-21 stood at 1,55,156 units as compared with 3,65,247 units in the year-ago period. Similarly, utility vehicle shipments saw a decline of 29.67 per cent at 54,375 units from 77,309 units in the same period of 2019-20. 

However, with relaxation in lockdown norms globally, exports have improved in the recent past and the monthly shipments in the second half of the current fiscal are expected to be higher than earlier months. An analysis of H1FY21 results of 14 listed automobile companies forming part of the top 1,000 companies listed by market capitalisation shows that there was a decline in net sales of 34.19 per cent among the companies under our coverage. There was on an average a 10.23 per cent decline in PBIDT (except OI) with HMT, Force Motors, SML Isuzu and Atul Auto posting operating losses for the first half of the fiscal year. On the other hand, companies operating in the tractor industry like VST Tillers Tractors and Escorts outperformed the rest of the group, recording growth in operating profitability of 193.28 per cent and 57.15 per cent, respectively.

Growth in the tractor industry comes on the back of multiple tailwinds such as robust Kharif sowing leading to good output and thereby increased cash flows for the farmers and continued government support in the form of procurement and spending on agriculture and rural economy along with the high groundwater levels. Looking ahead, the automobile industry can benefit from favourable regulatory changes such as GST cuts or incentive-based scrappage policy which may help demand revival in the medium-term.

Growth in the tractor industry comes on the back of multiple tailwinds such as robust Kharif sowing leading to good output and thereby increased cash flows for the farmers and continued government support in the form of procurement and spending on agriculture and rural economy along with the high groundwater levels. Looking ahead, the automobile industry can benefit from favourable regulatory changes such as GST cuts or incentive-based scrappage policy which may help demand revival in the medium-term. 

On the other hand, a significant spread of the virus to rural India could stall the recovery trend due to further disruptions in those parts of the economy. Among the two-wheeler segment, motorcycles are likely to outperform scooters as the former derives a major portion of its demand from the rural markets. Medium and heavy CVs may continue to see muted demand on the back of lower industrial production and an excess capacity in the system. Whereas, companies operating in the light commercial vehicle space are likely to benefit due to increased e-commerce and last-mile transportation, especially for essential commodities.

Auto Ancillary

The automotive ancillary industry includes companies that provide supporting equipment to the primary products of an automobile company. This support may be in the form of tyres, battery, brakes, suspension, etc. These products enable vehicle companies to focus on their core competencies. As expected, the automotive ancillary industry is heavily dependent on the automobile industry, which is the fourthlargest in the world and is predicted to displace Japan as the third-largest automobile market by 2021. Furthermore, India is the world’s fifth-largest manufacturer of cars and the seventhlargest manufacturer of commercial vehicles. 

As per data from the Automobile Component Manufacturers Association (ACMA), the automobile components’ export from India is expected to reach USD 80 billion by 2026. The Indian automotive comment industry aims to achieve a total of USD 200 billion in revenue by 2026. These high growth prospects for the automotive ancillary industry make it one of the sunrise industries in the Indian markets. However, with the onset of the pandemic-induced subdued demand and production restrictions, the automotive ancillary industry in India has been hit by falling sales as automakers curtailed orders. 

The postponement of model launches, reduced production levels, supply chain disruptions and the slowdown in new capacity additions are estimated to cause a dip of about one-fifth of sales in the automobile industry in FY21.

The revenues of the automotive component industry are likely to also shrink as a result, with a decline of 14-18 per cent estimated in FY21. Noticeably, revenues of the automotive component manufacturers aren’t falling at the same rate as automobile manufacturers. This is because exports and replacement sales, which together generate almost half of the industry’s revenue, can withstand the downturn better. 

An analysis of H1FY21 results of 78 listed automotive ancillary companies forming part of the top 1,000 companies listed by market capitalisation shows that firms with higher exposure to replacement sales and export markets were impacted less. Tyre and battery manufacturers such as MRF, Apollo Tyres, Balkrishna Industries, CEAT, Amara Raja Industries and Eveready Industries were among those companies that reported positive operating profit in the first half of the fiscal year despite the pandemic-induced lockdown. Eveready Industries, in particular, was a standout, reporting a two-fold YoY increase in PBIDT (except OI) from Rs 56.9 crore in H1FY20 to Rs 117 crore in H1FY21. 

The company went on to record a YoY increase of 119 per cent in net profit for the first half of the fiscal year. Companies operating in the tyre sub-segment of automotive ancillaries have gone on to perform better than average. The domestic tyre players in India have benefitted due to import restrictions on PV and truck tyres and the anti-dumping tariffs against China. Most of the other automotive ancillaries posted negative operating profit for the first half of the fiscal year with an average decline in operating performance among the 78 companies, standing at 41.02 per cent. A total of 58 companies out of the 78 reported operating losses during the first half of the fiscal year. 

A gradual recovery in revenue is expected H2FY21 onwards due to pent-up demand, an improvement in OEMs’ production activities and the easy availability of credit from financial institutions. Additionally, the demand for twowheelers and passenger vehicles is expected to rebound faster due to the preference for personal mobility over shared mobility or public transport on account of safety concerns in the pandemic situation. Furthermore, rural demand will continue to remain strong owing to a normal and welldistributed monsoon. These factors are likely to play key roles in the resurgence of the Indian automotive ancillary industry for the second half of the fiscal year. 

Banks

The banking sector has remained in the spotlight in the first six months of FY21. Initially it was on the expectation that banks were going to be the worst impacted by the lockdown in the economy due to the pandemic. Post that, it was in the limelight exactly for the opposite reason. It is now realised that the actual impact of the lockdown will be less severe than what was expected earlier. The earning of the banking sector was ahead of the street estimates. It was on the basis of higher than expected net interest income (NII) growth, core fees and lower provision. As for loan growth, we could still see credit growth in the first half of FY21, despite contraction in the economy in the same period.

Loan growth on a yearly basis for the entire banking sector remained at around 6 per cent for H1FY21. Loans grew at 6.7 per cent for Q1FY21; however, it slowed down to 5.8 per cent for Q2FY21. It was better growth in gold loans that helped banks to post improvement in credit growth. Sequentially, it was growth in loans to MSMEs led by disbursals under the NCGTC scheme that helped banks to register credit growth. There was a stark difference between the growth curves witnessed by private sector banks (PVBs), public sector banks (PSBs) and small finance banks (SFBs) in the first half of FY21. 

The best loan growth was witnessed by SFBs followed by PVBs and PSBs, respectively. SFBs on their lower base saw an average loan growth of 17.4 per cent; PVBs saw loan growth of 7.4 per cent; while PSBs saw an average growth of 3.25 per cent in the same period. Among PVBs, Bandhan Bank, HDFC Bank and Axis Bank witnessed highest yearly growth in loans while Kotak Mahindra Bank, RBK and Yes Bank saw a decline in their credit growth. In the case of PSBs, Bank of Maharashtra stands out in terms of loan growth. Looking at the trend of the first two quarters of loan growth, we may see a slight decline in the loan growth going ahead. 

The worst impact of the pandemic was expected in the asset quality of the bank. However, when results were announced by the banks, they came as a positive surprise. There was negligible slippage and even decline in gross non-performing assets (GNPA) was witnessed in the second quarter of FY21. It was primarily due to recent completion of the moratorium (September) and impact of the Supreme Court order. In absolute terms it increased on a yearly basis while on a sequential basis it declined for PVBs, while for PSBs and SFBs this declined on both yearly as well as sequential basis. Even as percentage of assets we saw an improvement in asset quality and decline in GNPA for banks across the category. 

The GNPA at the end of September 2020 stood at 8 per cent, lower by 136 basis points on a yearly basis. For PVBs, GNPA stood at around 4 per cent, which is lower by 8 bps yearly and for PSBs, GNPA stood at 10 per cent, which is down by 200 bps yearly. It was helped by better collection. Perhaps the single most important and surprising metric this quarter has been collection efficiency. Most banks reported a significant improvement in collection efficiency, which was more than 90 per cent. A sustained uptick in collection efficiency from hereon would demonstrate lenders’ better-than-expected resilience to external shocks.

NII, which is the difference between interest earned and interest expended, saw a significant growth on a yearly basis. On an average, the listed banks saw NII growth of 15.3 per cent in H1FY21. The second quarter of FY21 saw better NII growth led by PSBs. Central Bank of India, Indian Bank and Punjab National Bank saw a significant growth in their NIIs during Q2FY21. Among PVBs, Bandhan Bank and Federal Bank saw NII growth of more than 20 per cent. Profit of the banks saw a huge jump on a yearly basis. Overall, the banks saw profit doubling on a yearly basis. It increased from around Rs 20,000 crore in H1FY20 to Rs 48,000 crore in H1FY21. 

