TOP 1000 Companies : Financial Review For FY20

TOP 1000 Companies Financial Review For FY20

Methodology

We bring you the vital financial data of TOP 1000 companies by market capitalisation. We constantly get requests from our valued reader-investors for financial data and keeping our promise, we lay down for you the financial data for Top 1000 companies by 24 sectors in easy readable format. We are sure that financial data by sectors along with the detailed view on sector dynamics will be an interesting read for you! We have sourced our financial data from Ace Equity.

P.S. - Companies having year ending as June, September and December are also included in the financial data with data flowing under FY20.

Compiled by - Amir Shaikh, Anthony Fernandes, Apurva Joshi, Geyatee Deshpande, Nidhi Jani, Pratik Shastri, Rishikesh Gaikwad, Yogesh Supekar

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Agriculture

Agriculture is considered to be the backbone of the Indian economy. Since the country has a high proportion of fertile and cultivable land supported by diverse agro-climatic conditions, farming is extensively practised. It is the largest producer of spices, pulses, milk, tea, cashew and jute, and the second-largest producer of wheat, rice, fruits and vegetables, sugarcane, cotton and oilseeds. Additionally, it also is second in the global production of fruits and vegetables and is the largest producer of mango and banana. Food grain production was estimated to reach 295.67 million tons (MT) during 2019-2020.

Production of horticulture crops in India was estimated to be at 320.48 million metric tons (MMT) in FY20 while milk production in the country is expected to increase to 208 MT in FY21 from 198 MT in FY20, thus clocking a growth of 10 per cent YoY. Despite the virus-triggered pandemic, the agriculture sector has witnessed a silver lining by experiencing growth of 3.1 per cent during the January to March quarter even when the GDP declined.

The pandemic highlighted farmers’ difficulties such as finding buyers amidst the lockdown, lack of reliable long-term arrangements, logistics and stocking limits etc. To conquer such problems the government took substantial measures such as overriding the APMC regulation which now allows farmers to trade agricultural produce anywhere and also by anyone. It further brings some respite to contract farming regulations as well as pricing valuation.

Financials

Tata Consumer Products, which has a market capitalisation of Rs 38,735 crore amongst the 26 companies chosen for analysis, posted growth of 32.90 per cent in its net sales for FY20 to Rs 9,637.42 crore from Rs 7,251.5 crore reported in FY19. The company gained net profit of Rs 535.19 crore for FY20 – an increase by 12.95 per cent compared to that of Rs 473.83 crore gained in FY19. On the basis of highest YoY growth in net sales, Bannari Amman Sugars reported 43.05 per cent growth YoY in net sales to Rs 1,609.29 crore for FY20. The net sales of Triveni Engineering & Industries rose by 40.77 per cent YoY to Rs 4,436.63 crore during FY20. Rossell India gained net profit of Rs 18.55 crore during FY20, thus rising significantly compared to the net profit of Rs 0.57 crore gained in FY19. For FY20, Gujarat Ambuja Exports reported net sales of Rs 3816.59 crore while the company gained a net profit of Rs 145.84 crore for the same period.

Outlook

Going forward, market experts believe that instead of further liberalisation of agriculture, state intervention for better pricing, investments in water harvesting and an agro-ecological transition could ensure a more resilient system to sustain shocks like the current one. In the recent US-India Business Council’s virtual India Ideas Summit, Prime Minister Narendra Modi strongly pitched to the US companies about India being a land of opportunities with the agricultural sector being the key segment for future investments and reforms. In the near future, digitization of the farm and the farmer would be a key development strategy. Technological systems will bolster the growing agricultural sector. This will be useful for farmers as well as for the companies involved in this industry.

Automobile

It is no secret that the outbreak of corona virus has brought economic activity to a standstill. The automotive industry is no exception. The pandemic has disrupted not just the supply chain but demand as well. Automotive registrations in the country dived to almost zero in early May due to the complete lockdown imposed nationwide. However, there have been improvements with the easing of the lockdown in some regions, leading to pick-up in vehicle sales. The automotive and automotive ancillary sectors are major contributors to India’s gross domestic product (GDP), accounting for more than 7 per cent of the total.

According to the Society of Indian Automotive Manufacturers (SIAM), the automotive industry manufactured nearly 1,486,594 vehicles including passenger vehicles, commercial vehicles, three-wheelers, two-wheelers and quadricycles in April-June 2020 as against 7,213,045 in April- June 2019, thus representing a sharp decline of 79.4 per cent. During this quarter, the threewheeler segment was most affected as its domestic sales tanked nearly 91.5 per cent YoY in Q1FY21 to 12,760 units followed by commercial vehicles which recorded nearly 84.8 per cent YoY plunge in domestic sales to 31,636 units.

Segments of passenger vehicles and two-wheelers recorded nearly 78.4 per cent and 74.2 per cent YoY fall in domestic sales in the first quarter of FY21 to 153,734 units and 1,293,113 units, respectively. The BSE Automotive index fell nearly 45 per cent in March 2020 from January 2020 due to nationwide lockdown to contain the spread of the virus, but later witnessed a sharp recovery of almost 50 per cent from that low when economic activities started to resume in a phased manner. Following is the median PE calculated on the basis of the monthly PE data from January 2008 to June 2020.

Financials

To analyse the performance of the automotive industry, we have taken the financial data of 14 companies from this sector. All the companies, except Scooters India, have recorded a decline in net sales for FY20. The aggregate sales of these companies fell nearly 13 per cent YoY while operating profit dipped 19 per cent YoY.

Outlook

The automotive industry was already experiencing a bumpy ride due to lacklustre demand on account of higher ownership cost, rising fuel prices, liquidity crunch due to NBFC crisis, etc. The pandemic has led to supply disruption, adding further to the woes of the automotive industry, resulting in a double setback to automotive players. Besides, automotive industry players are in discussions with the government to provide fiscal stimulus while also demanding 10 per cent reduction in GST rates across all vehicle categories. Automotive sales recovery is expected to be primarily led by rural sales as the hinterland economy is less impacted by the pandemic.

In fact, rural economy is helping in driving sales of tractors, two-wheelers, small commercial vehicles and three-wheelers. Further, the government has announced a stimulus package for the agricultural sector while the prediction of a normal monsoon and an increase in minimum support prices (MSP) bodes well for the rural economy. The commercial vehicle segment is expected to be the worst performer in the ongoing fiscal year. It is stated that social distancing is likely to support two-wheeler sales with a majority of people avoiding public transport. Prolonged virus infections and delay in the revival of economy and consumer spending may act as a huge hurdle on the recovery path. Though the valuation may look lucrative at this moment, investors should not forget that they can reach their destination by focusing on the windshield and not looking into the rear mirror.

Auto Ancillary

The automotive components’ industry accounted for 2.3 per cent of India’s GDP. It contributed 25 per cent to its manufacturing GDP and provides employment to 50 lakh people. The Indian automotive components industry is also expected to become the third-largest in the world by 2025. India is among the top five largest automobile markets globally. A cost-effective manufacturing base keeps costs lower as compared to those in Europe or Latin America. This has resulted in India emerging as a global hub for automotive component sourcing.

As per Automobile Component Manufacturers Association’s forecast, the export of automobile components from India could reach USD 80 billion by 2026. The Indian automotive components industry aims to achieve USD 200 billion in revenues by 2026. For companies like Fiat, General Motors (GM) and Suzuki, India has established itself as a global hub for small engines. The growth in sourcing from India and increased indigenisation of global OEMs has resulted in making India a preferred designing and manufacturing base.

In 2019, Minda Industries acquired Germany-based automotive lamps firm Delvis Gmbh along with two of its subsidiaries. In May 2020, JK Tyre & Industries set up a new entity, Western Tires Inc., to expand its business in the United States. Both Indian and global manufacturers are investing in new capacities and newer programmes to get long-term advantage. With the markets in the north, west and south of India getting saturated, component manufacturers are now eyeing untapped markets in the northeast region of the country.

Financials

We analysed the performance of 83 companies. The companies that showed high sales growth on YoY basis in FY20 over the same period last year include Welspun Corp Limited (12.50 per cent), PTC Industries (11.16 per cent), Precision Camshafts Limited (7.34 per cent) and Srikalahasthi Pipes Limited (6.68 per cent). Players like MRF Limited and Amara Raja Batteries Limited posted marginal increase in sales at 1.1 per cent and 0.68 per cent in FY20 as against FY19. MRF and Amara Raja Batteries were the only tyre and battery manufacturers that recorded YoY growth in sales.

Bosch India, the largest company by market capitalisation, saw 18.56 per cent decline in net sales in FY20. Its net sales for the year stood at Rs 9,841.63 crore in FY20 as against Rs 12,085 crore in FY19. The companies that showed the highest decline in sales in the same period include Automotive Axles Limited (-50.91 per cent), Jamna Auto Industries Limited (-47.12 per cent) and Enkei Wheels (India) Limited (-43.78 per cent). Out of the 83 companies we analysed here, 12 companies showed increase in sales over the past year. Up to 71 companies saw a decline in sales in FY20. The transition to BS VI norms along with increased insurance cost and NBFC crisis has affected the automotive sector in the recent past. This has resulted in muted or declining sales in the automotive ancillary segment in FY20.

Going forward, with a revival in the automotive sector, automotive ancillary sales would bounce back to better levels. As far as stock market performance is concerned, since the start of this year Nifty Auto index, which consists both automotive and automotive ancillary companies, gave an absolute return of -13.07 per cent. Nifty 50 index gave a return of -10.51 per cent in the same period. Hence, the automotive industry as a whole has underperformed in 2020 as compared to the broader market.

Outlook

Policy initiatives like Automotive Mission Plan 2016-26 and Faster Adoption and Manufacturing of Electric Hybrid Vehicles (FAME, April 2015) are likely to infuse growth in the automotive component sector of the country. The adoption of electric vehicles will create new venues of growth for some of the automotive ancillary companies. The Automotive Mission Plan 2016-26 targets growth in the Indian automobile sector through manufacturers of automobiles, automotive components and tractors over the next decade. It is expected to generate additional employment. With the launch of the ‘Make in India’ initiative, the government is expected to vitalise substantial investment in the automotive components sector. Companies like Exide and Amara Raja Batteries have plans to make lithium-ion batteries to ride the wave of green vehicles. 

Bank

The banking industry displayed mixed cues during FY20. The fiscal year marked one of the major turnarounds in the banking system after the mega merger of public sector undertaking (PSU) banks announced by the government. This marked a very key step in the process of banking consolidation. On the financial front, banks saw strategized execution of revival plans for troubled lenders such as Yes Bank. The RBI and the government took up the issue and asked State Bank of India (SBI) to chart out a proper settlement plan.

