Top 1000 Companies Special Supplement

Special Supplement Economic Review For The First Half Of 2019 - 2020

Methodology

We bring you the Vital Financial Data of Top 1,000 companies categorised by market capitalisation, as these are the stocks where liquidity is more, and they represent a substantial portion of trade. These companies are then categorised in 24 sectors to provide you an insight on the general margin trend of the financial performance for the first-half of FY20. All data has been sourced from Accord Fintech Pvt Ltd (Ace Equity). The focus of financial data was more on the revenue and profitability as many companies do not provide balance sheet on half-yearly basis. We hope that our readers get an overall perspective of the different sectors so that, they are able to take stock and sectoral call effectively! 

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

To download the Top 1000 companies data 

In India, the agricultural sector has occupied nearly 43 per cent of the country’s geographical area. India is one of the largest producers of spices, pulses, milk, tea, cashew and jute. Also, it is the second largest producer of wheat, rice, fruits & vegetables, sugarcane, cotton and oilseeds. In the global production of fruits and vegetables, India ranks second while, it tops the list of the largest producer of mango and banana.

H1FY20 witnessed a huge disruption and damage to agriculture due to untimely rainfalls and flooding in many areas, thus indicating negative sentiments in the sector. According to Economic Survey 2019, the growth rate and Gross Value Added (GVA) by agriculture and allied sectors had performed better from a negative 0.2 per cent in 2015 to 6.3 per cent in 2017 but registered a slow down to 2.9 per cent in 2019. Exports of agricultural commodities and processed food increased by 7 per cent in 2019 to Rs.1.28 lakh crore, from Rs.1.20 lakh crore in 2017-18 due to the contribution by the dairy sector, which witnessed an expansion of 72 per cent in exports from Rs.1,955 crore in 2018 to Rs.3,376 crore in 2019 and also pulses, which increased by 22 per cent from Rs.1,470 crore in 2018 to Rs.1,795 crore in 2019. Overall, the export value of basmati rice and poultry products saw a slight increase while that of nonbasmati rice, wheat and buffalo meat decreased.

The largest company in the sector in terms of market cap, Tata Global Beverages reported a 4.71 per cent increase in its net sales of Rs.3,731.19 crore in H1FY20 from Rs.3,563.46 crore in H1FY19. The company’s net profit grew by 13.01 per cent YoY to Rs.292.34 crore in H1FY20 on aggressively expanding its product portfolio. E.I.D. Parry (India) which is engaged in manufacturing and marketing of sugar and bio-products posted a significant growth in its profits for H1FY20. Kaveri Seed Company reported the net sales of Rs.732.90 crore for H1FY20 which resulted in its net profit growing by 6 per cent to Rs.235.87 crore from Rs.222.52 crore in H1FY19.

The government puts a lot of emphasis on developing the agriculture sector when it is constantly affected by various factors such as climate change, population growth, food security concerns, etc. These challenges help the sector to have more innovative approaches for crop yielding in order to get better farming results. Currently, Artificial Intelligence (AI), which has proved to be successful in other sectors, is being pondered upon by the government as an important tool and also, leveraged this technology in developing the sector. It signed an MOU with IBM to use AI for crop selection and crop monitoring with the use of satellite technology in monitoring the sector. Ban on plastic bags and products in many states in the country and an overall shift in the attitude towards using eco-friendly, biodegradable materials has opened up a huge opportunity for alternate products from agricultural sources. The demand growth in agriculture sector is expected to pick up in H2FY20.

Automobile


The government’s effort to reduce pollution is likely to act as a game-changer for the auto industry in the long-term as it is likely to shift to electric vehicles.

The automobile industry, which is one of the key industries driving India’s GDP, has been going through a bumpy ride in recent times due to the weakening demand. The auto sales in recent months have been under pressure as seen in the chart, due to various reasons, such as the increased ownership cost, liquidity crunch amongst the NBFCs, weak rural demand, etc.

However, in the above data, we can see that post turbulence time in the last few months; the industry is witnessing green shots. This can be attributed to the recent festive season coupled with discounts, improvement in the availability of credit, and revival in rural demand.