It was better growth in PSBs that helped the sector to post such positive numbers. Banks such as Indian Overseas Bank, UCO Bank and Union Bank of India posted more than decent numbers in H1FY21 compared to huge loss posted in the same period last year. The third quarter of FY21 will be a deciding factor for the banks. It will help us to gauge if the results posted in the first half of FY21 are sustainable or not. We may see some deterioration in the performance. However, it will still be better than what was expected in the month of March 2020. We may also see a further increase in the chasm of performance between PVBs and PSBs as the pandemic has thrown challenges that we believe PVBs are better prepared to tackle. 

Cements

India is the second-largest cement producer in the world, accounting for over 8 per cent of the global capacity as of 2019. In FY20, the country’s overall capacity was nearly 545 million tons (MT). Out of the total capacity, 98 per cent lies with the private sector and the remaining share with the public sector. With the high quantity and quality of limestone deposits available throughout the country, there remains a huge potential for growth in this industry. 

According to the data released by Department for Promotion of Industry and Internal Trade (DPIIT), cement and gypsum products attracted foreign direct investment (FDI) worth USD 5.28 billion between April 2000 and March 2020. 

Cement demand is very closely linked to overall economic growth – particularly of the housing and infrastructure sector. Hence, the major demand drivers for this sector are activities which support cement demand such as affordable housing and construction work for other government infrastructure projects like roads, metros, airports and irrigation. Amid the pandemic, cement demand has been driven by rural India due to better labour availability and with the reverse migration of workers there has been an increase in the construction of rural infrastructure and low-cost housing. Demand has been tepid in metros and Tier I cities in the first half of the fiscal year, although with the economy unlocking, demand has rebounded, recovering in a calibrated manner. 

A lot of infrastructure projects are also coming back on track. The construction of national highways has fallen by 14.5 per cent during H1FY21 as the ministry has constructed 3,951 km of roads till September 2020 as compared with 4,622 km of roads constructed in the corresponding period in the previous fiscal year. Cumulatively, domestic cement production has fallen by 25.1 per cent during H1FY21 as compared with 14.4 per cent and 0.7 per cent growth in production achieved during H1FY19 and H1FY20. Capacity utilisation of domestic manufacturers has been around 45 per cent during H1FY21 as units have been operating at sub-par capacities along with staggered shifts due to the lockdown.

Most of the cement manufacturers have either cut down or deferred capital expansion expenditure for the fiscal year given the need to conserve their cash flows and fall in demand. For our analysis of the performance of the cement sector in H1FY21, we have taken into consideration 26 companies which form part of the cement and construction materials sector in the top 1,000 companies listed as per market capitalisation. The average sales revenue has increased by approximately 3.9 per cent during Q2FY21 and declined sharply by 12.1 per cent during H1FY21 on account of reduced capacity and demand. In terms of operating profitability, companies forming part of the analysis recorded a 15.24 per cent increase in PBIDT (except OI). 

Major players such as Ultratech Cement and Ramco Cement reported 3.09 and 7.22 per cent growth in PBIDT (except OI). Others such as Shree Cement, Ambuja Cement and ACC Ltd. saw a decline in operating performance during the period. The various cost rationalisation measures and overhead controls undertaken by cement manufacturers as regards supply chain management, contract renegotiations and fuel efficiency greatly benefitted the industry largely given the sharp fall in the topline numbers during H1FY21. Despite lockdown conditions in the first half of the fiscal year, most of the companies went on to record good bottomline growth, with the average growth net profit staying around 29 per cent. Looking forward, the government’s thrust and spend on infrastructure is one of the key drivers for the recovery of the cement industry.

Given how fiscally strained the government finances are at the moment, not all infrastructure projects have resumed construction, which is putting a halt to new investments towards infrastructure creation and thus affecting the demand for cement. However, in the long term, the prospects of the industry are intact. It is likely that rural demand will be the major driver for cement considering the monsoons have been favourable in most parts of the country. This could translate in an inflow of cash in the rural economy which could match infrastructure creation, thus augmenting the demand. Given the weakness in end-user demand due to subdued activity in the housing and infrastructure sector, only partial recovery is expected towards the end of the year. With the return of migrant labourers, normalisation of operations is expected January 2021 onwards. 

Chemicals

The chemical industry in India is highly diversified, covering more than 80,000 commercial products. It is broadly classified into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals etc. India ranks 14th in export and 8th in import of chemicals, excluding pharmaceuticals products, globally. The lockdown had bought the whole world to a standstill. All the businesses across the sectors were impacted due to the restrictions imposed. But one can say that the chemical industry in India was one of the least affected industries, and especially the agrochemicals segment. 

Although the majority of raw materials are procured from China by the chemical manufacturers in India, the supply chain was not interrupted to a large extent. However, the demand side faced pressure during the early months i.e. April-June 2020. As this pandemic originated in China it came as lesson that India’s over-dependence on China needs to be reduced and thus many chemical manufacturers in India initiated activities to manufacture import substitutes. Also, other countries across the world which are dependent on China for raw materials have been searching for alternatives. Meanwhile, the environmental issues in China and the ongoing US and Europe-China trade war are some of the other factors leading to reduced dependence on China by the world. 

Thus, India is gradually becoming one of the sweet spots on whom other countries can rely on in the years to come and consider as an important substitute. The last 6-8 months after the crisis caused by the pandemic have been a blessing in disguise for the speciality chemicals, agrochemicals and pharmaceutical-dependent companies. As agriculture and pharmaceutical sectors came under the essential products category during the lockdown, all companies dependent on them performed well and demand pressure was minimised. However, the paint and other chemical companies’ businesses were impacted majorly during this period due to a significant drop in demand.

The stable crude oil prices, however, helped the companies to control input prices, thereby reducing the extra pressure on its operating margins. For the purpose of sector analysis, we have analysed 78 companies in the chemical sector according to their market capitalisation. Although performance of H1FY21 is not comparable with H1FY20 as the former has been an exceptional period with economic activities impacted due to the lockdown, the chemical segment was one of the least affected sectors. Of this set of companies, most of the companies belonging to the pesticides and agrochemicals sector performed extremely well. Revenue of companies like PI Industries, Dhanuka Agritech, Bayer Cropscience and Astec Lifesciences grew by 33 per cent, 31 per cent, 30 per cent and 23 per cent, respectively. 

Their net profit too grew significantly by 59 per cent, 63 per cent, 108 per cent and 715 per cent, respectively. Bharat Rasayan, Meghmani Organics, Excel Industries and Bhagiradha Chemicals were the only companies whose revenue de-grew by 17 per cent, 8 per cent, 14 per cent and 20 per cent, respectively. Their net profit declined by 15 per cent, 20 per cent, 64 per cent and 12 per cent, respectively. Overall, the agrochemicals sector performed better led by good recovery seen in the agriculture sector during the pandemic, normal monsoon and healthy exports. The paint companies suffered during the pandemic as demand dropped drastically which led to dip in volumes and thereby decline in revenue and profitability. 

Asian Paints’ revenue de-grew by 19 per cent while the net profit dipped by 28 per cent YoY. Mid-sized company Akzo Nobel’s revenue and net profit declined by 36 per cent and 57 per cent, respectively. A majority of the other chemical companies could not manage to deliver growth as demand was impacted due to temporary shutdown of economic activities led by the lockdown. Lesser dependence on China for imports, extensive capacity expansion plans and strong focus on research and development to make import substitutes would continue to be some of the triggers that would push the sector towards faster growth in the upcoming years. To further boost growth, India is setting up investment zones in Andhra Pradesh, Gujarat, Odisha and Tamil Nadu to provide infrastructure for the petroleum and chemical sectors. 

In addition, the government is establishing plastics production parks in several states. Gradual recovery in consumption in the domestic market and consistent demand in the international market will boost the chemical sector in India in the near term. As many foreign investments are being poured into the oil and natural gas sector in India, the petrochemical segment too has ample opportunities for growth in the near term. India is the only country with the largest number of USFDA-compliant pharmaceutical plants outside of the US. Thus, as the pharmaceutical sector is already on the path of strong growth, the chemical companies dependent on the pharmaceutical sector are expected to deliver growth going forward. 