This provided investors a sign that regulatory intervention can be expected in the worst case scenario. The year, though, ended with a very new and unprecedented challenge owing to the virus pandemic. This led to high level of reclassification in operating the business structure of all the banks. One of the major impacts is very much visible through the financial numbers by banking players. The net profit of leading players such as Axis Bank, Bank of Baroda, Canara Bank, IDFC Bank and RBL Bank dropped sharply due to pandemic-related provisions.

The provisioning amount was reported as high as 200 per cent by certain banks such as IDFC First Bank and RBL Bank for the year on YoY basis. Other big names such as HDFC Bank and Kotak Mahindra Bank raised their provisions by 63 per cent and 144 per cent as compared to the previous fiscal. The management commentary by banking managers added that these provisions were largely for legacy assets as well pandemic-related provisions.

Financials

Nearly all the banks reported strong growth in net interest income (NII) which is the difference between total interest earned and interest expended by the bank. IDFC Bank reported highest YoY growth in this segment. In terms of NII growth, Bank of Baroda (41 per cent), Kotak Mahindra Bank (20 per cent), HDFC Bank (17 per cent), Axis Bank (16 per cent) and ICICI Bank (23 per cent) added some vitality to the banking industry’s health.

On the individual performance front, banking heavyweights such as State Bank of India (SBI) and HDFC Bank reported healthy numbers during FY20. SBI clocked one of its highest annual net profits which stood at Rs 14,488 crore as against Rs 862 crore during the previous fiscal. On the other hand, HDFC Bank, which continued to outperform the private banking sector, reported growth of 24.6 per cent YoY. Its net profit stood at Rs 26,257 crore at the end of FY20. Importantly, the growth in these two majors was led by core fundamentals such as credit growth, rise in deposits, etc. The growth in such core banking fundamentals highlights the fact that restructuring is taking place. 

Troubled lender Yes Bank reported net loss of Rs 16,418 crore for fiscal year ended March 31, 2020 against profit of Rs 1,720 crore for previous fiscal year. It could only report profit for the first quarter in FY20, which was followed by losses of Rs 600 crore, Rs 18,000 crore and Rs 3,700 crore. IDFC First Bank’s fourth quarter results showed strong revival signs. Strong NII growth, current account saving accounts (CASA) deposits growth and retail loan book resulted in net profits for the first time after six consecutive quarters. Interestingly, its provisioning for the fourth quarter remained lower in comparison to other peers. It had made provisions for its telecom exposure in the third quarter and hence Q4 provisions were only pandemic-related.

Outlook

The effect of moratorium is yet to be considered fully. As of now, most quarterly numbers show the size of moratorium in the range of 30-40 per cent for the total banking industry as a whole. These recovery losses are already well-provisioned for, thereby reducing the negative impact of it for the current year. Revival of economic activity would still be a key issue for the banking sector’s health.

Cement

The cement industry is one of the crucial industries for any country that strengthens its economy on the basis of building its infrastructure. The Indian cement industry is the second-largest cement producer in the world after China – ahead of the US and Japan – with a total installed capacity of about 545 million tons per annum (MTPA). India uses nearly 7 per cent of the global cement consumption. On the geographical front, the cement industry comprises south (33 per cent), north (22 per cent), east (19 per cent), west (13 per cent) and central (13 per cent). The industry consists of 225 plants owned by 65 players, out of which 51 per cent capacity is dominated by the top five players.

The cement industry is highly capital-intensive, competitive and cyclical in nature. Considering the oligopolistic nature of the cement industry, pricing control by large players stops new players from entering the industry. The major growth drivers of the cement industry are housing (60 per cent) followed by infrastructure, industrial and commercial, and low-cost housing. As for the corona virus pandemic effect, cement production during Q4FY20 (January-March) declined by 4.9 per cent on YoY basis led by shutdown of the plants from mid-March 2020. On the demand front, in April 2020, cement sales declined sharply by almost 80 per cent on YoY basis. However, from May 2020, the cement industry has seen signs of demand revival supported by easing of the lockdown in various regions.

This demand revival would improve the utilisation level of the industry. Also, further demand recovery is expected, majorly supported by the rural segments. Looking at the price trend, cement prices have softened in June 2020 compared with May 2020. The price in the northern region in June 2020 was at Rs 369 as against Rs 375 in May 2020. The price in the southern region in June 2020 was at Rs 395 as against Rs 419 in May 2020. The prices in the eastern and western regions in June 2020 were Rs 345 and Rs 353 as against Rs 352 and Rs 357 in May 2020, respectively. This price decline was supported by normalised supply after the ease in lockdowns. However, labour scarcity is still a factor which may cause a worry in terms of the demand and pricing of cement.

On the cost front, pet coke prices during the recent quarter Q4FY20 were low by 25 per cent YoY. Further supporting aspects include falling crude oil prices. The sharp fall in crude oil prices would further help in bringing down the variable costs of power and freight. So, this major decline in variable costs is likely to offset the higher fixed cost. Such cost savings coupled with higher cement prices are likely to provide support to the overall cement industry. Amid the struggle, many cement companies have altered their capex plans which might result in better cash flows. In our analysis, we have considered 25 cement companies according to their market capitalisation.

Financials

We have considered 27 cement companies in our analysis according to their market capitalisation. During FY20, the aggregate sales of these companies declined by about 3 per cent YoY. The aggregate operating profit of these companies jumped by 121 per cent YoY and the aggregate PAT grew by 172 per cent YoY. During FY20, cement major Ultratech Cement (market share of 26 per cent) reported 1.24 per cent YoY growth in terms of its revenue and 27 per cent YoY growth in the operating profit. PAT also jumped by 142 per cent YoY. Shree Cement (market share of 7 per cent) reported 2.50 per cent YoY growth in terms of its revenue and 33 per cent YoY growth in operating profit. PAT jumped by 52 per cent YoY. Ambuja Cement (market share of 7 per cent) reported 4 per cent YoY growth in terms of its revenue and 18 per cent YoY growth in the operating profit. However, PAT declined 7 per cent YoY.

Outlook

Looking forward, once demand starts picking up in H2FY21, the sector would see positive signs of recovery. Also, under the current Union Budget, the emphasis on highways and roads’ development is well-placed and will probably boost demand for the cement sector. Also, the development of warehouses and cold storage facilities in rural India would give a push to the demand. The government’s steps such as reduction in corporate tax as well as lowering of interest rates are expected to stimulate the economy and drive infrastructure and affordable housing demand.

Chemicals

India contributes only about 3 per cent of global chemical sales despite being the sixth-largest chemical industry globally, behind China, EU, the US, Japan and South Korea. India is the third-largest consumer of polymers in the world. The chemical sector is further classified into subsectors like agrochemicals, speciality chemicals and petrochemicals. India is the world’s fourth-largest producer of agrochemicals and thirteenth-largest exporter of pesticides and disinfectants globally. The chemical sector plays a key role in India by providing raw material and intermediates to a huge variety of end-user industries like pharmaceuticals, agriculture, automobiles, fast moving consumer goods (FMCG), paints, textiles and paper.

It is a well-known fact that China plays a vital role in the chemical sector. It enjoys 39 per cent market share in the global chemical market. However, in the last few years, due to the ever-increasing pollution problem, environmental regulations were imposed in China leading to shutdown of numerous chemical plants. Relocation is a viable option left for the chemical players in China to continue their business. But the situation has become difficult for most of the chemical companies in China considering the costs of relocation, loss of production, capacity ramp-up issues etc.

This issue of China has emerged as an opportunity for chemical players in India. Some of the companies in India are strengthening the research and development segment and some are ramping up their existing capacities in order to meet the global demand which earlier was fulfilled by China. There are reports of companies investing heavily to set up plants of raw materials to become import substitutes in India. Also, the US-China trade war is adding disruptions to the supply chain from China. Thus, on an overall basis, dependence on China for raw materials, API intermediates, other bulk chemicals, etc. is reducing while countries from Asia, especially India, are benefiting from this development.

Financials

For the purpose of sector analysis, we have analysed 80 companies in the chemical sector according to their market capitalisation. The aggregate revenue of these companies increased by 10.1 per cent and aggregate operating profit too increased by 13.5 per cent during FY20. Also, the aggregate net profit of these companies grew significantly by 55.8 per cent in FY20. Companies like UPL and Deepak Nitrite outperformed as compared to the others. Their revenue grew 64 per cent and 57 per cent YoY, respectively, in FY20. Their net profit too surged by 39 per cent and 252 per cent YoY respectively in FY20.

Companies like Tanfac Industries and Bhagiradha Chemicals underperformed during the year. Their revenue dipped 26 per cent and 36 per cent YoY respectively in FY20. Their net profit decreased by 53 per cent and 64 per cent YoY respectively during the year. Some of the companies witnessed a turnaround where they earned net profit in FY20 as against net loss in FY19. These included NACL Industries, DIC India and Jubilant Industries. Meanwhile, Jayant Agro Organics incurred net loss in FY20 as against net profit in FY19.

Outlook

The outbreak of the corona virus which started in China from December 2019 has led to several lockdowns resulting in temporary closure of all businesses. For a certain period of time, disruption in the supply chain was witnessed on a global level as China plays an important role in terms of exports. Though the disruption on the supply side looked temporary, the demand side also started witnessing pressure as the virus outbreak spread across the world and all businesses came to a standstill. India’s chemical industry faced pressures during March and April 2020 as all dependent industries faced the brunt of the pandemic-triggered lockdowns. The situation has improved slightly from then and the demand supply balance is now smoothening gradually.

Companies which belonged to the pharmaceutical value chain did not face severe challenges during the lockdown as they continued operate on account of being essential services’ providers. Also, the steep dip in crude oil prices led by the pandemic crisis would have been significantly beneficial to the chemical companies in India in normal business circumstances, it being the major raw material. But due to the lockdown the overall demand side was affected and hence the companies could not enjoy the full benefit of lower input prices. Some revival is already seen post the easing of lockdown restrictions in India. The overall impact might be seen during H1FY21 but steady revival is expected post that.

This crisis situation might prove to a blessing in disguise for the chemical sector in India. Global companies might shift their preference from China after the pandemic gets over, thereby giving ample opportunities to Indian chemical players. Further, many Indian players already have strong relationships with global large-scale manufacturers which would benefit them in the long run. Going forward, government’s focus on domestic API manufacturing, ease of doing business and faster clearances for capex would drive growth in the chemical sector. The government has recently incentivized the bulk drug manufacturing sector through a new promotion scheme which would be a growth trigger for the chemical players in the pharmaceutical value chain.

As per market experts, the chemical sector is expected to grow at 9 per cent annually by FY25. Of this, the specialty chemicals industry is expected to contribute 5 per cent of global sales by FY21. The specialty chemicals market has witnessed a growth of 14 per cent in the last five years and is likely to clock a compounded annual growth rate of 12-13 per cent over the next five years. Exports would get a boost led by strong demand witnessed in speciality chemicals and agrochemicals. The petrochemical market in India is expected to grow at CAGR of 10-15 per cent over the next five years to reach USD 100 billion by 2022. 