To analyse the financial performance of the industry, during the first half of FY20, we have taken data of 14 companies from the auto industry. The aggregate sales of these companies in H1FY20 dipped 11 per cent to Rs.2,47,308 crore. The PV market leader, Maruti reported nearly 18 per cent fall in its net sales to Rs.36,705 crore in H1FY20. Hero MotoCorp, a market leader in the two-wheeler segment too reported nearly 13 per cent YoY fall in net sales to Rs.15,601 crore. Also, commercial vehicle maker Ashok Leyland and Tata Motors reported ~31 per cent and 9 per cent YoY fall in net sales respectively. Out of these 14 companies, only Atul Auto and Bajaj Auto managed to post marginal sales growth of 2 per cent and 0.4 per cent, respectively.

The industry, which has been witnessing a tough ride in the last few months, has started to see some sign of demand revival in the last two months, however, going forward, the industry has another obstacle to clear i.e. new BS-6 norms, which is set to be effective from April 1, 2020. Due to an enhanced safety and environmental norms, the BS-6 compliant vehicles are likely to be costlier than earlier vehicles. The transition to BS-6 compliant vehicles is expected to be smooth as this time, the industry players have already started manufacturing vehicles that are compliant to new norms.

Further, sufficient time and declining inventory are expected to result in smooth transition to new BS-6 norms. Notably, there might be some pre-buying before the implementation of BS-6 norm which would act as a cushion in short-term. However, extended monsoon may dampen the rural demand in the near term.

Meanwhile, the recently announced corporate tax cut is likely to help company to either reward shareholders or pass on the benefit to the customers which in turn, can lead to an improvement in demand.

Going forward, normalized inventory level, better rabbi crop to revive rural demand and improving liquidity situation are likely to aid in short-terms for the auto industry. Further, the government’s effort to reduce pollution is likely to act as a game-changer for the auto industry in the long-term as it is likely to shift to electric vehicles.


Auto Ancillary


Over the last decade, the automotive components industry has registered a CAGR of 10.06 per cent while, exports have grown at a CAGR of 8.34 per cent. Auto components production may increase by 12-14 per cent due to a robust growth in the domestic and export market. Indian tyre industry expects a 7-9 per cent growth over FY19-23. The capital expenditure by the domestic automotive component manufacture is expected at around Rs.24,000 crore over FY19 and FY20.

The growth of global OEM sourcing from India & the increased indigenisation of global OEMs is turning the country into a preferable designing and manufacturing base. The Indian auto-components industry is expected to register a turnover of US$ 100 billion by 2020 backed by strong exports. The autocomponents industry accounted for 2.3 per cent of India’s Gross Domestic Product (GDP), 25 per cent to its manufacturing GDP.

The auto-components industry is expected to follow Original Equipment Manufacturer (OEM) in adoption of electric vehicle technologies. The global move towards the electric vehicles will generate new opportunities for automotive suppliers. A 100 per cent FDI allowed under automatic route for auto component sector will be another boost to the sector, which is currently suffering due to BSVI transition and NBFC crisis. Domestic OEM supplies contribute to 55.97 per cent of the industry turnover followed by exports (26.20 per cent) and domestic aftermarket (17.82 per cent). The Indian auto component industry aims to achieve US$ 200 billion in revenues by 2026.

Policies such as Automotive Mission Plan 2016-26, Faster Adoption & Manufacturing of Electric Hybrid Vehicles (FAME, April 2015), NMEM 2020 are likely to infuse growth in the auto component sector of the country. Both domestic and export markets are almost similar in terms of potential share by different product types. For example, Engine & Exhaust components, along with Body & Structural parts, are expected to make up 50 per cent potential domestic sales as well as exports in 2020.

We analysed the performance of 93 companies. The companies that showed the high sales growth on YoY basis in H1FY20 over the same period last year include JTEKT India Ltd (21.77 per cent), Shanthi Gears Ltd (17.55 per cent), Motherson Sumi Systems Ltd (9.49 per cent) and MRF Ltd (7.37 per cent). The companies that showed the most decline in sales in the same period include names like Maharashtra Scooters Ltd (-46.25 per cent), Jamna Auto Industries Ltd (-40.31 per cent) and Automotive Axles Ltd (-36.38 per cent). The transition to BSVI norms increased insurance cost and NBFC crisis has affected the auto sector in the recent past. This has resulted in muted or declining sales in auto ancillary in H1FY20. Going forward with a revival in the auto sector, auto ancillary sales would bounce back.