According to Crisil Ratings, the agrochemical sector’s revenue is likely to grow 12-14 per cent in the ongoing financial year due to a sharp recovery in domestic agriculture sector and continuing healthy exports. An above-average and well-spread monsoon in the first half of FY 2020-21 has led to an increase in kharif sowing area. Besides, the present water reservoir level, which is at 87 per cent of capacity, will ensure a healthy increase in acreage in the forthcoming rabi season as well. As per the Ministry of Chemicals and Fertilisers of India, the market size of chemical and petrochemical sector is expected to grow to USD 300 billion by 2025 from the existing USD 165 billion. Some of the policies would be revised to strengthen the chemical industrial cluster known as PCPIRs (petroleum, chemicals and petrochemical investment regions) and plastic parks.

Construction



The pandemic and its subsequent lockdowns directly affected the construction sector. As construction projects in the realty sector halted, the future demand for products in the construction segment remained uncertain. The pandemic hit businesses at a time when the economy was growing at a positive pace for the future. As of end of September 2020, developers had a locked-in capital of nearly Rs 3.7 trillion with unsold inventory to the tune of more than 4,50,000 units at various stages of construction across the top seven cities. As constructions and renovation projects halted, so did business activities related to ceramics, wood and glass products. Later, after the easing of lockdown restrictions, full capacity utilisation was not possible because of the lack of available workers.

Other than that, even if there is growing demand in the sector, the real estate costs have also increased as the input cost has increased, especially that of steel and cement., Additionally, new projects will also be taking some time to be handed over to customers as deadlines have got pushed ahead due to the lockdowns. KNR Construction reported a 5.42 per cent increase in net sales for H1FY21 compared to H1FY20 primarily led by pent-up demand. In the ceramics segment, prominent names such as Kajaria Ceramics and Cera Sanitaryware posted 30.01 per cent and 21.72 per cent decline in net sales, respectively, for H1FY21 as compared to H1FY20.

During the pandemic, not only was demand affected but supply chain disruptions resulted in lower sales numbers. Subsequently, Kajaraia Ceramics’ net profit for H1FY21 fell by 60.46 per cent compared to H1FY20. For the same period of time, Cera Sanitaryware reported 53.82 per cent de-growth in its net profit. In the wood and wood products segment, average net sales declined by 33.94 per cent while operating margins were down by more than 20 per cent in H1FY21 compared to H1FY20. Though currently uncertainty looms over the construction sector, the sector is always a beneficiary of economic development.

While people will continue to buy homes, offices and organisations will continue to need infrastructure. Hence, the demand in the realty sector will continue to increase but with a shift in certain demand areas. Work from home has led more people to focus on their homes and is driving upgrades to the luxury segment. An overall uplifting of the realty segment will benefit the construction sector as a whole. Upgrades and renovations are expected to boost segments such as wood and wood products, glass, laminates and decorative products, etc. Additionally, any government relief and policy boosts will also be instrumental in pushing up demand for the sector.

The central government had announced increasing the budget outlay for urban housing under the Pradhan Mantri Awas Yojana (PMAY). The additional Rs 18,000 crore spending under PMAY will help fund stuck housing projects. As the real estate sector is connected with many others allied sectors the move is likely to be a boost for the construction sector. Meanwhile, anti-dumping duty levied on China by many countries (including the US, Brazil, Indonesia) favoured Indian tiles and sanitaryware manufacturers with dealers favouring organised players in the domestic market with better stock availability and those with an advantage of digital technology that makes it easy for customers to view products from their homes without visiting multiple showrooms.

Consumer Durables

The consumer durables’ sector mainly consists of durable goods and appliances for domestic use like televisions, refrigerators, air-conditioners, cell phones, kitchen appliances, etc. The retail boom, rising real estate and housing demand and more money at discretion to spend are making this sector witness significant growth in recent years. The consumer durables sector is perhaps one of the fastest growing sectors among all the sectors. Rural areas are more inclined towards the increasing demand in consumer durables sector as the government has taken initiatives to invest significantly in rural electrification.

The Government of India has also framed some policies and frameworks and granted relaxations relating to approval of 51 per cent of foreign direct investment (FDI) in multi-brand retail and 100 per cent FDI in single-brand retail, thus triggering growth in the consumer durables’ markets. The consumer durables’ industry faced a major disruption due to the pandemic which hit India in March 2020. The essential goods were less impacted but the economy could witness reduced spending on discretionary and durable goods due to lockdowns and restrictions. The companies faced severe labour shortages and also impacted factory operations. The disrupted logistics supply chain also led to the closure of some of the outlets for non-essential products and food service providers. 

In order to compensate for this, in spite of easing of the lockdown from May 2020, the consumer products’ companies decided to operate at 50 to 75 per cent capacity as against 20 to 30 per cent previously. The consumer durables’ sector also faced demand pressure from the agriculture space as they were also affected due to the pandemic. To throw more light on the performance of the consumer durables’ sector we have taken into consideration the performance of some of the well-known companies in this sector, namely, Whirlpool of India, Voltas, Honeywell Automation India, Crompton Greaves Consumer Electrical and Blue Star. The half yearly results are compared for a better understanding i.e. H1FY20 and H1FY21.

Considering the revenues of the company on an average, the sector was down by 25 per cent in H1FY21 as compared to HYFY20. Among the leading companies mentioned, Blue Star saw the highest decline in revenues i.e. around 45 per cent followed by Voltas, Whirlpool of India and Crompton Greaves Consumer Electricals. The lowest decline of 11 per cent in revenues was experienced by Honeywell Automation India, a provider of integrated and automation solutions including process and building solutions, which may have been able to generate revenue in the new ‘work from home’ pattern during the lockdown as compared to other companies which were purely factory-based operations.

Seeing the operating profit changes in H1FY21 compared to H1FY20, the greatest change was seen by Blue Star of around 70 per cent decline followed by Voltas and Whirlpool of India. The demand for consumer durables is likely to increase in the coming quarters especially since the demand for cooling products may increase. According to industry experts, the consumer durable sector may see a pick-up in the last quarter as compared to the other three quarters as people have now started to spend more over such products.

Electric Equipment

India’s electrical equipment industry is highly diverse and manufactures a wide range of high and low-technology products. The industry directly employs around a half million people and provides indirect employment to another one million people. The industry can be broadly classified into two sectors – generation equipment and transmission and distribution equipment. It also comprises other electrical equipment such as instrument transformers, surge arrestors, stamping and lamination, insulators, insulating material, industrial electronics, indicating instruments, winding wires, etc.

The Indian electrical equipment industry has a good mix of large private and public sector enterprises, multinational companies and small and medium companies. In addition, the domestic presence of major foreign players, either directly or through technical collaborations with domestic manufacturers, has attracted diversity in the industry. The widespread impact of the pandemic which has left no sector unturned has resulted in a negative impact on the electrical and equipment sector as well.

Overall, the economic slowdown and lower manufacturing activity has led to production cuts and decline in capital investments. The immediate impact on the business due to closure of factories and offices coupled with transportation challenges resulted in muted sales in last week of March 2020 and in the next months for all the companies in the sector.

Significant investments in the distribution sector by the government will drive demand for transmission and distribution equipment, which will fuel the electrical equipment market growth over the forecast period. The growth of the electrical equipment market share in India by the transmission and distribution segment is expected to be slower than the growth of the market by the generation segment. Growth in cross-border electricity trading has been an instrumental factor in influencing the growth of the electrical equipment market in India.

Other market drivers include a rise in power generation from renewable energy sources and an increase in investments in the power sector. We have compiled the data of 16 companies of this sector to get an overview of the industry and have compared them on YoY basis for H1FY20 and H1FY21. The net sales have shrunk drastically with 50 per cent reduction. The large-cap companies in this sector like Havells and ABB India have shown sales drop of more than 20 per cent. TD Power System has managed to show 2 per cent positive in sales growth as compared to H1FY20.

It is expected that government intervention with increased spending on Indian infrastructure development and revival of key sectors such as construction, mining, capital goods and automobile will lead to increased demand for steel in India. The ‘Make in India’ initiative and the new domestic sourcing norms for the power sector will also help the electrical and equipment sector grow. The sector is expected to benefit from increased domestic demand as India strives to reduce its dependency on Chinese imports. With proper steps being taken along with improved innovation and research and development, the domestic electrical equipment sector can attract more foreign attention.

Engineering

The Indian engineering industry is classified into two segments: heavy engineering and light engineering. It is a strategically important sector to the economy as the output drives a broad base of industries acting as a critical input. The central government has started various initiatives such as Digital India, Make in India and supportive FDI policies to boost the engineering sector. It has made significant efforts towards the development of this sector. The government has also appointed the Engineering Export Promotion Council (EEPC) as a summit body in charge of the promotion of engineering goods, products and services from India. Engineering exports from India such as transport equipment, capital goods, other machinery and equipment and light engineering products registered growth at a CAGR of 6.81 per cent during FY16-20.