Construction

Construction activities across the country have come to a grinding halt amidst the ongoing virus pandemic and lockdowns. Given that this sector has been the biggest contributor to India’s GDP, the slowdown has come as a big blow. Moreover, the sector has, over the years, faced a very key issue of land acquisition and funding. The market expects that these issues would be dealt with on a priority by the government for revival of the economy. During FY20, the government had informed of its plan to include infrastructure sector investment of Rs 100 lakh crore over the next five years. This implies that construction companies would have opportunities in key segments ranging from infrastructure development through roads, railways, ports, airports and smart cities.

The construction industry is the one which enjoys a high level of organised structure in its working. It gets regulatory support too. Hence, the focus can be shifted to operational opportunities that the industry had prior to the pandemic. For example, the government’s decision to motivate private players’ participation is something that is a core fundamental aspect of the business. This decision has already seen many private players entering the business following the publicprivate partnership (PPP) model.

Financials

The government’s emphasis on construction and infrastructure-related segment got an additional boost in the Union Budget of 2020. The major announcement of Rs 9,182 crore for road transport and highways and Rs 72,216 crore for railways has been one of the reasons. For FY21, budgetary allocation to the Ministry of Development of North Eastern Region has been increased to Rs 3,049 crore from Rs 2,670 crore in FY20. Highway construction has already seen substantial increase of 20.57 per cent CAGR during FY14-20. In FY20, more than 11,000 km of highways were constructed.

In April 2020, the government set a target of constructing roads with budgetary approval of Rs 15 lakh crore in the coming two fiscal years. However, in the near future, labour shortage will be one of the strongest headwinds. In a recent analysis by the country’s largest construction conglomerate, Larsen & Toubro Limited reported that 90 per cent of the sites are operational and nearly 40 per cent of labour availability is still to be found. Larsen & Toubro though is working hard to keep its ongoing projects on track and hopes for timely execution in the current fiscal.

The company reported 7 per cent increase in net profit for FY20, which was Rs 9,594.03 crore as against Rs 8,905.13 crore in the previous year. The top-line was reported at Rs 1.45 lakh crore – 7.5 per cent higher than Rs 1.35 lakh crore reported a year ago. PNC Infratech Limited, a mid-cap infrastructure company, reported sharp surge in annual sales. Its revenue stood at Rs 5,778.20 crore as of end of FY20 as compared to Rs 3,820.97 crore during the previous year. The net profit reported by the company stood at Rs 549.88 crore as against Rs 351.36 crore for for previous year.

GE Power India, another mid-cap infrastructure player, reported net sales of Rs 2,570.79 crore as compared to Rs 2,035.21 crore during the previous year, showing YoY growth of 28 per cent in its top-line. The net profit was Rs 84.6 crore in comparison to Rs 75.4 crore in FY19. A dominant player in South India, KNR Construction reported 5 per cent YoY in revenue growth at Rs 2,244 crore. Its net profit, on the contrary, fell by 14 per cent YoY to Rs 225 crore. Its order book stood at Rs 5,230 crore at the end of FY20, which is already double that of its annual sales figure.

Outlook

Looking at the construction industry with a larger perspective, the future journey of this sector is highly dependent on what course the pandemic takes in the coming months and whether it will be contained in its spread through the development and administration of a vaccine. Industry experts opine that government intervention may help bring the sector back to helm again but severity of issues such as delay in execution, funds and labour would well be the key factors impacting its survival and growth. 

Consumer Durable

The consumer durable industry consists of durable goods and appliances for domestic use such as televisions, refrigerators, air-conditioners and washing machines. These products have a life expectancy of at least three years. The demand for these goods is highly seasonal and they exhibit peak sales only during certain times of the year. For example, air-conditioners are sold the most during the summer whereas appliances like TVs and mobile phones attract high demand in the festive season of October to December when the sales usually spike. Hence, these products are discretionary in nature and are purchased as and when there is an increase in disposable income.

As such, in times of economic uncertainty, this category is also one of the hardest hit. The Indian appliance and consumer electronics (ACE) market reached Rs 76,400 crore in 2019 and is further expected to double to Rs 1.48 lakh crore in 2025. Shipment of TVs in India increased by 15 per cent annually to reach the highest-ever level of 15 million units in 2019. As of FY20, the market for electronics, domestic appliances and air-conditioners was estimated at around Rs 5,976 crore, Rs 17,873 crore and Rs 12,568 crore, respectively. There remains a lot of scope for growth in this sector, especially from the rural market with consumption expected to grow in these areas as and how the penetration of brands increases.

The demand for durables like refrigerators and consumer electronic goods is likely to witness an upward spiral in the coming years in tandem with the government’s plans to invest significantly in rural electrification. A large portion of the consumer durable companies in India is dominated by air-conditioners and other cooling products which saw a tremendous demand in the months of January and February 2020 but tapered off after March with the ensuing pandemic-led lockdown, causing demand to evaporate. This was made all the more worse considering that the peak demand season begins in mid-March and continues till the month of May.

It is now too late to salvage the lost demand. Some pent-up demand would come in June and July, largely met by existing dealer inventory but on the whole, sales for the summer season are expected to be recorded with a dip of 30-50 per cent. At such times, massive cost-cutting measures undertaken by companies will help in cushioning the blow of the pandemic and the ensuing lockdowns. Meanwhile, the electrical consumer durables (ECD) segment like the others saw a declining demand since the onset of the lockdowns. However, it is largely expected to recover faster due to the lower ticket size.

Industrial switchgear, however, was weak even before the pandemic and this segment is likely to remain stressed unless there’s a pickup in capex and government spending. In the segment of cables and wires, the lockdown forced the real estate industry in India to come to a grinding halt and as a result the demand was affected negatively. Margins for companies in these segments were further impacted due to a sharp fall in commodity prices and the resulting pricing pressure on account of weak demand. Some pickup in demand in this segment has begun but it will take months for it to return to the pre-pandemic levels.

Financials

To study the consumer durables sector, we have taken the performance of 17 companies in this industry into consideration. On average, these companies saw growth in top-line of 7.50 per cent. The players that saw the highest growth in revenue were Dixon Technologies, Amber Enterprises India and Symphony which posted growth rates in revenue of 47.43 per cent, 44.00 per cent and 30.69 per cent, respectively. Among the profitable companies in FY20, the average net profit growth rate stood at 16.71 per cent. There were four companies that reported net losses in FY20 as compared to one in the previous year. These included names such as Bajaj Electricals, Timex Group India, KDDL and MIRC Electronics.

Outlook

The outlook for companies in this sector in FY21 is grim as the lockdown has washed away most of the summer season – a major part of annual sales for the industry. This is subject to worsen further as the pandemic and lockdown scenario pans out. Companies that have floated aggressive promotional offers and have better online channels for marketing and sales may see quicker recoveries. Moreover, companies which have a strong presence in Tier 3, 4 and 5 markets are comparatively better placed as those areas are relatively less impacted by the virus. Hence, companies like Voltas and Symphony, which have a strong presence in such markets, are comparatively better placed and likely to see a faster recovery in sales. 

Electrical Equipment

The electrical equipment industry is probably one of the few industries in India assuring a higher double-digit growth for a foreseeable future. Growth in the electrical equipment market in India is expected to accelerate at a CAGR of over 16 per cent and may add nearly USD 70.69 billion in value between 2020 and 2014. The year-on-year growth rate for 2020 is estimated at 13.15 per cent. The electrical equipment market in India is fragmented with several players occupying the market share. It is estimated that almost 36 per cent of the growth will come from the cable business segment.

One of the key drivers for this market will be the increasing residential and commercial building projects. Also, the growth in cross-border electricity trading is anticipated to boost the growth of the electrical equipment market in India. The industry is poised for growth even as its fortunes are linked with growth in other industries and population expansion with increasing consumer requirements. The Indian electrical equipment industry has a bright future because there is a rising demand from the power industry, agriculture, automobile, railways and domestic supplies.

Products such as cables, switchgears, boilers, transformers, transmission lines and others are part of the electrical equipment industry. India is one of the fastest growing economies in the world and the electricity demand is also on the rise leading to higher demand for electrical equipment in India. Also, the advent of electronic vehicles in India is expected to push up the demand for electrical equipment. Of significance is the fact that India is the third-largest producer of electricity in the world as per the key world energy statistics published by EA in 2019.

Financials

To understand the current trend in the electrical equipment industry we analysed the performance of 31 companies engaged in this sector. The total market capitalisation of these companies is Rs 148,025 crore. The net sales slipped down by 11.25 per cent for the industry while the operating profit as represented by the top 31 companies came down by 15 per cent YoY. Their net profit increased by 14 per cent, leading to an increase in EPS by almost 17 per cent YoY. On an average, the profit margins of the selected companies declined by 1.33 per cent in FY20, dropping substantially from 6.94 per cent in FY19 and about 5.51 per cent in FY18.

The top three companies with highest profit margins in FY20 were Ingersoll-Rand (India), Finolex Cables and Voltamp Transformers at 11.99 per cent, 10.89 per cent and 10.41 per cent, respectively. The net profits for Hind Rectifiers, Dynamatic Technologies and KEI Industries increased the most by 56.74 per cent, 42.19 per cent and 41.80 per cent, respectively.

Outlook

The industry is expected to get support from various policy measures undertaken by the Indian government which has identified the power sector as a key sector of focus to promote sustained industrial growth. The Union Budget 2020-21 has allocated Rs 15,875 crore (USD 2.27 billion) to the Ministry of Power and Rs 5,500 crore (USD 786.95 million) to Deen Dayal Upadhyay Gram Jyoti Yojana (DDUGJY). Pradhan Mantri Sahaj Bijli Har Ghar Yojana-Saubhagya was launched by the Government of India with an aim to achieve universal household electrification by March 2019. Such a policy support augurs well for the electrical equipment industry in India. Hence, the outlook for the sector remains bullish. 

Engineering

India’s engineering sector is divided into two segments – light engineering and heavy engineering. The turnover of capital goods’ industry in India is expected to grow to Rs 8.05 lakh crore (USD 115.17 billion) by 2025. Engineering research and development revenues are projected to reach USD 42 billion by FY22. Capacity creation in sectors such as power, infrastructure, oil and gas, mining, refinery, steel, automotive and consumer durables is bound to increase demand and result in growth of the engineering sector.

Meanwhile, the government has announced a plan to invest Rs 100 lakh crore (USD 1.5 trillion) in infrastructure over the next five years. Engineering exports include transport equipment, capital goods, other machinery and equipment and light engineering products such as forgings, castings and fasteners. During FY16-20, engineering exports from India registered growth at a CAGR of 6.81 per cent.Engineering export reached USD 76.28 billion in FY20. Export of engineering goods is expected to reach USD 200 billion by 2030.