Banks

Indian banking system can be bifurcated in two main Indian banking system can be bifurcated in two main streams such as private and public sector. At the current juncture, we believe that a large portion of private banks are much better placed in terms of asset quality and performance across the board. The public sector banks are expected to make a come-back to being a ‘leader’ in our banking system after the recent consolidation by the Government of India. After the completion of this integration, only 12 PSU banks would remain in the industry.

The performance of overall banking industry was good owing to a decent Net Interest Income (NII) growth of nearly 9 per cent on YoY basis. However, after the recent change in tax structure and corporate tax, the earnings of a few banks took a toll on the account of Deferred Tax Assets (DTA). Otherwise, the overall performance showed a positive momentum.

In H1FY20, the overall interest income of banking sectors grew by 15.20 per cent in comparison to the same period in the last fiscal year. Banks such as IDFC First Bank, Bank of Baroda, AU Small Finance Bank and Bandhan Bank reported interest income growth more than 50 per cent for the first half of current fiscal in comparison to last years. Restructuring in select banking was one of the main reasons for the growth, as it was seen in the recent numbers of IDFC First Bank after merger with Capital First Ltd.

Private Banks led the growth of the industry with an average total income increase of nearly 21 per cent, over the same period last year. The PSU banks on the other hand, registered just 9 per cent top-line growth. The average net profit here though has a different trend. Looking at the average net profit of the private banks, a growth of nearly 7.8 per cent was seen during the first half of the year. The PSU banks on the other hand, saw a sharp jump of 58 per cent for H1FY20, in comparison to H1FY19. The PAT growth was due to a much lower provisioning during the period under review.

The Net Interest Income (NII) of banking sector, which is the difference between total interest income and interest expenditure, registered a growth of 17.18 per cent for H1FY20. Highest growth reported was by Bank of Baroda and United Bank which was higher on account of PSU banks consolidation. On the other hand, Corporation Bank, Lakshmi Vilas Bank and Punjab & Sind Bank reported a negative NII growth of 12.86 per cent, 17.04 per cent and 18.17 per cent. The decline is due to the stress on asset quality, higher provisions and lower advances. Stressed financial performance also impacted ratings which were revised to negative outlook by rating agencies.

Talking on provisioning, out of 18 listed PSU banks, only 3 reported higher YoY provisions for the first half of this fiscal year. The PSUs were helped largely by recapitalisation from the government. The capital addition certainly helped the cause of public banks which boosted the bottom line. Bank of Baroda reported the highest provisioning due to an exposure to crisis-hit NBFCs. The H1FY20 provision of the bank stood at Rs.7,494.04 crore, as compared to Rs.4,595.18 crore for the same period last year. Other banks to report higher provisions were UCO Bank and Union Bank of India which reported 13 per cent and 38 per cent higher provisioning during the first half of current fiscal year. Major gainers in terms of PAT on account of lower provisions were Punjab National Bank, Central Bank Of India, United Bank of India, which reported a PAT growth of 126.72 per cent, 110 per cent, 118 per cent, respectively for the first half of the current fiscal. In the case of private banks, RBL Bank, IDFC First Bank, Yes Bank reported provisions more than 100 per cent during the first half. This will hit the bottom line of these players badly and even stock price would be down more than 60 per cent from their highs of last year. The net profit decline for RBL Banks, IDFC First Bank, Yes Bank was 584.7 per cent, 124 per cent and 19.20 per cent, respectively.

After a huge debacle in the recent history, recovery in the banks was supposed to be led by credit growth and CASA deposit, which lowers credit cost for the banks. Instead, there is a marginal drop here, due to more safe and high return in term deposits. The slow growth in CASA also shows that the trend towards lower spending focus is more on saving than spending. This was very much evident after looking at first quarter CASA numbers of players such as ICIC Bank which saw CASA drop to 45 per cent from 51 per cent for the same quarter in the last fiscal. Other banking majors such as Axis Bank, Yes Bank and HDFC Bank CASA declined to 41 per cent, 30 per cent and 40 per cent from 47 per cent, 35 per cent and 42 per cent, respectively.

The public sector banks are expected to make a come-back to being a ‘leader’ in our banking system after the recent consolidation by the Government of India. After the completion of this integration, only 12 PSU banks would remain in the industry 

Outlook 

Government of India continues to step in with fiscal stimulus like slashing corporate tax, export incentives, capital infusion, integration of public sector banks as the increase in Capex is expected to yield returns for the sector. But this can come with a lag-effect as the overall economic activity is slow. The efforts for revival in the economy has way through banking system, especially PSUs by more capital power, regional presence etc. Hence outlook for the public banks is positive. Private Banks will need more of operational efforts to continue growth trajectory. Focus will continue to be on the CASA growth, retail loan book and faster recovery corporate credit.