Several companies in the engineering sector have diversified, either geographically or sector-wise. The engineering education system has provided a consistent supply of skilled labour which has helped to drive growth across the industry. This has seen India become a favourite outsourcing market for global manufacturers due to its lower labour costs and better technological designing capabilities than those available in competing emerging markets. For the purpose of sector analysis, we have analysed 31 companies in the engineering sector according to their market capitalisation. During H1FY21, the aggregate sales of these companies declined by 25.81 per cent YoY and the aggregate PBIDT decreased by 66.71 per cent YoY.

Similarly, aggregate PAT declined by 86.72 per cent YoY. The company which showcased the highest growth in PAT was Everest Kanto Cylinder, which reported PAT of Rs 36.02 crore in H1FY21, an increase of 312.60 per cent as compared to Rs 8.73 crore reported in H1FY20. The company was followed by ISGEC Heavy Engineering, which reported a PAT growth of 63.48 per cent to Rs 120.19 crore in H1FY21 from Rs 73.52 reported in H1FY20. In terms of sales, the company that contributed the most to aggregate sales was Bharat Heavy Electricals, that reported net sales of Rs 5,340.88 crore in H1FY21, decreasing by over 48.85 per cent over Rs 10,441.25 crore reported in H1FY20.

Bharat Electronics reported 1.79 per cent YoY growth in terms of its revenue while PAT declined by 18.05 per cent YoY. Larsen and Toubro Technology Services’ revenue decreased by 5.13 per cent and its PBIDT declined by 21.08 per cent YoY. The PAT of the company declined 30.71 per cent in H1FY21 as against H1FY20. ISGEC Heavy Engineering posted a fall in revenue by 8.82 per cent YoY. However, PBIDT and PAT increased by 40.51 per cent and 63.48 per cent, respectively, on YoY basis. Kirloskar Industries reported fall in revenue, but jump in PBIDT and PAT by 26.54 per cent, 21.42 per cent and 3.72 per cent, respectively, on YoY basis in H1FY21. Out of the 31 companies, there were five which reported net losses for the first half of the fiscal year.

Bharat Heavy Electricals, BEML and Forbes & Company were some of those that reported net losses. They posted net losses of Rs 14,62.25 crore, Rs 116.78 crore and Rs 59.31 crore, respectively. The products of the engineering industry are everywhere, from a fan to scissors. It is crucial for the government to boost this sector as it creates jobs and makes development in every sense. Industrialisation combined with economic development is driving growth in the engineering industry. Investment in the infrastructure sector is also increasing, which will drive the demand for capital goods, engineering and electronics sector as a whole. Strong focus towards attracting foreign investment in manufacturing and infrastructure is expected to boost FDI inflows in the future. Increasing industrialisation continues to drive overall growth in the engineering goods market.

Entertainment

The media and entertainment industry in India consists of many different segments such as television, print and films along with smaller segments like radio, music, out-of-home advertising, animation, gaming and visual effects (VFX), and internet advertising. The industry is said to be in a strong growth phase backed by rising consumer demand and improving advertising revenue. Since it is largely driven by increasing digitisation and higher internet usage over the last decade, the internet has almost become a mainstream media for entertainment for most consumers.

The Indian entertainment industry is expected to grow at a CAGR of 13.5 per cent during FY19–FY24 and reach around Rs 3.1 lakh crore by 2024. Digital advertising, which has emerged as the third-largest advertising medium in India, generated revenue of around Rs 15,467 crore in the year 2019, while by market size it is expected to contribute 29 per cent to the total advertising market by the end of 2021. The online video market in India is projected to be around USD 4 billion by 2025, with subscription services making a contribution of more than USD 1.5 billion and advertising adding USD 2.5 billion.

During the pandemic the entertainment industry was seriously hit. On an average the entertainment industry reported a fall in net sales by 38.91 per cent YoY for H1FY21. Zee Entertainment Enterprises reported a decrease in net sales by 26.52 per cent in H1FY21 compared to H1FY20 and for the same period its net profit declined by 86.97 per cent. Since movie screenings were halted and theatres had to shut down, many owners of cinema halls such as Inox Leisure and PVR Limited suffered huge losses. The net sales of Inox Leisure declined by 99.94 per cent in H1FY21 compared to H1FY20 while that of PVR fell by 97.13 per cent YoY in H1FY21.

Companies which were preparing to roll out new movie halls in different places all over the country had to reconsider their plans since they were faced with a cash crunch. At such times the digital platforms were a huge attraction for consumers. Though the number of viewers increased, launching of new series was difficult since shoot locations were closed keeping safety in mind during the spread of the virus. Nevertheless, to cater to the needs of viewers, various new movies were launched on digital platforms. In accordance to that, many companies started to diversify their business and launch new products and services as well.

Zee Entertainment Enterprises launched pay-per-view movie service, Zee Plex, which is a new film distribution service in order to display new films on DTH and OTT platforms. This move focuses on meeting the growing demand for watching movies among consumers amid the corona virus pandemic. Display technology devices’ manufacturer BenQ launched a new home entertainment projector, TH585, since many preferred to have content-viewing experience at home.

The Government of India announced its plans to develop an animation, visual effects, gaming and comic (AVGC) centre for excellence in collaboration with IIT Bombay. The AVGC segment is slated to grow at a rate of around 29 per cent between 2019 and 2024. With the new shift towards digitisation, the entertainment industry has found another area for growth and another set of audience to cater to. In spite of this, people will continue to go to movie halls as the positive updates regarding the vaccine is boosting the confidence levels. Moreover, the sector is likely to benefit from the upcoming holiday season as well.

Fertiliser

India is the second-largest consumer of fertilisers and the third-largest producer of fertilisers in the world with an annual consumption of more than 55 million metric tons. Urea is one of the highest consumed fertilisers in India which accounts for about 60-65 per cent of the overall fertiliser consumption and is a source of nitrogen. While India is the world’s second-largest consumer of urea, the Government of India is working toward increasing the production of urea so as to end imports by 2022 and achieve self-sufficiency in urea production. The fertiliser sector falls under the essential commodities category and hence was exempted from lockdown restrictions imposed in India from late March 2020 due to the pandemic.

But the lockdown posed a number of challenges for continuous operation of fertiliser plants. Fertiliser production is a continuous process but its consumption is seasonal. As agricultural activities during the pandemic flourished, the demand for fertilisers by the farmers increased. Another important factor was the favourable monsoon witnessed in 2020 which boosted the agriculture sector and thereby further triggered the demand for fertilisers in the domestic market. NPKS (nitrogen-phosphorous-potash-sulphur) delivered strong growth of 86 per cent, followed by di-ammonium phosphate (DAP) and muriate of potash (MoP) during H1FY21. The fertiliser industry remains highly regulated and subsidy-dependent. Recently, the finance minister announced an additional Rs 65,000 crore subsidy, over and above the Rs 71,309 crore already provided in the Union Budget 2020-21.

For the purpose of sector analysis, we have analysed 10 companies in the fertiliser sector according to their market capitalisation. The performance of H1FY21 is not comparable with H1FY20 as the former has been an exceptional period with impact on economic activities due to the lockdown imposed in India. The fertiliser segment was one of the least affected sectors. Revenue of Deepak Fertilisers, Chambal Fertilisers and Coromandel International grew by 23 per cent, 12 per cent and 12 per cent YoY, respectively, in H1FY21. Revenue of companies like Southern Petrochemical Industries and Zuari Agro de-grew by 37 per cent and 30 per cent, respectively.

Operating profit of most of the companies grew in double digits led by soft raw material prices except for Southern Petrochemical Industries and GNFC. Companies like Rashtriya Chemicals and National Fertilisers managed to generate net profit during H1FY21 as against net loss incurred in H1FY20 whereas Zuari Agro managed to narrow down its net loss during the same period on YoY basis. As per India Ratings and Research, fertiliser sales would moderate during H2FY21 and show healthy growth for FY21. Fertiliser sale is likely to grow in the range of 10-15 per cent YoY in FY21, supported by the increase in H1FY21 sales due to increased sowing and acreage in the ongoing kharif season.

The other reasons that will drive growth include better labour availability, favourable monsoon prospects for the upcoming rabi season, an increase in reservoir levels across key fertiliser consumption areas and better fund availability with farmers. The fertiliser sector is one of the many attractive sectors in India as there is huge demand for fertilisers by farmers every year. However, domestic production itself is not enough to meet the requirement. The Indian agriculture sector is expected to grow at least 3 per cent in FY21 led by robust output and prices, as per Niti Aayog’s estimates. The contribution of agriculture and allied sectors in the national GDP is poised to increase in 2020-21. The Indian fertiliser market is expected to witness growth of CAGR 11.9 per cent during 2019-24.