Engineering export from India can be divided into eight major categories. Out of these, iron and steel and products made from iron and steel formed a substantial share (21.32 per cent) of the total engineering export as of FY20. Automobiles (19.96 per cent) and industrial machinery (17.81 per cent) also contributed a major share to total export. Several companies in the engineering sector have diversified geographically and sector-wise. For example, BHEL plans to foray into Ukraine; Simplex Infra has moved to the Middle East; Thermax entered the power utility segment.

In the engineering sector, more than 2,500 firms have ISO 9000 accreditation. The Department of Heavy Industry has approved four centres of excellence in textile machinery, machine tools, welding technology and smart pumps. This will enhance competitiveness in India’s capital goods’ industry. Major international players such as Cummins, ABB and Alfa Laval have entered the Indian engineering sector due to growth opportunities and with 100 per cent FDI allowed through the automatic route. Most Indian companies are increasing their global footprint. Cheap labour in India is giving them an edge over companies in higher wage economies.

Besides targeting developed economies across Europe and North America, Indian companies are currently diversifying in the developing markets of Africa, South America and the Middle East. India’s energy requirement is expected to grow from 1,290.02 in FY20 to 1,566 BU in FY22 and further to 2,047 BU in FY27. The growing energy requirement will require enhancement of installed power capacity. The total installed power capacity is projected to increase from 356.10 GW in FY19 to 479.42 GW in FY22. The demand for power generation and transmission equipment is expected to be boosted by this increase in installed power capacity.

Financials

We have analysed the performance of 38 companies. The companies that showed the highest sales growth on YoY basis in FY20, over the same period last year, include Engineers Limited (30.73 per cent), Ion Exchange (India) Limited (27.32 percent), RITES Limited (20.85 per cent), NESCO Limited (19.61 per cent), GMM Pfaudler Limited (17.59 per cent), HLE Glascoat Limited (18.68 per cent), Kennametal India Limited (19.18 per cent) and KSB Limited (18.37 per cent). The companies that showed the highest decline in sales in the same period include Eimco Elecon (India) Limited (-41.59 per cent), Bharat Heavy Electricals Limited (-30.39 per cent), Yuken India Limited (-28.65 per cent), Skipper Limited (-25.68 per cent) and United Drilling Tools Limited (-28.46 per cent).

Out of the 38 companies on this list, 14 showed an increase in sales in FY20 as compared to sales in FY19 whereas the remaining 24 saw decrease in sales YoY in this period. Overall, 21 companies saw an increase in both net profit and PAT margin in this period. These include companies like AIA Engineering, RITES, GMM Pfaudler, NESCO and BEML.

Outlook

The engineering industry has been de-licensed. As a result, 100 per cent FDI has been permitted in the sector. The government has approved special economic zones across the country for the engineering sector. The Delhi Mumbai Industrial Corridor (DMIC) is being developed across seven states and is expected to bolster the sector. FDI inflow into miscellaneous mechanical and engineering sector stood at USD 3.64 billion during April-March 2020.

Entertainment

The Indian media and entertainment industry is one of the fastest growing industries, witnessing a strong growth phase and improving advertising revenues, backed by rising consumer demand. The industry comprises television, radio, print, films, digital advertising, music, OOH (Out Of Home), animation and VFX, gaming and theme parks.

The Indian television industry segment is as of now in a shining phase led by increasing digitisation. Last year, the media industry had faced many structural changes like new cable TV pricing regime, which had interrupted the country’s television broadcasting sector significantly.

Meanwhile, the increasing use of online platforms like Hotstar, Netflix and Amazon Prime in the ongoing lockdown period has led to significant expansions of such channels, leading to a jump in the number of subscribers. This is bound to move ahead at a significant pace led by easy availability of internet and upcoming 5G data. As per India Brand Equity Foundation (IBEF), OTT subscribers are likely to be between 30-35 million by 2021.

As for the advertising segment, which contributes nearly 45 per cent to the overall media and entertainment industry, it has taken a hit in recent times due to the corona virus outbreak given that its major clients are MSMEs. The print media industry is a constantly evolving industry with a rising focus on digital reading as per the changing preferences of the readers. It is the third-highest contributor to the industry and has witnessed significant growth with rising income level and evolving lifestyles that have primarily driven growth in the magazine segment.

In the film segment, the Indian film industry is the largest producer of films globally. Currently, however, the industry is struggling with huge financial losses on account of the extended lockdowns. Going forward, even with the cinema halls reopening, the companies are of the opinion that it most likely will be unable to run with normal capacity due to requisite social distancing measures. India’s radio industry, which was already going through a turbulent phase, has been nearly ruined in terms of revenue by the pandemic and the lockdowns. According to an AdEx report, advertising in the radio segment fell by 82 per cent between March and May 2020.

Financials

To gain an overview of the entertainment segment, we have analysed 22 major companies. During FY20, the aggregate sales of these companies declined marginally by 0.91 per cent while the aggregate operating profit of these companies grew by 35 per cent YoY. However, aggregate PAT declined marginally by 1 per cent YoY. The two major contributors were PVR and Inox Leisure. PVR’s FY20 revenue and operating profit grew by 11 per cent and 80 per cent YoY, respectively, whereas net profit declined by 86 per cent YoY. PVR cinema screens have been closed since March 11, 2020, and since cinema exhibition is the only division of the company, it has altogether not been producing any revenue.

Taking measures to enhance the company’s liquidity, the board of directors has authorised a rights issue of Rs 300 crore. Inox Leisure’s FY20 revenue and operating profit grew by 12 per cent and 90 per cent YoY, respectively, whereas net profit declined by 89 per cent YoY. In the TV broadcasting segment, Sun TV Networks’ FY20 revenue and operating profit declined by 7 per cent and 10 per cent YoY, respectively. Also, net profit declined by 2 per cent YoY. TV18 Broadcast Limited’s FY20 revenue and operating profit grew by 5 per cent and 125 per cent YoY, respectively. The net profit also grew by 116 per cent YoY.

Outlook

Going ahead, the media and entertainment industry is likely to see major revenue loss because of the economic slowdown. As per CRISIL, the sharp drop in revenues will impair the debt metrics of the industry, while balance-sheet strength and time to recovery will determine the overall impact on credit profiles. The dynamics could change across segments as things are continuously unfolding in various ways. Recovery in advertising revenue will begin only after the lockdown ends. 

Fertilizers

India is the second-largest consumer of fertilisers and the third-largest producer of fertilisers in the world. The Indian fertiliser ecosystem comprises of private, government and cooperative sectors. Urea accounts for about 60-65 per cent of the overall fertiliser consumption and enjoys a dominant share in India’s fertiliser production. The government plans to achieve self-sufficiency in urea production by 2022. During 2019-20, India produced 419 lakh tons of fertilisers (urea, DAP/NPK and SSP) as against 409 lakh tons in 2018-19.

The phosphatic fertilisers’ segment sales grew by 8 per cent to reach 200 lakh MT. Aided by good Kharif and Rabi sowing seasons, DAP and NPK sales increased by 8 per cent and 7 per cent respectively during the year. POS consumption for phosphatic fertilisers went up by 12 per cent. The fertiliser industry resorted to frequent MRP reduction aided by the softening of raw material prices during the year. The fertiliser industry remains highly regulated and subsidy-dependent.

The government has lowered its budgetary estimate for fertiliser subsidy to Rs 71,309 crore for 2020-21. It will incur expenditure in the form of subsidy of Rs 22,186 crore on phosphatic and potassium fertilisers for FY21. The nutrient rates under nutrient-based subsidy (NBS) for FY21 have been reduced due to the softening of raw material prices over the year. The fertiliser industry continues to be impacted by a high subsidy backlog of about Rs 36,000 crore as on March 31, 2020.

Financials

For the purpose of sectoral analysis, we have considered 11 leading companies. The aggregate revenue of these companies dipped by 6.9 per cent during FY20. The aggregate operating profit for FY20 de-grew marginally by 1.2 per cent while the aggregate net profit grew marginally by 2.2 per cent in FY20. Out of them, Chambal Fertilisers & Chemicals performed better than other companies. It reported 21 per cent YoY growth in revenue while its net profit jumped 161 per cent YoY in FY20. Although Deepak Fertilisers’ revenue dipped by 31 per cent YoY during the year, its net profit surged by 17 per cent YoY. Similarly, Coromandel International’s revenue stood flat in FY20 but its net profit increased by 48 per cent YoY. Zuari Agro and Madras Fertilisers continued to incur net losses in FY20 like the previous year.

Outlook

In India, the agricultural sector has remained relatively safe and consistent during the ongoing corona virus pandemic. However, the agricultural inputs’ industry faced challenges in the initial period, affected by labour shortage, employee mobility and strict administrative checks, impacting the raw material handling, production and distribution. However, the situation is fast normalising and the industry is now geared up to increase its production with support from the central and state governments.

Monsoon in India till September 2019 was good but the excessive rains witnessed by many states during October and November 2019 destroyed many crops. However, the Rabi season benefited from excessive rainfall, thereby leading to improved quality in soil moisture.

The Kharif season in 2020 also went off well, as reflected in fertilisers’ sale in April that increased by about 45 per cent despite the lockdown. Also, sales volumes in the industry surged by nearly 25 per cent in May 2020. The monsoon in 2020 is predicted to be in the range of normal to above normal which is expected to boost farm output through timely availability of fertilisers. The recent locust attack that a few Indian states witnessed is also likely to attract farmers towards use of fertilisers (pesticides) in order to save their harvest. Urea, compost and NKP were the fertiliser segments posting the largest demand. Agriculture continues to the backbone of Indian economy and fares well in any crisis situation. Thereby, the agricultural input sectors like fertilisers will also continue to perform steadily in the years to come.

Finance

One of the sectors severely hit by the ongoing virus pandemic has been finance and related services. The sector is subdivided into asset management, housing finance, NBFCs and stock broking firms, etc. These include companies which provide different solutions such as low credit, mortgage loans, housing loans, consumer loans, etc. The current pandemic which led to closure of all business activities did not only affect the sector’s growth curve but also caused worries with respect to recovery of outstanding loans. The housing finance industry, which was already going through a very tough time, is further expected to witness headwinds owing to the pandemic.

Recent survey data suggests there has been a surge in demand for ‘ready to move in’ houses by customers. These projects need funding to be ready in advance. However, with longstanding liquidity issues, players in the construction field are finding it difficult to cater to such needs on account of delayed projects. This has resulted in further pressure on financial institutions. Government intervention continues to be a key sentiment booster for housing finance companies. Mega projects such as Pradhan Mantri Awas Yojana (PMAY) which aims to build nearly 2 crore homes would prove to be a major growth driver for these companies.