Private Sector Banks 

Public Sector Banks


Cements


Cement industry is one of the crucial industries for any economy on which any country builds its infrastructure. 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 ~480 Million Tonnes Per Annum (MTPA). India consumes nearly 7 per cent of the global cement consumption. On the geographical front, cement industry comprises of South (33 per cent), North (22 per cent), East (19 per cent), West (13 per cent) and Central (13 per cent). The Cement industry consists of 225 plants owned by 65 players, out of which, 51 per cent capacity is dominated by the Top 5 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 into the industry. The major growth drivers of the cement industry are Housing (54 per cent), Infrastructure (22 per cent), Industrial & Commercial (12 per cent) and Low-cost Housing (12 per cent). Looking at the price trend during H1FY20, the price from North region was moving in the range of Rs.320-350. The price has continuously declined from May 2019. Under South region, the price was moving in the range of Rs.370-340 and also declined since May 2019. Under East region, prices declined sharply to Rs.270 in September 2019 from Rs.320 in May 2019. Under West and Central region, prices were in a declining trend and moved in the range between Rs.360-320 and Rs.320-270.

Looking at the margins front, in Q1FY20, margins were very stable led by softening of input material prices, however in Q2FY20, the scenario was different. Going ahead with the weakening demand, margins would likely be under pressure. In our analysis, we have considered 25 cement companies according to their market capitalisation. During H1FY20, the aggregate sales of these companies grew by 5 per cent YoY. The aggregate operating profit of these companies grew by 33 per cent YoY and the aggregate PAT grew by 63 per cent YoY.

During H1FY20, the cement major, Ultratech Cement reported 15 per cent YoY growth in terms of its revenue and 59 per cent YoY growth in the operating profit. PAT also jumped by 77 per cent YoY. Shree Cement reported 3 per cent YoY growth in terms of its revenue and 59 per cent YoY growth in the operating profit. PAT jumped by 104 per cent YoY. Ambuja Cement reported 5 per cent YoY growth in terms of its revenue and 10 per cent YoY growth in the operating profit. PAT also grew by 27 per cent YoY.

Going ahead, companies are likely to post double digit growth led by various capacity expansions. Also, government's recent steps like reduction in corporate tax as well as lowering of interest rates are expected to stimulate the economy and drive infrastructure and affordable housing demand. However, tight financial conditions faced by the NBFCs and moderation of external demand were the key challenges faced by the economy. We expect the government’s thrust on infrastructure through various government schemes would drive a growth story. 



Chemicals


Globally, India is the sixth-largest producer of chemicals, placed only after the US, China, Germany, Japan, and Korea, which also makes it the third-largest chemical producer in Asia, in terms of output. The country ranks third across the world in the production of agrochemicals and contributes around 16 per cent to the global production of dyestuff and dye intermediates. Basic chemicals and their related products (petrochemicals, fertilizers, paints, varnishes, glass, perfumes, toiletries, pharmaceuticals, etc.) constitute a significant part of the Indian economy. Among the most diversified industrial sectors, chemicals cover an array of more than 80,000 commercial products. The chemical sector has application across a number of industries, such as textiles, papers, paints, soaps, detergents, and pharmaceuticals, among others.

On the sectoral front, we have analysed 72 companies in the chemical sector according to their market cap. During H1FY20, the overall revenue of these companies has increased by 10.7 per cent, with EBITDA reporting a rise by 10.9 per cent. The net profit of these companies has also grown by 3.5 per cent in the first half of FY20. Of this set of companies, the performance was mixed. The revenue of 42 companies registered an impressive rise. Among these, 19 companies delivered double-digit growth. In H1FY20, the revenue of companies, such as UPL and Fairchem Speciality, grew enormously. Both the companies reported a respective rise by 87 per cent and 62 per cent. Similarly, EBITDA of companies, such as Deepak Nitrite (219 per cent), Camlin Fine Sciences (111 per cent), and Shalimar Paints (101 per cent), also recorded humungous growth. Also, PAT of companies, such as Deepak Nitrite (474 per cent), Supreme Petrochem (177 per cent), and Godrej Industries (113 per cent), jumped exceptionally in H1FY20.