Finance

Non-banking financial companies (NBFCs) are finally showing some sign of stability after struggling for more than two years. A series of events starting from the default of Infrastructure Leasing and Financial Services during September 2018 has put the entire NBFC sector into the spotlight, which was down due to negative consumer sentiment and liquidity issues. NBFCs have witnessed a hugely improved asset liability mismatch and risk practices to the fore with most of the NBFCs sitting on large cash piles to avoid any undue defaults or liquidity freezes. The importance of the NBFCs in helping the economy regain its strength cannot be undermined. They remain one of the most important pillars for implementing financial inclusion in the country.

NBFCs provide funds to those who cannot reach banks and these are mostly from the weakest strata of the economy. They serve a niche and focus on particular products such as vehicle finance or microfinance. Many banks have their own NBFC subsidiaries catering to niche segments. NBFCs are only part of the bigger finance companies that include asset management companies, stock broking companies, mortgage companies and investment firms. The earnings of asset management companies (AMC) very much depend upon the assets under management (AUM). If AUM increases, the fees charged by the AMC also increase. Fees charged to manage equity part of the AUM attract more income than the debt part.

In the first six months of FY21 we saw huge volatility in the equity market and also there was net outflow from the equity AUM. This is the reason we saw decline in the topline of these companies by almost 20 per cent. The bottomline, however, managed to remained flat on the back of improved other income, which more than doubled. Going ahead, as the equity market is at a lifetime high we may see more inflows into mutual funds and companies posting better results. Meanwhile, major mortgage companies such as HDFC, HUDCO, PNB Housing on an average saw a decline in their total income to the tune of 7.3 per cent in the first half of FY21.

Fall in revenue in the second quarter of FY21 led to an overall decline in the revenue of housing finance companies in H1FY21. These companies had posted better growth numbers in the first quarter. The profit, however, saw an increase of almost 40 per cent on yearly basis in H1FY21. This was largely due to improvement in margins led by lower cost of funds. In addition, improved collection efficiency helped credit cost to moderate, thus resulting in better profit growth. So far so good! However, results of the quarter ending December will show the correct picture of the industry as moratorium has ended. If it is able to sustain the growth momentum and asset quality we may see another good quarter of housing finance companies.

The net interest income (NII) of NBFCs in the first half of FY21 saw a growth of 7.7 per cent on the back of better AUM growth. Gold financing companies such as Manappuram Finance and Muthoot Finance saw NII growth in double digits as the price of gold increased. Margins saw marginal improvement in the first half of FY21 led by lower cost of funds. The asset quality improved due to moratorium and collection efficiency of more than 90 per cent across NBFCs. Nevertheless, higher provision led to a drop in overall profit of the NBFCs. Besides, companies such as Edelweiss Financial Services saw sharp fall in their performance, impacting the entire NBFC earnings. On an average, NBFCs saw their profit declining by 7 per cent on a yearly basis.

Equity broking firms have been the prime beneficiaries of the the rising interest of the retail investors in equity since the sharp fall witnessed in the first quarter of CY20. For the first six months of FY21, retail players majorly led the rise in the volume of equity trading. The topline of these companies increased 27 per cent in H1FY21 on a yearly basis. All the major broking firms such as ICICI Securities and 5 Paisa Capital saw their income increasing by more than 50 per cent. The bottomline of these companies saw growth of 51 per cent in the same period. We believe these companies are likely to continue with their good performance in the next couple of quarters also.

FMCG

In India, fast moving consumer goods (FMCG) is the fourth-largest sector in the economy with the main segments being food and beverages and household and personal products. For H1FY21, the sector has delivered mixed results mainly due to restriction in movements as well as supply chain disruption caused by the lockdown imposed by the government to curb the spread of the corona virus. Products like frozen meat registered a decline in demand due to the rumours regarding the spread of the virus on consumption of non-vegetarian food. On the other hand, hygiene and sanitation products witnessed increase in demand owing to the awareness created by the virus. Many companies have launched sanitizers and immunity boosting products in the market to take advantage of the changing consumer needs. Hindustan Unilever is mainly engaged in food and drink, personal care, home care and water purifier and is one of the largest companies as per market capitalisation. The company reported growth of 9.46 per cent in its net sales of Rs 22,092 crore in H1FY21 from Rs 20,182 crore in H1FY20. The company recorded growth of 7.14 per cent in its net profit of Rs 3,871 crore in H1FY21 compared to Rs 3,613 crore in H1FY20. In April 20, the company completed its merger with GlaxoSmithKline Consumer Healthcare (GSK CH), giving the company a strong foothold in the nutrition and health foods and drinks (HFD) category. It also acquired intellectual property rights of a female intimate hygiene product, the VWash brand.

Tata Consumer Products is engaged in manufacturing home to iconic brands like Tata Tea, Tetley and Tata Salt and witnessed growth of 47.28 per cent in its net sales of Rs 5,495.25 crore for H1FY21 as compared to Rs 3,731.19 crore in H1FY20. It delivered robust growth of 113.25 per cent in its net profit of Rs 623.42 crore in H1FY21 as against Rs 292.34 crore in H1FY20. Companies like LT Foods, Britannia Industries also recorded growth in sales. However, companies engaged in manufacturing discretionary products like VIP Industries, Vadilal Industries, Mirza International, Orient Electric and Jubilant Food Works recorded de-growth of 85.35 per cent, 51.47 per cent, 42.20 per cent, 38.93 per cent and 38.13 per cent, respectively.

Consumers prioritized spending on essential commodities during the pandemic period. However, non-essential commodities in the home care and personal care segment also saw growth post gradual uplifting of the lockdown, suggesting a revival in the industry. The rural market recovered faster than the urban market led by higher monsoon and Kharif sowing. With changing consumer behaviour and more focus on hygiene-related products, companies with strong base in the hygiene segment have a wider scope going forward. Many companies will focus on strengthening their brands and expanding the product portfolio. Going forward, focus on strong distribution network and cost-efficiency programs could help companies utilise the intrinsic strengths of their brands. Leveraging technology, automation and cost management coupled with growing the core portfolio will help the companies deliver sustainable and profitable volume growth and gain market share. E-commerce also plays a major role in the growth of the companies. With the share of unorganised market in the FMCG sector declining, the organised sector’s growth is expected to increase with the rising level of brand consciousness due to growth in modern retail. 

Hospitality

Tourism is an integral part of India and is considered to be the greatest pillar of the ‘Make in India’ campaign. Being the seventh-largest country in terms of size, it is also the eighth-largest country when it comes to contribution to travel and tourism. Considering the internet age today, people have become more alert towards comparison of various hotels and accommodation facilities available. The hospitality industry is keeping itself updated with the latest trends in the digital space today. Digital options available nowadays like the Make My Trip mobile app, OYO Rooms, AirBnb, etc. are very useful for people looking out for the best accommodation in various tourist sections. 

Besides, the industry being a major source of foreign exchange in the country, large employment generation opportunities arise through the tourism and hospitality sector. Increasing digitisation in India has helped grow the sector in terms of international presence. The pandemic impact forced various industries all over the world to shut down overnight. One of the widely affected sectors due to the pandemic has been the hospitality sector, crippling companies having business activities in the sector with various challenges resulting into significant decrease in demand. The first corona virus case was detected in India in January, subsequently leading to a ban on international and domestic flights in the latter part of March when the first lockdown was declared on March 23, 2020. 

Pertaining to this, India witnessed a 65 per cent drop both in monthly as well as yearly terms in the arrival of foreign tourists in India for the said month. Only 3.3 lakh foreign tourists arrived in India during this period, a number which could be seen as an overall 11-year low as compared to the previous study. February also did show YoY de-growth of 6.6 per cent and month-on-month decline of 9.2 per cent. The inflow of the tourists saw a decline of 22.6 per cent from 31,79,792 in January to March 2019 to 24,62,244 in January to March 2020. In the FY21 budget, India’s finance minister considered tourism growth to be directly related to growth of the economy. Hence, allotting substantial funds to development of tourism in India is expected to help in the progress of the country’s economy as a whole.

To further study the hospitality and the travel industry we have taken into account the performance of some of the well-known companies in this space. For a better understanding we have compared the half yearly performances of the companies i.e. H1FY20 and H1FY21. We have noticed that on an average the sales have reduced by 78 per cent in H1FY21 as compared to H1FY20. Wonderla Holidays tops the list with 99 per cent drop in net sales for H1FY21 when compared to H1FY20. The calendar year 2020 has truly been an exceptional year. Since business activity in the sector halted for a long duration, most of the companies reported operating loss in H1FY21 as against operating profit reported in H1FY20.