The scheme enables buyers to avail interest subsidy of 4 per cent on loans depending on various parameters such as unit size, price, etc. This has already resulted in nearly 10 per cent share of housing loans – up to Rs 15 lakhs by housing finance companies. The financial sector which includes consumer loans, automobile loans, asset management, etc. can be expected to show higher resistance to the pandemic. The loan size, which is much lower in comparison to housing loans, has been affected in terms of recovery and loss balances. The sector, though, is highly diversified and has already been through rapid expansion, both in terms of strong growth of existing financial services firms and new entities entering the market.

Financials

Against the backdrop of this pandemic, many companies have already started posting huge business losses due to high uncertainty. Such a scenario of prolonged uncertainty is very unfavourable for business segments such as investment banking and wealth management. The sector is reeling under issues of liquidity. For example, in FY20, the total loan book for wholesale mortgage lending of JM Financial reduced to Rs 8,052 crore as compared to Rs 10,131 crore for the previous year. This makes it evident that credit off-take was affected.

Outlook

During FY20, the companies in this segment would be more focused on loan recovery and strengthening of the balancesheet. New business development would be favoured by impetus but will also require strong credit monitoring to identify and manage accounts where there could be potential stress on account of market factors. On the contrary, the other part of the financial service sector such as stock broking is well set to benefit from the current scenario. These businesses can be expected to benefit from the structural shift in the financial savings style of individuals and awareness of financial instruments.

Further, improving technology infrastructure will enable higher retail participation. A predominantly digital business model has held the sector in good stead while dealing with this critical scenario. The products and services available in this sector have a very high share of online mode of transactions. Nearly 90 per cent of equity and MF transactions are conducted online by clients. Going ahead, companies are expected to drive their businesses through sustained engagement with clients by virtue of loan moratorium, lower lending costs, various other modes of recovery, etc. The identification of short-term financing requirements for challenges put forward by the current liquidity crunch would also be another focus area for the finance sector.

FMCG

In India, the fast moving consumer goods (FMCG) sector is the fourth-largest of its kind. Household and personal care segments contribute towards majority of FMCG sales in the country. As a result of growing awareness, changing lifestyle, easier access to products and more disposable income, India’s urban sector contributes the most by around 55 per cent towards the overall revenue generated by the FMCG sector. Also noteworthy is the fact that the FMCG market has witnessed a rapid growth pace in terms of demand in rural and semi-urban areas. India’s retail market is estimated at USD 822 billion in FY19-20 and is further expected to grow at a CAGR of 10 per cent over the next five years to reach USD 1,315 billion by FY24-25.

Market experts believe that the penetration of organised retail market is estimated at 11 per cent in FY18-19 and will grow to around 17 per cent by FY24-25. During FY18-19, the organised retail market was estimated at USD 89 billion and is further assumed to grow at a CAGR of 21 per cent in the next five years to reach USD 230 billion by FY24-25. Revenue of the FMCG sector reached around USD 52.75 billion in FY18 and has been expected to reach USD 103.7 billion by the end of the year 2020. If the demand growth continues to remain smooth, the FMCG market probably can grow at 9-10 per cent by the end of 2020.

A rise in rural consumption will drive the FMCG market since it contributes by nearly 36 per cent to the overall FMCG spending. The internet has contributed in a big way to this growth curve, facilitating a cheaper and more convenient mode to increase a company’s reach. Hence, online portals are expected to play a key role for companies when currently an increasing number of people have shifted to ordering from home and getting doorstep deliveries. It is estimated that 40 per cent of all FMCG consumption in India will be made online by 2020.

During the first three quarters of FY20, the FMCG industry was witnessing stable growth. But the corona virus outbreak came as a huge shock to the economy. As a result of the lockdown which was implemented to curb the fast spreading of the virus, supply chain disruptions were seen. Not only were the manufacturing facilities closed down, retail and wholesale outlets were also shut, thus restricting the movement of goods. Various cities witnessed demand for FMCG goods but the supply wasn’t adequate as stores ran out of inventory stocks and manufacturers were unable to make supply deliveries. During such times companies and stores with high inventory levels were able to survive.

In the wake of the easing of lockdown restrictions, growth in the FMCG industry has primarily been driven by e-commerce. As a result of the panic created due to the pandemic, consumers were seen stocking up on basic goods such as health, hygiene and packaged food products while reducing the purchase of grooming and other discretionary personal care items in the face of reduced household incomes and supply disruptions. Households generally bought more than they would normally buy during every trip to the grocery store even as they reduced their frequency of trips.

FMCG spending was up by 4.3 per cent in Q4FY20 compared to the year ago period even though the footfalls in grocery stores reduced in the same period from 34.3 to 30.5 per cent. In the initial phase of lockdown, panic buying in late March saw Indians spend disproportionately on staples, instant noodles, biscuits, soaps, toilet cleaners and sanitizers, driving a 4 per cent volume growth for packaged consumer goods market between March and May in urban India whereas for the same period of time, growth in rural India was up by 3 per cent. Categories such as personal care and household care witnessed growth by 13 per cent and 6 per cent respectively in urban areas whereas on the other hand consumption of beverages experienced a de-growth by 25 per cent in urban markets as the demand for the same is largely dependent on ‘out of home’ channels.

India’s hygiene market which includes toilet and bathroom cleaners, skin cleansing, floor cleaners and sanitizers was estimated at Rs 38,319 crore as of February 2020. Between March and May, the category registered an encouraging 24 per cent growth YoY. Nearly 350 new sanitizer brands entered the market, hence strengthening the category that has largely remained peripheral for several years. The penetration of hand washes has increased as well as an average of 2.70 lakh households entered the category per week in the last 14 weeks. The sanitizer category saw the addition of 2 lakh households per week in the last 14 weeks.

Previously, before the pandemic, sanitizer penetration in India was estimated at 1.5 per cent. Thus, it can be said that the pandemic has helped in sanitizers reaching more households and offices. Compared with other global markets in Asia, such as China, Malaysia, Indonesia and Thailand, the FMCG industry in India has witnessed delayed growth recovery due to extended lockdown periods. In their June quarter updates, packaged consumer goods companies such as Marico Limited and Godrej Consumer Products Limited have observed similar trends.

Marico’s portfolio of Saffola cooking oil benefitted with consumers cooking more at home, while its oats business also had a good business demand. GCPL said its household insecticide category witnessed strong consumer demand. The same wasn’t true for its hair colour brands that hold a dominant position in the market. As for Britannia Industries, its biscuits sales were up significantly in April and May. Additionally, the FMCG industry reported a surge in immunity boosting products like ‘chyawanprash’ and branded honey amid the virus crisis.

Financials

On the basis of market capitalisation, HUL with the largest market capitalisation in the FMCG sector reported 1.43 per cent YoY growth in net sales for FY20, gaining from Rs 38,684 crore in FY19 to Rs 39,238 crore for FY20. The company’s net profit for FY20 increased by 11.49 per cent to Rs 6,756 crore compared to Rs 6,060 crore gained in FY19. Net sales of ITC for FY20 rose by 3.28 per cent to Rs 50,968.5 crore from Rs 49,348.43 crore reported for FY19. ITC recently reported that the growth in its net sales has mainly been due to business growth in its FMCG business which continued through e-commerce in spite of the lockdowns. The company gained net profit of Rs 15,584.57 crore for FY20 which is an increase by 21.52 per cent compared to net profit of Rs 12,824.2 crore gained in FY19. Going forward, the company’s cigarette business is expected to drive revenue upwards as the company has nearly reached its per-pandemic operational levels and further hope s to expand its market presence.

Nestle India posted a growth of 9.62 per cent in its net sales for FY20 to Rs 12,295.27 crore from Rs 11,216.23 crore posted for FY19. The company gained net profit of Rs 1,969.55 crore for FY20, thus rising by 22.57 per cent compared to Rs 1,606.93 crore gained in FY19. Zydus Wellness reported doubled growth in its net sales for FY20 to Rs 1,766.82 crore from Rs 842.22 crore in FY19.

Outlook

In times ahead, the industry is likely to benefit much from providing easy access to online shopping on various e-commerce platforms due to growing internet penetration as well as availability of online payment options that will lead to increase in orders from Tier 2 and 3 cities. A direct-toconsumer model will also aid further growth. The more diversified the portfolio of FMCG companies, the more the companies will sustain for longer periods and experience high growth. The demand in the industry for luxurious products is expected to continue to remain shy.

Hospitality

India’s rich culture and diversity attracts a large number of tourists from all over the globe. In addition, a consistently growing middle-class, rising levels of disposable income, increasing interest among millennials to travel in their home country are just some of the reasons why the Indian tourism sector has grown to such a large extent over the years. The sector also has an economic significance in terms of employment generation – the contribution of travel and tourism to domestic employment stood at around 40 million jobs during 2019, representing around 8 per cent of the total domestic jobs. 

According to the World Travel & Tourism Council (WTTC), this sector contributed about USD 194 billion during CY2019 – an input of around 6.8 per cent to the country’s GDP. The hospitality sector being a part of the travel and tourism industry has been one of the biggest beneficiaries as a result. The hotel industry is largely fragmented with numerous small and unorganised players dominating the market. Over the years, it has witnessed a shift in favour of the mid-market and budget hotel segments along with hotel aggregators in the budget segment that has led the massive and unorganised hotel industry to consolidation.

The unbranded hotel segment comprises more than 70 per cent of the total available hotel rooms, whereas the branded hotel segment, which dominates the organised sector, accounts for about 5 per cent of the overall hotel industry in terms of room supply. In the year 2019, the hotel industry witnessed good levels of growth in operating performance despite headwinds such as the closure of Jet Airways, the impact of general elections and softer economic growth. Growth was led by business cities on the back of stellar office market absorption seen across the country last year.

The year 2019 also witnessed a 13 per cent growth in brand signings over the previous year and the highest volume of hotel transactions both in terms of value and number of keys traded, displaying strong investor sentiment and confidence. Furthermore, the central government’s initiatives such as the slashing of Goods and Services Tax (GST) rates for hotels brought much optimism to the hospitality sector. Reduction of corporate tax boosted business sentiment towards the end of 2019. 

During 2019, foreign tourist arrivals (FTAs) in India stood at 10.89 million, achieving a growth rate of 3.20 per cent YoY. FTAs have almost doubled from 5.4 million in 2010 to 10.89 million during 2019. Furthermore, during 2019, foreign exchange earnings (FEE) from tourism increased by 4.8 per cent YoY to Rs 194,881 crore. In 2019, arrivals through e-tourist visa increased by 23.6 per cent YoY to 2.9 million. The occupancy rate (OR) increased from 59.8 per cent in 2015 to 66.7 per cent in 2019. However, the goodness of 2019 now seems like a distant past. Regretfully, 2020 could not carry forward the momentum of 2019 due to the global outbreak of the corona virus.