The revenue and EBITDA of the top company by market cap, that is, Pidilite Industries, grew merely by 6.5 per cent and 8.7 per cent, respectively, while PAT jumped by 31 per cent in the H1 of FY20. Top paints' company, Asian Paints, grew moderately with 12.6 per cent growth in revenue, 27.3 per cent growth in EBITDA, and a whopping 40.8 per cent growth in PAT in H1FY20 on a YoY basis. Pesticides and agrochemicals' leading company, UPL, which reported the highest growth in terms of revenue and EBITDA, as compared to other companies from the segment, witnessed a huge de-growth in PAT by 58.5 per cent YoY.

In H1FY20, the turnaround in some of the companies appeared when they earned net profit against the net loss in H1FY19. The net profit of Camlin Fine Sciences in H1FY20 was Rs.23.9 crore compared to the net loss of Rs.2.5 crore in H1FY19. Similarly, Fairchem Speciality earned a net profit of Rs.90.4 crore in H1FY20 against the net loss of Rs.28.8 crore in H1FY19. Of the 70 companies, only Shalimar Paints incurred a net loss, whereas, all other companies have generated a net profit in H1FY20.

As per Crisil, the prospects of the domestic chemicals industry are intrinsically linked with the overall growth in the economy and the export market. India is a net exporter in various segments, such as dyes and pigments, and Crisil expects this trend to continue. However, the slowdown in the global economy is likely to hamper the overall growth potential for the chemicals sector. Nevertheless, the recent trade war between the USA and China and Brexit can have a significant positive impact on the Indian chemicals sector's growth in the near future. The USA, EU, and the UK markets are ripe for the disruption this year, as China has been the single largest supplier to the USA and post-import duty tariff regime, Indian companies would need to accept business coming from the US with open hands. Further, Chinese buyers are also seeking product sourcing from India due to their environment-related problems. Several US and European chemical manufacturers are looking at shifting their manufacturing base from China and, as of now, India and Vietnam are the two most sought-after destinations among them.

To support and push the chemical sector in India, the Government has taken up various favorable initiatives, facilitating growth. These initiatives include the permission of 100 per cent FDI in the chemical sector under the automatic route, except for some hazardous chemicals. Setting up PCPIRs, which are investment regions for petroleum, chemicals, and petrochemicals, together with associated services, is also a government initiative to support this sector. Four such PCPIRs have already been approved. Another initiative in this regard is to establish plastic parks to facilitate state-of-art technology development and a conducive ecosystem to produce specialised plastic products.

The recent Union budget, too, had a few announcements that would positively impact chemicals in the future. The Indian Government discussed its vision regarding farmers' income in the budget session and stated that zero budget natural farming (ZBNF) technique will double farmers’ income. It also announced the formation of 10,000 farmer producer organizations (FPOs) to boost agrochemical companies. The number of construction and water chemical companies in India will continue to increase due to the consistent focus on India’s infrastructure (the Indian Government will invest Rs.100 lakh crores in the next 5 years).

The industry has ambitious growth targets and it is estimated to grow at a CAGR of 9 per cent to reach a volume of US$304 billion by FY25. The growth is expected to be driven by the rising demand in the end-use segments for specialty chemicals and petrochemicals. The market size of the domestic agrochemical sector is anticipated to reach US$8.1 billion by FY25 and the specialty sector is foreseen to increase by about 10 per cent annually to almost double the size by FY25.
 

Construction


Right from 2014, i.e since this new government came into power, the key area where they are focussing, is on the improvement of infrastructure in the country. However, in the recent times, the construction activity in the country has been muted owning to the various issues like land acquisition, liquidity crunch as well as the Union Election in the first half of FY20.

Besides, being a cash-driven transaction industry, real estate has been facing challenges post demonetisation. Additionally, the introduction of RERA and GST have also added to the pain of real estate players as these new reforms and tax regimes has led to some confusion for the real estate players in the shortterm. When the industry was recovering from these blows, the sector witnessed another shock of liquidity crunch triggered by IL & FS default. Due to the liquidity crisis, the NBFCs started delaying loan disbursement and were unable to provide funding assistance despite being already credit sanctioned. Further, amid slowing demand, the developers are sitting on a huge inventory level. Consequently, developers who were heavily relied on debt for executing their projects are facing severe issues. However, players with a strong balance sheet and healthy cash holding are immune to this liquidity crisis and may reap benefits from the current market condition.