Since companies incurred net losses during H1FY20, many were feared to be steeping towards insolvency and shutting their doors forever. Amongst the 12 companies that we have considered for our study, IRCTC is the only company to have reported net profit for H1FY21 of Rs 8.03 crore, which is a drop by 95.34 per cent compared to the net profit of Rs 172.16 crore reported for H1FY20. With restrictions on the interstate and international travels being eased by the government in the post-lockdown phase, the sector has started to gradually see some recovery in demand. Many companies in the hospitality sector have started to diversify their business by considering options such as beverage and food deliveries. Going forward, the festive season and the boredom of sitting at home will drive demand. 

Information Technology

The significance of the IT sector in India is increasing continuously with the sector contributing around 8 per cent to the Indian GDP and the IT workforce accounting for 4.36 million employees as of October 2020. The IT-BPM industry’s revenue was estimated to be around USD 191 billion in FY20, with domestic revenue contributing USD 44 billion and export revenues at USD 147 billion in FY20. The global sourcing market in India continues to grow at a faster pace compared to the IT-BPM industry. India is the leading sourcing destination across the world, accounting for approximately 55 per cent market share of the USD 250 billion global sourcing business in 2019-20. Indian IT and BPM companies have set up over 1,000 global delivery centres in about 80 countries across the world. 

IT services formed a major part of the revenues, contributing USD 91 billion, followed by e-commerce at USD 54 billion. The growth of the IT sector in the past 10 years has been phenomenal. No one would have thought that India would become the largest IT sourcing destination. From having a handful of technology companies, India has witnessed the launch of more than 55,000 startups up to October 2020 with more than 3,200 startups raising USD 63 billion in funding in the last five and a half years alone. US has traditionally been the biggest importer of Indian IT exports with over 62 per cent of the Indian IT-BPM exports absorbed by US, followed by UK with 18 per cent. 

In recent years, there is a growing demand from APAC, Latin America and Middle East Asia and the contribution to the revenues of these regions will definitely increase going forward. India being one of the low-cost exporters of IT services will continue to attract many foreign players over the years. Indian IT’s core competencies and strengths have attracted significant investments from major countries. The computer software and hardware sector in India attracted cumulative foreign direct investment (FDI) inflow worth USD 45 billion between April 2000 and March 2020. The sector ranked second in FDI inflow as per the data released by Department for Promotion and Internal trade (DPIIT).

The Indian government has supported and will continue to support the IT sector. Some of the initiatives launched by the government are ‘Meghraj Initiative Computing’, ‘Code Free for India’, ‘e-Kranti’, ‘NeGP 2.0’, ‘Li-Fi Technology’, ‘Big Data Initiatives’, etc. These initiatives will not only help the IT sector grow but will be crucial in taking a step forward to realising the the vision of developed India. The government support the IT and related sectors in the country by way of providing them proper infrastructure, offering subsidies and supporting them in every way possible. This proves beneficial for all the technology leaders to look at India as a great opportunity for growth.

The major challenges that India faces in the IT sector and its growth are domestic issues. Today, traditional models have become outdated. It is the era of digital transformation where companies around the world are embracing modern technologies like cloud computing, artificial intelligence (AI), the Internet of Things (IoT), and blockchain. These technologies, besides reducing costs, help companies save time and increase employee productivity. However, India is far behind and rather slow in adapting these technologies. The traditional model continues to be in use. The reasons that can be attributed to this are lack of skilled employees, conventional infrastructure, as well as some restrictive regulations.

India, as compared to other Western countries, in the past has been considered as sluggish when it comes to IT and ITES development but with the government now taking stringent steps to implement new technologies, things have become quite different. The ‘low cost’ also lures companies to come to India. In recent times, India has proven its capabilities in delivering both onshore and offshore services to global clients. Emerging technologies now offer an entire new gamut of opportunities for the top IT firms in India. Leading IT firms like Infosys, Wipro, TCS and Tech Mahindra are diversifying their offerings and showcasing leading ideas in blockchain and artificial intelligence to clients using innovation hubs and research and development centres to create differentiated offerings.

The industry is expected to grow to USD 350 billion by 2025 and the BPM sector is expected to account for USD 50-55 billion of the total revenues. The companies that showed highest growth YoY in terms of revenues were Mastek (60 per cent), followed by Hexaware Technologies (21 per cent) and Expleo Solutions (19 per cent). Companies showing the steepest decline YoY in terms of revenues included Zen Technologies (-83 per cent), Take Solutions (-72 per cent), Aptech Ltd. (-60 per cent) and Vakrangee Ltd. (-50 per cent).

Each of the top five Indian IT companies registered positive growth in revenues on a YoY basis with Infosys registering the highest growth of 8.56 per cent, followed by HCT Technologies (7.31 per cent), Tech Mahindra (4.26 per cent), TCS (1.7 per cent) and Wipro (0.62 per cent). The change in EBIDT was also positive for all of them. HCL Technologies had the highest increase in the EBIDT figure, increasing by 26.13 per cent YoY, followed by Infosys (22.36 per cent). The EBIDT for Wipro and Tech Mahindra increased by 9.66 per cent and 6.70 per cent YoY, respectively. The EBIDT figures for TCS increased merely by 0.28 per cent YoY.

Although the revenues and EBIDT increased for all the top five companies, PAT showed a different story. With only Infosys and HCL Technologies showing an increase in PAT, the other three companies showed decline in their PAT figures. Infosys registered a growth of 16.47 per cent in its net profit while HCL Technologies had the highest increase of 23.07 per cent YoY; its net profit stood at Rs 6,081 crore. The PAT of TCS suffered the largest decline of 10.23 per cent and was at Rs 14,553 crore for the half year ended September 2020. The PAT of Tech Mahindra and Wipro were down by 2.4 per cent and 1.45 per cent, respectively.

Metals

The nationwide lockdown from March 24, 2020 had led to a significant demand destruction of metals in the first quarter of FY21 and the utilisation level of companies dipped to around 50-60 per cent as demand for steel dropped by around 56 per cent. In addition to drop in volume, realisation also dropped. The nonferrous space also got impacted; however, the impact was lower compared to ferrous players as the dip in both volumes and price was much lower. Aluminium, zinc, lead and copper suffered from an average sequential LME fall of 11 per cent, 8 per cent, 8 per cent and 5 per cent, respectively, which was partially cushioned by depreciation in the Indian rupee and cost savings on the coal side.

Nonetheless, relaxation in the lockdown led to improved month-on-month demand as business started attaining normalcy. This was further aided by the demand from China for both ferrous as well as nonferrous metal. This resulted into higher realisation of the commodity prices in both domestic as well as the international market in the second quarter. Higher realisation also led to re-stocking that led to further increase in demand. As a result, the utilisation level increased to 90-95 per cent in the second quarter of FY21. Volume also saw a substantial jump in Q2FY21 on a sequential basis and jumped by almost 50 per cent. All this resulted into revenue of the metal companies, including ferrous and nonferrous, declining by 17 per cent on a yearly basis in the first quarter of FY21.

Nonetheless, the ferrous players saw a sharper decline of 18 per cent while the nonferrous players saw a decline of 14 per cent in their topline. Higher realisation, better product mix, inventory adjustment and lower coking coal led to better operating profit for these companies, especially for nonferrous players. The fall in the performance at operating level was much lower than what we saw at the revenue level. Overall, the operating profit of metal companies in H1FY21 increased by 2 per cent on a yearly basis. Nonferrous players saw an increase in their operating profit by 29 per cent, while the ferrous players saw a decline in profit at operating level by 10 per cent.

At the earnings level, however, these companies saw a decline in net profit by 24 per cent. This was primarily driven by the ferrous companies that witnessed decline in profit by 46 per cent. Companies such as SAIL and Mukand Limited saw their loss increasing manifold. In the case of nonferrous companies, profit after tax increased by 4 per cent, primarily driven by Hindalco Industries and Vedanta. Going ahead, the momentum of increase in price and volume is likely to continue for the next couple of quarters. This will help most of the companies to post better numbers going ahead. In case of the ferrous category, vertically integrated players such as SAIL and JSPL are expected to do much better than non-integrated players.

Petroleum

India is the third-largest energy and oil consumer in the world after China and the US. Also, India is the fourthlargest importer of liquefied natural gas (LNG). India’s current refining capacity stands at 249 MMTPA, comprising 23 refineries—18 under public sector, three under private sector and two in a joint venture. At present, about 16,788 km natural gas pipeline is operational and about 12,672 km gas pipelines are under development. The demand for natural gas in the domestic market is largely dependent on the fertiliser (28 per cent), power (23 per cent), city gas distribution entities (16 per cent), refineries (12 per cent) and petrochemicals (8 per cent) industries.