The pandemic has severely impacted the occupancy levels of hotels across all the segments. While early signs of demand deterioration were seen in February 2020, it only worsened in March 2020. FTAs witnessed a YoY de-growth of 6.6 per cent during February, indicating the first signs of pandemic-driven negativity and this worsened to de-growth of 66.4 per cent on a YoY basis owing to the travel restrictions put in place by the government. The industry has never been impacted as adversely as during the ongoing pandemic crisis.

Although some have been able to generate minimal occupancy by deploying their rooms for quarantine patients, stay of medical staff and employees of some corporates at nominal rates, the industry has been struggling with plunging revenues and shrinking profitability due to the high fixed cost and consequently high operating leverage primarily associated with this industry. This has forced hotels around the country to re-negotiate terms with utility service providers such as the internet, telecom, laundry, etc. and some have even started taking measures such as shutting down certain floors in order to save on cost.

Financials

To study the hospitality sector, we have taken into consideration the performance of 12 of the top companies in this industry and compared their performance in FY20 with that in FY19. On an average, the top-line reported by these 12 companies de-grew by 0.29 per cent. There were five companies among this list which reported net losses in FY20 as compared to none in the previous year. This included big names such as Mahindra Hotels & Resorts India, Lemon Tree Hotels, Thomas Cook India, Oriental Hotels and Mac Charles. Among the top performers in terms of YoY PAT growth were The Indian Hotels Company, Benares Hotels and EIH which had YoY growth rates in net profitability of 43.41 per cent, 21.67 per cent and 20.94 per cent respectively.

Outlook

The fallout of the pandemic will mostly hurt the upscale segment that is driven by FTAs, which have completely dried up and not expected to revive anytime soon. Mid-market hotels, on the other hand, are the preferred choice for domestic tourists and given the fact that a majority of tourism will be domestic in the coming quarters, it is this segment which will see a quicker revival than upscale hotels. Even if the travel bans are lifted, the fear of getting infected is likely to deter tourists from planning travel for some time. The revival in the industry is likely to be led primarily by domestic tourists travelling for leisure purposes and opting for mid-market hotels.

Information Technology

India’s IT industry contributed around 7.7 per cent to the country’s GDP and is expected to contribute 10 per cent to the same by 2025. As of FY19, the IT industry employed 4.1 million people. A major part of India’s IT revenues come from global clients. The US has traditionally been the biggest importer of Indian IT exports and BFSI is perhaps the major client segment of many leading Indian IT companies. The computer software and hardware sector in India has attracted foreign direct investment (FDI) inflow of around USD 44.91 billion in the last 20 years from April 2000 to March 2020. It ranked second in FDI inflow as per the data released by Department for Promotion of Industry and Internal Trade (DPIIT).

The reason is that India has a low-cost advantage by being comparatively cheaper than the US. The depreciating rupee is expected to provide some cushion to the business of the IT industry as it majorly depends on exports. The cloud market in India is expected to grow to USD 7.1 billion by 2022 with the help of growing adoption of analytics, artificial intelligence, big data and Internet of Things (IoT). India’s digital economy is estimated to reach USD 1 trillion by 2025. Additionally, the Indian software product industry is expected to reach USD 100 billion by 2025.

In the post-pandemic era, IT majors might even see higher revenue with increasing number of deals in making their clients’ operations technologically robust with there being a new trend around the world for ramping up IT infrastructure for more efficiency with lesser human contact. The IT industry is expected to benefit from the rising inclination of firms towards deploying digital technology. Indian IT majors such as Infosys and TCS have advanced from being simple maintenance providers to full-service players that offer infrastructure, system integration and consulting services. This has resulted in Indian IT players becoming an integral part of various industries across the globe.

On the flip side, there have been some recent events that can have short-term impact on the Indian IT sector. One such event is the H1B visa issue that can hinder movement of IT employees to their client location in the US. This may impact the revenue, though not in the long-term scheme of things. Meanwhile, the sharp shift towards digital adoption will force enterprises to significantly accelerate their digital transformation initiatives. This will drive growth for IT companies going forward. Demand is expected to increase for services around digital channels, collaboration and workplace transformation, online learning and workforce analytics.

Companies are also expected to invest more towards building operational resilience, leveraging analytics, intelligent automation, cloud and cyber security. Increased merger and acquisition activity in certain sectors is expected to result in integration and transitional service opportunities for major IT players. Several sectors are also seeking technology-based solutions immediately to tackle the health and economic crises – notably in healthcare, life sciences, banking, telecommunications and essential retail. The rollout of fifth generation (5G) wireless technology by telecommunication companies is expected to generate approximately USD 10 billion global business for Indian IT firms in the coming few years.

Financials

We analysed the performance of 54 companies of which 42 showed an increase in sales YoY in FY20 as against last year. The companies that showed the highest sales growth on YoY basis in FY20 over the same period last year include KPIT Technologies (236.24 per cent), Tanla Solutions (93.52 per cent), Zen Technologies (61.88 per cent) and Birlasoft (29.02 per cent). The companies that displayed the most decline in sales in the same period include Tejas Networks (- 56.62 per cent), Infibeam Avenue (- 49.41 per cent) and Quick Heal Technologies (- 9.14 per cent). IT majors like TCS, Infosys, Wipro and HCL Technologies posted sales growth. TCS’ sales increased 7.16 per cent to Rs 156,949 crore in FY20 from Rs 146,463 crore in FY19. Infosys’ sales increased 9.82 per cent to Rs 90,791 crore in FY20 from Rs 82,675 crore in FY19. Wipro and HCL also showed sales growth at 4.16 per cent and 16.96 per cent in the same period, respectively.

Outlook

IT is been one of the sectors that could keep functioning optimally even during the lockdown phase. The Nifty IT index has given absolute return of almost 7 per cent since the start of 2020. This is better than the returns given by Nifty 50 index of -10.51 per cent. Hence, IT has been able to generate an alpha during this pandemic.

Metals

India is considered home to 1,531 operating mines which produce 95 minerals out of which four are fuel-related minerals, 10 belong to metallic minerals, 23 are nonmetallic minerals, three are atomic minerals and the balance 55 are considered to be minor minerals. India is also the second-largest producer of crude steel with production of 111.2 million tons (MT) of crude steel in 2019. During FY20, crude steel production and finished steel production stood at 108.5 MT and 101.03 MT respectively. In the aluminium segment, India is the largest producer of sheet mica in the world and has the seventh-largest bauxite reserves at around 2,908.85 MT as of FY19.

In addition, India is the fourth-largest iron ore producer in the world. Iron ore production increased to 205.70 MT in FY20. The country being the second-largest producer of coal that witnessed growth by 4.6 per cent in the production level during FY14 to FY19 to about 730.35 MT and is further expected to grow as miners focus on the surface mining of coal. Coal production in the country stood at 729.10 MT in FY20 and till April 2020 had reached 55.42 MT in FY21. The mining group under the Index of Industrial Production (IIP) stood at 109.7 for FY20, witnessing growth of 1.7 per cent YoY.

For metals and mining industry, rising demand from the sectors of infrastructure and transportation is a major growth driver. The ongoing virus pandemic’s impact saw a weakened metal sector in India with prices treading downwards and companies undertaking production cuts as they were seen struggling to cut losses. However, amid subdued demand growth from construction, infrastructure, mechanical and automobile, has led to rise in global steel prices and the push in prices comes from China. Domestic steel demand in China has enhanced due to mega infrastructure projects announced for 2019-25, generating a steel demand of 23.8 MT during the period.

As a result, India’s total steel exports to China in the period April-June reached around 2.7 MT, which is considerably more when compared to that of last year. On the other hand, disruptions in mining activities due to the implemented lockdowns is expected to drag down the consumption of copper and zinc by up to 6-7 per cent and of aluminium by up to 8 per cent. Though the metal and mining industry had surpluses during the first half of 2020, going forward, doubtfulness looms over it because of uncertainty regarding demand and supply.

Financials

Analysing the companies based on their market capitalisation, Coal India, which is the largest by market capitalisation in the sector, reported a decline in net sales for FY20 by 3.79 per cent to Rs 89,373.34 as against Rs 92,896.08 crore reported for FY19. Subsequently, its net profit for FY20 declined by 4.38 per cent to Rs 16,701.51 crore for FY20 as compared to Rs 17,466.42 crore for FY19. Hindustan Zinc also posted decline in net sales by nearly 12.01 per cent to Rs 18,332 crore for FY20 from Rs 20,834 crore for FY19. Its net profit also decreased by 14.47 per cent YoY to Rs 6,805 crore for FY20. Iron and steel company JSW Steel posted a contraction in its net sales figures for FY20 by 13.80 per cent at Rs 71,116 crore as compared to Rs 82,499 for FY19. A major drop by 35.17 per cent was seen in the net profit gained by the company for FY20, which was Rs 4,009 crore as against Rs 7,554 crore gained in FY19.

Outlook

The Government of India has allowed 100 per cent foreign direct investment (FDI) in the mining sector and exploration of metal and non-metal ores under the automatic route, which will propel growth in the sector. Additionally, power and cement industries also support growth in the metals and mining sector. Growth in residential and commercial building industry is expected to lead to an increased demand for iron and steel in the coming years.

Petroleum

As per the data provided by IBEF, a s of May 1, 2020, India’s oil refining capacity stood at 249.9 million metric tons (MMT), making it the second-largest refiner in Asia. Private companies own about 35.36 per cent of the total refining capacity as of FY20. In FY20, crude oil production in India stood at 30.5 million metric tons (MMT). In FY20, crude oil import increased to 4.54 MBPD from 4.53 MBPD in FY19. India’s LNG import stood at 33.68 BCM during FY20. India’s consumption of petroleum products grew 4.5 per cent to 213.69 MMT during FY20 from 213.22 MMT in FY19.

Export of petroleum products from India increased from 60.54 MMT in FY16 to 65.7 MMT in FY20. Some of the prominent investment deals included French oil major Total SA signing a definitive agreement to acquire 37.4 per cent stake in Adani Gas Limited for about Rs 5,700 crore. One of the biggest investments seen in recent times was Saudi Aramco’s 20 per cent stake purchase in Reliance Industries’ oil-to-chemicals (O2C) business at USD 15 billion.

Meanwhile, the government is planning to invest USD 2.86 billion in upstream oil and gas production to double natural gas production to 60 BCM and drill more than 120 exploration wells by 2022. It is also planning to make investment of USD 60 billion in the natural resources sector with rapid expansion of LNG infrastructure and expanding the city gas distribution (CGD) network to cover over 70 per cent of the population spread over 407 districts across 28 states and union territories. State-run energy firms such as Bharat Petroleum, Hindustan Petroleum and Indian Oil Corporation plan to spend USD 20 billion on refinery expansion to add more units by 2022.