The cumulative crude oil production during April-October 2020 was 19,110 TMT. Natural gas production for April- October 2020 was 18,646 TMT. Liquefied natural gas (LNG) supply is forging ahead on both coasts with eight new R-LNG terminals (four on the west and four on the east coast) coming up. Together with the six existing terminals, the overall capacity will reach 74 MMTPA. The pandemic has had a significant impact on the oil and gas sector at a global level. Demand crashed down by an estimated 30 per cent in April 2020. From December 2019 when the pandemic outbreak began in China, the prices started falling significantly and dropped as low as USD 11 per barrel in April 2020.

However, over the next two months the situation improved as the demand gradually increased, led by some relaxations given in lockdown norms. In June 2020 the price was hovering above USD 35 per barrel. Yet, state-level restrictions, persistent disruption in economic activity and continued and aggressive spread of the virus dragged demand lower once again with growth contracting by negative 20.6 per cent in August. Since then it has been trading in the range of USD 35-41 and lately in November 2020 it touched the level of USD 45.7 per barrel.

In our analysis, we have taken up 20 companies from this sector ranked as per their market capitalisation. The performance in H1FY21 as against H1FY20 is non-comparable as the former was an exceptional period where due to the lockdown all businesses across the world had come to a standstill, especially in April and May 2020. Asian Oilfield Services is the only company which managed to deliver growth of 35 per cent in terms of revenue. Companies like BPCL, IOC and HPCL managed to deliver growth in operating profits of 60 per cent, 33 per cent and 101 per cent, respectively, despite the dip in revenues by more than 20 per cent. This was mainly led by improvement in demand in Q2FY21 and healthy inventory gains. Also, these companies along with Reliance Industries managed to generate growth in net profit of 76 per cent, 141 per cent, 201 per cent and 9 per cent, respectively, led by higher operating profits. Oil India incurred net loss during H1FY21 as against net profit in H1FY20 whereas Mangalore Refinery managed to narrow down its losses during the period on YoY basis.

Recently, the Petroleum and Natural Gas Regulatory Board informed that India will cut gas pipeline tariffs for areas far from gas injection points as the nation seeks cleaner fuel-led industrial development across the country. Differential pipeline tariff is one of the key reasons for uneven gas use in the country, which aims to raise its share in energy consumption to 15 per cent by 2030. The new rules are expected to come into force in the next 2-3 months. In the long run, pipeline companies will be beneficial as the gas volumes would go up. A fresh investment of over USD 300 billion is projected to be made in India’s oil and natural gas sector for developing natural supply and distribution infrastructure to meet rising demand. The Government of India has indicated that with Reliance-Bharat Petroleum, ONGC and Oil India put together, exploration and production scenario would see investment of around USD 59 billion

On the other hand, the downstream segment, including marketing, refinery expansions and new refinery plans like Vizag, Barmer, Paradip and Ratnagiri may get investments of USD 80 billion in the sector. The Prime Minister’s Office (PMO) has directed 13 petroleum-sector CPSEs to double their capex to Rs 2 lakh crore in FY21 from the initial target of Rs 1 lakh crore and scale it up further to Rs 3 lakh crore in FY22. However, the capex of these companies during H1FY21 was less than a third of their yearly target. According to the oil ministry, India’s fuel demand has almost recovered to the pre-pandemic levels and the nation will experience the fastest growth in energy consumption among all large economies over the upcoming decades. India’s share of global energy consumption is set to rise from the current 7 per cent to 12 per cent by 2050.

Pharmaceuticals

India has a rapidly growing presence in the global pharmaceutical industry. It commands around 20 per cent share in global supply by volume and also supplies 62 per cent of the global demand for vaccines, thus making it the largest global provider of generic medicines. India is the only country with the largest number of USFDA-compliant pharmaceutical plants with more than 262 active pharmaceutical ingredients (APIs) outside the United States. The country has more than 3,000 pharmaceutical companies with a robust network of over 10,500 manufacturing facilities. The Indian API industry is ranked third in the world, contributing 57 per cent of APIs to the prequalified list of the WHO. The annual turnover of the Indian pharmaceutical industry was about Rs 25,85,341 crore during the year 2018-19.

During H1FY21, with the nation-wide lockdown, operations of the pharmaceutical industries were considered essential, thus supporting the pharmaceutical companies to operate at lesser capacity during the initial days of the lockdown. However, with the gradual unlocking process the operating capacity of the companies improved. On the one hand, companies like Cipla and Glenmark recorded growth in sales after launching Favipiravir in the country to treat corona virus while on the other hand, hospitals, clinics, OPD centres, local clinics suffered as their operations were suspended to prevent infection from the virus.

Exports form a significant share of the Indian pharmaceutical industry, accounting for about half of the sales of the industry. In H1FY21 exports from India increased by 15.2 per cent to USD 11.8 billion. However, the exports were only up by 1.5 per cent on YoY basis as they were hit in the month of April 2020 due to pandemic-triggered disruptions. During the months of May 2020 to August 2020, exports increased in double digits of about 17-20 per cent. In the month of June 2020 it saw a growth of nearly 10 per cent. The growth in exports picked up in the month of September 2020, recording an increase of 24.5 per cent. Factors like easing of the lockdown, product launches and demand for drugs in the international market for treatment of the virus helped growth in the export segment.

Divis Laboratories, one of the leading manufacturers of APIs, delivered growth of 33.40 per cent in its net sales of Rs 3,479.77 crore for H1FY21 as compared to Rs 2,608.45 crore in H1FY20. The company’s net profit recorded a stellar growth of 60.78 per cent to Rs 1,011.65 crore in H1FY21 from Rs 629.22 crore in the corresponding period the previous year. Laurus Labs recorded 67.31 per cent growth in net sales of Rs 2,113.16 crore for H1FY21 as compared to Rs 1,262.99 crore in H1FY20. It recorded robust growth of 477.89 per cent in its net profit of Rs 414.05 crore in H1FY21 as against Rs 71.65 crore in H1FY20.

Marksans Pharmaceuticals reported growth of 37.13 per cent in its net sales of Rs 687.62 crore for H1FY21 as compared to Rs 501.43 crore in H1FY20. The company reported net profit growth of 106.59 per cent to Rs 100.10 crore in H1FY21 from Rs 48.45 crore in H1FY0. Hospital and healthcare facilities like Narayana Hrudayalaya, Fortis Healthcare, Apollo Hospitals Enterprise and Aster DM Healthcare registered de-growth in net sales for H1FY21 due to lower footfall caused by restriction on inter-state and international movement. Going forward, the unlocking process will further increase footfalls in the hospital and healthcare industry.

The operations are expected to return to normalcy in Q3FY21. E-consultation services and other home care services could support growth in the industry. Moreover, the industry is expected to continue to witness demand from the domestic as well as international markets for some of the antivirals and antibiotics, given the spread of the corona virus. Additionally, new product launches will be supported with demand for Indian drugs in the international market boosting Indian pharmaceutical exports. Despite the uncertainties, successful execution of strategies, leadership in chosen spaces, continuous improvement and product innovation will support the companies’ growth in the forthcoming quarters.

Plastic Products

India is recognised as a plastic hub in the world because of its low-cost production, cheap labour, easy availability and low cost of raw materials. The plastic industry is taking a significant part in the contribution of the progress of our country. It contributes to requirements like clothing, housing, construction, furniture, automobiles, household items, agriculture, horticulture, irrigation, packaging, medical appliances, electronics and electrical items. The potential of the Indian plastic industry has motivated Indian manufacturers to acquire technical expertise, achieve superior quality standards and build capacities. Most of the raw material required is manufactured in the country because of which availability of raw material for plastic processing is easy.

Low labour cost also strengthens the market. Most of the plastic is exported to USA, the UAE, Italy, the UK, Belgium, Germany, Singapore, Saudi Arabia, China and Hong Kong. For the purpose of sector analysis, we have analysed 24 companies in the plastic sector according to their market capitalisation. During H1FY21 the aggregate sales of these companies declined by 6.68 per cent YoY and the aggregate PBIDT increased by 15.71 per cent YoY. Aggregate PAT grew by 8.74 per cent YoY. The company which showcased the highest growth in PAT was Uflex, which reported PAT of Rs 416.58 crore in H1FY21, an increase of 122.62 per cent as compared to Rs 187.13 crore reported in H1FY20.

It was followed by Cosmo Films, which reported PAT growth of 76.52 per cent to Rs 99.70 crore in H1FY21 from 56.48 reported in H1FY20. In terms of sales, the company that contributed the most to aggregate sales was Uflex that reported net sales of Rs 4,106.82 crore in H1FY21, increasing by over 8.80 per cent over Rs 3,774.73 crore reported in H1FY20. Jindal Poly Films reported 11.08 per cent YoY growth in terms of its revenue. PAT also grew by 64.84 per cent YoY. Responsive Industries’ revenue increased by 16 per cent whereas the PBIDT declined by 14.58 per cent YoY. PAT of the company grew by 1.52 per cent in H1FY21 as against H1FY20.

Ester Industries posted a fall in revenue by 18.46 per cent YoY. However, PBIDT and PAT increased by 26.77 per cent and 74.32 per cent, respectively, on YoY basis. Kama Holdings delivered healthy numbers with a jump in revenue, PBIDT and PAT by 2.03 per cent, 32.35 per cent and 26.91 per cent, respectively, on YoY basis in H1FY21. Out of the 24 companies, there were 13 which reported a decrease in PAT in the first half of the fiscal year. Kingfa Science and Technology, Time Technoplast and Jai Corporation were some of those that reported a decrease in PAT. Their PAT declined by 87.47 per cent, 83.20 per cent and 75.62 per cent, respectively.

There are several factors like low per capita consumption, manufacturing focus, end-use industry growth, increasing urbanisation, changing lifestyle, demographic dividend, etc. which are promoting the growth of plastic across India. However, even though the plastic industry has huge growth potential, it still faces various challenges. The basic problem with plastic is its management. The industry needs to engage itself in plastic waste management. There is huge growth in the polymer used in India, but as for now, it is far behind globally. Hence, it is clear that plastic will continue to be a growth industry.

Power

The power sector in India is one of the most diversified sectors in India, and has its sources of power generation ranging from conventional sources such as coal, oil, natural gas, oil, etc. to viable non-conventional sources such as wind, solar, agriculture and domestic waste. Power being the most critical component of infrastructure; would be crucial for economic growth. Despite having a population of 1.4 billion and being the third largest producer of electricity India’s electricity consumption stands at 1,200 TWh compared to 5,700 TWh of China. Electricity production reached 1252.61 billion units (BU) in FY20 out of which almost 92% accounted from conventional sources, the remaining 8% being from non-conventional sources.

The national electric grid in India has an installed capacity of 373,436 megawatts as of October 2020. The domestic electricity generation in H1FY21 was at a 4 year low, down by 8% YoY. The decline can be attributed to the sharp fall in the demand of electricity from the industrial and commercial sectors during the nationwide lockdown. Output from conventional energy sources was 9% lower from the last year while output from renewable energy was lower by just 1%. Wind power generation, which accounts for 50% of renewable energy generation was down by 14% YoY. The demand for electricity increased from September when it rose by 6% from the previous year after relaxations of the Covid-19 related restrictions.

The government of India has allocated Rs 26.64 lakh crore for the development of the energy and power sector over FY 2019- 25.

Services

The service sector has been a key driver of the Indian economy over the last three decades. The economic reforms since the early Nineties unleashed the potential of the services sector by utilising available skilled manpower. The share of manufacturing in India’s GDP has remained stagnant around 15 per cent for nearly three decades and is nowhere near the 2022 target of 25 per cent. The service sector has a 55 per cent share in the economy. India’s share in the world’s commercial services’ exports has risen steadily over the past decade because these have outperformed goods’ exports. India’s different competencies and competitive advantage formed by the knowledge-based services makes it a unique emerging market in the world.

The services sector in India has the potential to unlock a huge opportunity which can create symbiotic growth for all nations. To study the financials, we have taken the top 45 companies in this sector and have compared their performance in H1FY21 with H1FY20. On the whole, this sector has provided negative growth in sales and PBIDT while posting positive growth in net profit. The aggregate topline of the sector declined by 20.94 per cent to Rs 81,943 crore in H1FY21 from Rs 1,03,647 crore in H1FY20. The aggregate PBIDT decreased by 5 per cent to Rs 9,863.20 crore in H1FY21 from Rs 10,382.78 crore in H1FY20. The bottomline of the sector expanded by 5.93 per cent to Rs 4,633.1 crore in H1FY21 from Rs 4,394.6 crore in the same period for the previous fiscal year.

In terms of individual sales, the company to have the highest share is Reddington (India) at Rs 24,461.08 crore, followed by Adani Enterprises and MMTC with Rs 14,391.61 crore and Rs 9,180.47 crore, receptively. The company which showcased the highest growth in sales was Apollo Tricoat Tubes, which reported sales of Rs 501.47 crore in H1FY21, an increase of 144.17 per cent as compared to Rs 205.38 crore reported in H1FY20. The company was followed by Allcargo Logistics, which reported a sales growth of 19.67 per cent to Rs 4,414.11 crore in H1FY21 from Rs 3,688.46 reported in H1FY20. In terms of PAT, the companies that contributed the most to the aggregate PAT were Adani Ports and Special Economic Zone that reported a net profit of Rs 2,155.66 crore in H1FY21, increasing by over 3.25 per cent over Rs 2,087.86 crore reported in H1FY20.

Out of the 45 companies, there were 17 which reported net losses for the first half of the fiscal year. Future Consumer, Arshiya and MMTC were some of those that reported net losses. They posted net losses of Rs 199.45 crore, Rs 190.24 crore and Rs 132.01 crore, respectively. The sector’s significance in the economy can be seen from the fact that it accounts for twothirds of total FDI inflows into India and about 38 per cent of total exports. The Government of India recognises the importance of promoting growth in the services’ sector and provides several incentives across a wide variety of segments. Under the Mid-Term Review of Foreign Trade Policy (2015- 20), the central government has increased incentives provided under Services Exports from India Scheme (SEIS).

In the next five years, the Ministry of Electronics and Information Technology is working to increase the contribution of the digital economy to 20 per cent of GDP. A gauge of India’s services sector is that it moved back into the expansion zone for the first time in eight months as economic activity continues to pick up on easing lockdown rules. The India Services Business Activity Index stood at 54.1 in October compared with 49.8 in September. A reading of above 50 indicates an expansion in business activity. The index compiled by IHS Markit India Services showed that the unlocking of the Indian economy had borne fruit with the service sector making a comeback.

Textiles

India’s textile sector is one of the oldest industries in the Indian economy and is extremely varied with hand-spun and hand-woven textiles at one end of the spectrum and the capital-intensive sophisticated mills at the other. Decentralised power looms or hosiery and knitting sectors form the largest components in the textiles sector and with an added advantage of skilled manpower and low cost of production, the markets here have a competitive advantage. The widespread impact of the corona virus which has left no sectors unturned is expected to decelerate the growth projection of the textile and apparel industry in India, which was once projected to grow at a CAGR of 12 per cent to reach around Rs 16,63,700 crore by 2025-26.

Due the outbreak of the pandemic, it is expected that the domestic market may shrink by around 28-30 per cent to about Rs 4,16,300 crore led by decline in sales. To study this sector in depth we have computed the performance of 39 companies and have compared them on a YoY basis from H1FY20 to H1FY21. Average net sales in H1FY21 year have seen a staggering decrease of more than 50 per cent compared to H1FY20. Famous brands like Siyaram Silks, Raymond and Bombay Dyeing have suffered a decrease of more than 70 per cent in net sales. On the other hand, companies like Lux Industries, Rupa & Company and Voith Paper Fabrics India have shown positive change in percentage net sales, with Rupa and Company reporting 5 per cent growth, the highest percentage growth in the entire sector.

The Government of India has initiated various policies to support the textile and apparel sector’s growth for the longterm horizon. With the allowance of 100 per cent FDI in the sector under the automatic route it is expected to attract around Rs 10,48,500 crore in foreign investments in the coming years. The government has also initiated high investments under various schemes like Integrated Textile Parks (SITP) and Technology Upgradation Fund Scheme (TUFS) to encourage the flow of more private equity and to train the workforce. For further accelerating growth in the textile industry, the textile ministry assigned Rs 690 crore for the setting up of 21 readymade garment manufacturing units in seven states.

These manufacturing units will help the development and modernisation of the sector. The textile sector has been seeing improved demand in recent times. As per the needs of the changing times, companies in the textile sector have started manufacturing medical and health-based products as there is currently a high demand for the same. The present situation in the sector caused due to the pandemic can be considered a small hiccup as the long-term outlook is expected to be positive since growth in the textile and apparel sector is sustained by strong domestic consumption as well as export demand over the medium term.

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