Financials

This sector comprises 19 companies which we have considered for analysis. A majority of the companies witnessed de-growth in their performance in FY20 on YoY basis. Reliance Industries’ growth stood muted during the year. The only company that outperformed during the year was Asian Oilfield Services. Its revenue grew 41 per cent YoY while net profit jumped significantly by 221 per cent YoY. Its net profit margin too improved from 4.6 per cent to 10.7 per cent.

From the industrial gas segment, Indraprastha Gas reported 13 per cent YoY growth in revenue while its PAT jumped by 45 per cent YoY. And while Linde India’s revenue de-grew by 20 per cent YoY, its net profit ballooned from Rs 19.2 crore to Rs 727.2 crore in FY20. In FY19, only one company reported net loss while in FY20 three companies incurred net losses during the year, namely, Indian Oil Corporation, Mangalore Refinery & Petrochemicals and Chennai Petroleum Corporation.

Outlook

The virus-driven 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. Between April-December 2019, the crude oil prices were in the range of USD 53-64 per barrel. From December 2019, when the pandemic outbreak began in China, the prices started falling significantly and dropped as low as at USD 11 per barrel in April 2020. Later, as the situation across countries started getting normal with the easing of lockdown restrictions, the demand for crude oil started increasing and now they are at USD 41 per barrel.

India’s 85 per cent of crude oil requirement is met through imports and the pandemic and lockdowns have brought down this import dependency due to muted demand. There won’t be a significant increase in demand for oil products till the lockdowns are not completely lifted. The demand for diesel would remain low as construction and manufacturing industries are facing a major slowdown. Fuel required by the aviation segment will also remain subdued since the air travel sector has been hampered on account of restrictions on the movement of flights.

Petrol and LPG demand might see recovery when the lockdown gets over with the usage of vehicles returning to normal. International Energy Agency (IEA) has estimated that India’s annual fuel consumption will decline 5.6 per cent in 2020 to 4.73 million barrels per day (BPD) whereas the gasoline demand will decline 9 per cent to 667,000 BPD this year. As per Care Ratings, domestic crude oil production for FY21 might see a fall of 7.3 per cent. 

Pharmaceutical

Over the past five years, stocks of pharmaceutical companies have been sidelined by investors due to various reasons such as increasing competition, stringent norms of USFDA, etc. Also, the BSE Healthcare index in the last five years has been under pressure and failed to surpass the high that it recorded in April 2015. It delivered negative 26 per cent return from April 2015 to January 2020. However, the scenario has changed on account of the corona virus-driven pandemic that has led to slowing down in economic activities across the world with the imposition of extended lockdowns. Amidst this pandemic, the pharmaceutical industry, which is considered as a defensive sector, has emerged as a strong contender to lead the growth curve.

The BSE Healthcare index on YTD basis has delivered a stellar 27 per cent return as against negative 10 per cent return by the BSE Sensex. Lately, pharmaceutical players had been facing the brunt of stringent checks and compliances imposed by the USFDA but post the pandemic the USFDA is expediting clearances and approvals, turning the situation in favour of the pharmaceutical players. Further, over the years, Chinese players have emerged as dominating competitors in the pharmaceutical space. Precursor chemicals, intermediates for APIs and APIs themselves are mostly procured from China which is considered to be a major supplier of these products, commanding nearly 80 per cent market share.

On the flip side, in 2018, in view of curbing rising pollution in the country, the Chinese government shut down nearly 144 API manufacturers in the Beijing-Tianjin-Hebei region alone – cutting off supplies of a wide range of chemicals and APIs and leading to short-term global shortages of several drugs. This clampdown in the wake of protecting the environment has resulted in an increase in manufacturing costs for Chinese players. The result is that it has opened up an enormous opportunity for Indian API players as global players are now looking to reduce their dependence on China by shifting to other low-cost destinations.

Financials

To analyse the performance of the pharmaceutical industry we have taken into consideration the financial performance of 61 companies from this space. The aggregate sales of these 61 companies grew by nearly 10 per cent in the fiscal year 2019-20 from the preceding year to Rs 234,196.7 crore. The aggregate profit of all these companies grew by 7 per cent YoY to Rs 55,981.5 crore. However, profit after tax of all these companies fell marginally by 4 per cent YoY to Rs 23,757 crore.

Of these 61 companies, nearly 82 per cent companies reported positive sales growth in the preceding fiscal year and nearly 59 per cent companies reported positive PAT growth. Notably, almost half of the companies from this space reported positive growth across the board, indicating the strong growth trajectory of this industry. In the large-cap space, companies like Sun Pharmaceutical, Aurobindo Pharmaceuticals, Torrent Pharmaceuticals, Abbott India, Alkem Laboratories, IPCA Laboratories, Pfizer, Alembic Pharmaceuticals and Sanofi India have delivered healthy performance across the board. The data also indicates that there is profit margin improvement of profitable companies in the recently concluded fiscal.

Outlook

The search for an alternative source for the procurement of key raw materials and bulk drugs by global companies is likely to benefit Indian pharmaceutical companies. India is the biggest supplier of generic drugs with an estimated market share of nearly 20 per cent of global generic drug exports in terms of volumes. The depreciation of Indian rupee is expected to aid the growth of pharmaceutical companies as most of the players have huge exposure to the US market. India’s cost of production is nearly 33 per cent lower than that of the US. Meanwhile, the Indian government has earmarked an investment worth Rs 2,000 crore to provide coverage of up to Rs 5 lakhs per year to 50 crore people belonging to financially vulnerable households for the treatment of serious ailments.

Further, Pharmaceutical Vision 2020 by the government’s Department of Pharmaceuticals aims to make India a major hub for end-to-end drug discovery. India’s dependency on China which is an epicentre for the virus pandemic is really high; the country imports nearly 70 per cent of APIs that are used in producing the final drugs from China. To reduce the dependency on China the Indian government has earmarked almost Rs 1 lakh crore which will be used to persuade companies to manufacture pharmaceutical ingredients domestically. This investment will be towards infrastructure spending for drug manufacturing centres and financial incentives of up to 20 per cent of incremental sales value over the next eight years.

Recently, in view of promoting domestic pharmaceutical raw materials, the government has come up with a productionlinked incentive scheme. This shall help India reduce the reliance on imports of critical active pharmaceutical ingredients (APIs). Moreover, the government has also decided to develop three mega bulk drug parks in partnership with the state. Further, the ongoing pandemic is likely to play a pivotal role in boosting the Indian pharmaceutical industry. The supply disruption in China due to this pandemic has presented an enormous opportunity for India as it not only produces low-cost drugs but it also boasts the largest number of USFDA-approved plants in the world. 

Plastic Products

The plastic industry has been one of the fastest growing industries in the Indian economy. On the export front, India is a major exporter of plastics globally. The whole plastic industry can be divided into the upstream sector (manufacturing of polymers) and the downstream sector (making plastic articles from polymers). The major end users of the plastic industry are construction, electrical and electronics, packaging, automotive, FMCG and textile sectors. The plastic industry has been posting growth in recent years led by rapid urbanisation and the expanding middle-class group.

Plastic products are majorly divided into pipes and fittings, films and sheets, wires and cables, and profiles. The major contributor to plastic products is pipes which accounts for 70 per cent of the total plastic products. As per the research report of Reliance Securities, the Indian plastic pipe industry is likely to clock 10 per cent CAGR over FY20-25E to reach Rs 50,000 billion by FY25E from Rs 30,000 crore currently, driven by government’s initiatives like ‘Housing for All’ by 2022, ‘Nal se Jal’ by 2024, Project AMRUT and Swachh Bharat Mission.

The stimulus package for the agriculture and housing sectors announced by the finance minister recently is likely to benefit the PVC pipes segment. The government has also imposed anti-dumping duty (ADD) on imports of CPVC resin and compound from China and Korea for five years (February 2020-2025). Earlier, the ADD was imposed on a provisional basis for six months since August 2019. This would help the domestic players going ahead. On the packaging front, plastic is widely used in industries like pharmaceuticals, retail, and food and beverages, among others.

Going ahead, the growth in the packaging industry is directly related to growth in major industries like FMCG and pharmaceuticals. In the recent scenario of the pandemic, the FMCG sector has not performed well which may hurt the packaging industry to some extent. However, on the flip side, growing proliferation of online retailing and emergence of omnichannel presence is likely to boost market growth. In the current scenario, flexible packaging is quite popular and FMCG is the biggest consumer of flexible packaging with a huge share of around 70 per cent. Flexible packaging is less costly and occupies lesser space which makes it popular.

Other packaging options like paper packaging are contributing around 30 per cent to the overall packaging market. The Indian plastics industry has massive unrealised growth potential indicated by very low usage of plastic as compared to global standards. At the same time, in the coming decades, the industry has to encourage reasonable development by investing in technologies that protect the environment and inspire growth, while balancing economic needs and financial constraints.

Financials

For the purpose of sector analysis, we have analysed 24 companies in the plastic sector according to their market capitalisation. During FY20, the aggregate sales of these companies grew marginally by 1 per cent YoY. The aggregate operating profit of these companies grew by 15 per cent YoY. Also, the aggregate PAT grew by 47 per cent YoY. Plastic major Supreme Industries’ revenue declined by 2 per cent whereas its operating profit and PAT grew by 5 per cent and 0.45 per cent YoY in FY20.

Major PVC pipe maker Astral Poly Technik reported 3 per cent YoY growth in terms of its revenue and 11 per cent YoY growth in operating profit in FY20. PAT also grew by 25 per cent YoY. Essel Propack reported 2 per cent YoY growth in revenue. Operating profit and PAT grew by 8 per cent and 12 per cent respectively on YoY basis. Finolex Industries’ revenue, operating profit and PAT declined by 3 per cent, 26 per cent and 13 per cent, respectively, on YoY basis. Kama Holdings delivered good numbers with jump in revenue, operating profit and PAT by 2 per cent, 12 per cent and 57 per cent, respectively, on YoY basis in FY20.

Outlook

The growing interest in green products, healthier lifestyles and rising concerns on environment is leading to a shift towards bio-plastics, which would be a game-changer for the industry. Going ahead, the linkage of plastic waste business with recycling business could create various opportunities for the recycling companies. Moreover, the current low level of per capita consumption, increased growth in the end-user industries, higher penetration of plastics in various existing applications and the ever-growing range of new applications could further propel the growth of plastics in India. 

Power

India’s power industry can primarily be categorised into three verticals, namely, electricity generation, electricity transmission and electricity distribution. Electricity generation companies are involved in generating electricity from various sources such as renewable, hydro and thermal. As per the Central Electricity Authority (CEA), India’s total installed capacity was 371,054 MW as of June 2020. Of these, around 46.9 per cent capacity belongs to the private sector and the rest to central (25.2 per cent) and state (27.9 per cent). Power generation through thermal sources accounts for a major share of the total installed capacity (62.2 per cent) of which coal contributes a large share of 53.6 per cent. Renewable energy sources, including hydro, and nuclear energy capacity account for nearly 35.9 per cent and 1.8 per cent, respectively.

Electricity transmission companies are involved in transmitting electricity from generation plants to electricity distributors which in turn distribute electricity to end customers. Meanwhile, the nationwide lockdown enforced to contain the spread of the corona virus has resulted in halting economic activities across the country which in turn has led to a sharp fall in power demand. However, with the economy reopening in a phased manner, the demand for power has started to recover quickly. The following chart depicts how power generation across India fell post the lockdown in March but witnessed V-shaped recovery with the reopening of the economy in June.

Financials

To analyse the performance of the fiscal year gone by we have taken 22 companies engaged in the power sector. The aggregate net sales of these companies have increased 7 per cent in FY20 to Rs 323,481.5 crore from the preceding fiscal. Also, the aggregate operating profit of all these companies grew by higher single-digit i.e. 9 per cent YoY to Rs 126,369.4 crore. However, in terms of bottom-line, all these 22 companies’ combined PAT dipped 8 per cent YoY to Rs 26,952.2 crore in FY20. The outperformer in terms of all the parameters from these companies is Adani Transmission which reported 56.3 per cent, 45.2 per cent and 26.3 per cent growth in net sales, operating profit and PAT, respectively. The companies that have posted profit during the year have witnessed improvement in the PAT margin.

Outlook

In view of providing relief to cash-strapped electricity distribution companies, the central government has declared nearly Rs 90,000 crore as a one-time emergency liquid booster. The distribution companies are facing issues in collecting payments from their customers which in turn has led to the failure of distribution companies to clear their dues towards generation and transmission companies. Thus, this move has induced some cheer amongst transmission and generation companies since their outstanding receivables from the distribution companies are stuck due to cash-distressed balance-sheets. Going forward, the resumption of economic activities in the country is likely to play a strong role in the revival of the power sector. However, extensions of lockdowns in some cities may prove to be a hurdle or at least till the pandemic crisis is resolved. 

Service

The Indian service sector has been the most dominant of its kind in India’s GDP, contributing significantly to export, attracting foreign investment and providing large-scale employment across the country. It comprises a wide variety of activities such as trade, hotels and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction. Together, these sub-sectors employ a total of 31.45 per cent of the Indian population.

The large population in the country means that there is plenty of cheap manpower available and this attracts many multinational companies to export parts of their businesses to India to take advantage of the cheap labour cost. Dubbed as the ‘sector of the current millennium’, the services sector drives the Indian economy in an inclusive and equitable manner. It contributed 55.39 per cent to India’s gross value added (GVA) in FY20. The services sector’s GVA grew at a CAGR of 1.45 per cent to USD 1,064.8 billion in FY20 from USD 1,005 billion in FY16. Net export estimate in FY20 from services stood at USD 214.14 billion, while import was at USD 131.41 billion in FY20.

Foreign investments are crucial for India for overhauling its infrastructure sector such as ports, airports, and highways to boost growth. A strong inflow of foreign investment will help improve the country’s balance of payment situation and strengthen the rupee value against other global currencies. Data for 2019-20, shows that the service sector attracted the highest FDI equity inflow of USD 7.85 billion. Total FDI equity inflow in India stood at USD 49.97 billion in 2019-20. Realising the importance of promoting growth in services, the Indian government has rolled out several incentives across a wide variety of sectors like healthcare, tourism, education, engineering, communications, transportation, information technology, banking and finance and management, among others.

Under the mid-term review of Foreign Trade Policy (2015-20), the central government increased incentives provided under Services Exports from India Scheme (SEIS) by 2 per cent. Under this scheme, service providers in India are rewarded for all eligible export services from India. The centre has been working to remove many trade barriers to services, for which it tabled a draft legal text on trade facilitation in services to the WTO in 2017. Meanwhile, the country is gripped in an unprecedented economic downturn which is certainly going to spill over into the second half of this year unless the infection rate can be brought under control.

India’s massive services industry seemed to collapse in April 2020, as most businesses were shut due to the lockdown. A private survey by IHS Markit showed “extreme decline” in activity in this sector. The services business activity index compiled by the firm came in at a shocking 5.4 in April 2020, far below an industry forecast of around 40. Any reading below 50 on this survey-based index shows contraction. Although the sudden downturn lost further momentum in June, it remained strong as the virus pandemic curtailed intakes of new work and disrupted business operations.

In June 2020, services activity picked up pace from record lows earlier but continued to show deep contraction for a fourth straight month as firms reported job losses and business confidence hit an all-time low. The IHS Markit Services PMI in June rose to 33.7 from 12.6 in May 2020. The composite PMI output index, which takes into consideration combined services and manufacturing output, rose to 37.8 in June, up from 14.8 in May. The crisis has also brought about some unexpected benefits in the service industry, particularly in the IT sub-sector. When the pandemic came ashore and strategies like lockdowns were being deliberated upon, the IT sector faced a huge challenge for business continuity.

However, some industry executives feel the ensuing lockdown may have been a blessing in disguise and will lead to a larger number of people to work from home (WFH) in the postcorona virus world. This has been widely attributed to cost and productivity gains out of WFH and it is not just the IT sector which is reaping the benefits. Companies across the services sectors, including banks, are set to have fewer people working from offices going forward.

Financials

To study the financial status of the Indian service sector, we have considered companies from the retailing and trading sectors and compared their performance in FY20 with that of FY19. The top three companies by market capitalisation in the retailing space were Avenue Supermarts, Trent Limited and Bata India, and these companies saw average growth in revenue of 20.37 per cent and an average growth rate in net profit of 24.08 per cent. There were four companies that reported net losses in FY20 and these included names such as Aditya Birla Fashion & Retail, Shoppers Stop, Spencers Retail and Khadim India. As for the trading sector, the top three companies – Gujarat Gas, Adani Enterprises and Adani Gas – on an average showed growth in the top-line of 16.29 per cent and an average growth rate in profit of 144.09 per cent in FY20 as compared to the previous fiscal year. There were four companies in this space which reported net losses for the year ended March 2020, namely, Future Consumer, HCL Infosystems, Shree Global Tradefin and Modern India.

Outlook

An extremely challenging period for the Indian economy is ahead with the severe impact of the pandemic and a great deal of uncertainty regarding the end of disruption leading to negative business activity predictions. Alongside output, profits and employment appear set to fall, with investment plans scaled back relative to earlier in the year. Although there have been signs of recovery in business activity indices, it is clear that recovery, for now, will be slow and only be more pronounced once a vaccine is announced. 

Textiles

The textile sector is one of the most critical sectors in India. Globally as well, it is one of the most vibrant. The global textile industry was estimated to be around USD 920 billion in 2018. Various studies estimate the global textile industry to grow by 4.4 per cent from 2019 to 2024 and it is expected that the North American markets will grow the fastest. The Asia Pacific market is expected to be the largest market globally. The ever-growing textile industry is crucial for Indian textile exports. The key competitors for India remain China, the European Union and the United States.

China remains the world’s leading producer and exporter of garments as well as raw textiles while USA is the leading producer and exporter of raw cotton. Interestingly, USA is a top importer of raw textiles and garments. The top countries in the European Union comprise Germany, Spain, France, Italy and Portugal where the textile industry is valued at more than USD 160 billion, thus constituting almost one-fifth of the global textile industry. The Indian textile industry – while much smaller than China – is the third-largest textile manufacturing industry. Indian textile exports are valued at USD 30 billion and the textile industry in India is responsible for more than 6 per cent of the total textile production globally, valued at approximately USD 150 billion.

The Indian textile industry faces many challenges too that prevents it from achieving its full potential. The Indian textile industry is faced with domestic issues related to outdated technology and inflexible labour laws, infrastructure bottlenecks and a fragmented industry. These hurdles do not allow the industry to achieve the scales required to increase market share in global markets and achieve cost and price advantages. The textile sector in India is dominated by the unorganised and small players who have taken a major hit with demonetisation and the poor implementation of Goods and Services Tax (GST). 

The Indian textile industry is lacking when it comes to its contribution in the manmade textiles and garments which are in high demand. The ratio of cotton-to-manmade-fibre consumption is 30:70. India lacks in the segment in spite of being one of the largest textile producers in the world because of the unavailability of manmade fibres at competitive prices. What is required from the government is a favourable change in the textile policy that will support the textile industry, especially when it comes to manmade fabrics. The government also needs to focus on regional and cluster subsidies while promoting technology upgradation and skill development which may benefit all the producers.

In India, the differential tax treatment is impacting the growth of the overall industry. Tax neutrality may boost the profitability of the sector and may lead to capacity-building which will further create volumes for the industry and empower the same to gain market share in the global markets. For example, in India, the cotton and manmade fibres have differential tax treatment. As of now, cotton is taxed at 5 per cent and manmade fibre is taxed at 12 per cent. In the total textile and clothing exports from India, cotton accounts for nearly 75 per cent while the global consumption pattern is skewed towards manmade fabrics. A policy change must also include a pragmatic approach to labour laws. The archaic labour laws are stifling growth of not only the textile sector in India but also other manufacturing businesses.

Financials

For this report we have considered the top 38 companies in terms of market capitalisation to understand the underlying financial trend in the textile sector of India. The total market capitalisation of these companies is roughly about Rs 64,316 crore. The net sales in the textile industry de-grew by nearly 3 per cent on YoY basis while the operating profits slipped by 3.34 per cent when compared to the previous year. On an average, the net profits went down by 8.51 per cent when compared to the previous year. The profit margins decreased in FY20 to 6.38 per cent on an average for all these 38 companies from 7.57 per cent in FY19 and 7.20 per cent in FY18. Welspun India, Vishal Fabrics and Filatex India are the top three companies with the highest YoY increase in net profits at 131.84 per cent, 68.53 per cent and 42.95 per cent, respectively. Bombay Dyeing & Manufacturing Company, Orbit Exports and Mayur Uniquoters are amongst the textile companies with highest profit margins at 17.3 per cent, 16.37 per cent and 15.10 per cent, respectively.

Outlook

There is no doubt that the Indian government has to take efforts in order to support the textile industry and help the industry gain market share in the global arena. While it needs to carefully evaluate the various trade agreement opportunities Bangladesh and Vietnam benefit from favourable access to some of the big apparel markets, the Indian government has to push for flexible labour laws and incentive technological upgradations to make the textile industry robust and globally competitive. It is expected that the increasing consumption of natural fibres such as cotton, silk, wool, hemp, cashmere and jute will drive the textile market going forward. India is well-positioned to maintain its market share but policy support for the industry is required for the industry to spread its reach.

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