To analyse the financial performance of the first half of FY20, we have taken data of 57 companies from the construction industry. The aggregate sales of these companies grew by nearly 8 per cent in the first half of FY20 on YoY to Rs.1,42,076 crore. Aggregate EBITDA of these companies improved 10 per cent YoY with a marginal improvement in the margins. However, Profit after Tax (PAT) of all these companies increased marginally by 6 per cent YoY.

L&T, the mammoth in the engineering and construction industry reported nearly 8 per cent YoY growth in net sales. On the other hand, India’s largest listed real estate firm DLF reported a 16.5 per cent fall in the net sales. Also, Godrej Properties and Oberoi Realty reported nearly ~36 per cent and 26 per cent YoY decline in their net sales, respectively.

However, the new regulatory norm and tax regime are expected to bring confidence amongst the buyers which in turn, will boost demand.

In contrast to the residential segment, the commercial segment has been witnessing a fall in the vacancy level which has resulted in an increase in the rent.

The overall outlook for the infrastructure sector looks promising as the government’s impetus for the sector is likely to provide enormous opportunity for the industry players. The government is expected to invest almost Rs.6.3 lakh crore under Bharatmala, Rs.2.05 lakh crore under smart cities mission, as well as in other initiatives like Sagarmala, Housing for All, railways, etc. are likely to be a game-changer in the coming years. Furthermore, the government has given an approval to the National Highways Authority of India (NHAI) to set up infrastructure investment trusts (InvITs) to monetise highway assets. Through InvIT and ToT model, NHAI is planning to raise a fund of nearly Rs.85,000 crore by FY25E.


Consumer Durables


The consumer durables sector has been one of the fastest-growing sectors in the recent times in a developing country like India, where semi-urban and rural areas are getting connected with better infrastructure. Over 65 per cent of the total revenue in this sector is generated from the urban population and the increased rate of urbanisation that has led to better electrification, increases the demand for these goods. This sector comprises of a wide-range of household and industrial appliances ranging from air conditioners and televisions to washing machines, refrigerators, laptops and personal computers. The demand for products in this sector can be highly seasonal in nature. Many of these products which were once considered as luxury goods are almost considered as necessities today, due to a rise in disposable income. However, during the time of economic slowdown, which the country is currently experiencing, the consumer durable sector can also be one of the hardest-hit sectors. To study the consumer durable sector, we have taken the performance of 18 companies of this sector into consideration. The aggregate revenue produced was Rs.26,534.5 crore in H1FY20, increasing by 15.35 per cent, from Rs.23,003.26 crore in H1FY19. The continued positive growth in sales can be attributed to the huge untapped market in India for appliances such as air conditioners, washing machines and refrigerators. The bottom line on a whole expanded by 8.44 per cent to Rs.1,673.75 crore in H1FY20, as compared to Rs.1,543.39 crore in the first half of the previous fiscal year. The companies that contributed the highest to the aggregate revenue in H1FY20 is Voltas, bringing in Rs.4,075.94 crore, followed by Whirlpool Of India, which reported its net sales to be Rs.3,367.66 crore and then, by Blue Star which reported Rs.2,824.92 crore in sales. Looking ahead, the Indian Appliances and Consumer Electronics (ACE) market is expected to increase in 2022, by 9 per cent CAGR to reach Rs.3.15 trillion (US$ 48.37 billion), however, despite the current economic slowdown, whether it can continue its growth or not, yet remains to be seen. In recognition of the weak market sentiments, the government has embarked a course of corrections, including reductions in corporate tax and the customs duty on import of TV panels (open cells). The Government of India has allowed 100 per cent Foreign Direct Investment (FDI) under the automatic route in Electronics Systems Design & Manufacturing (ESDM) sector. The National Electronic Policy, passed in February 2019, provided an impetus to Make in India (MII) and its efforts to become a global hub for ESDM. The policy offers significant support for the electronics sector with a focus on exports and aims to drive domestic manufacturing. These initiatives, along with macro tailwinds such as rural electrification and the infrastructure push by the government, are expected to boost the demand for consumer durables in the future.


Electricals & Electronics


The electrical equipment industry in India is diverse as it manufactures a wide-range of high and low technology products. Being extremely dependent on the power sector, it directly employs nearly half million people and also provides indirect employment to another one million people. To enable economic growth, India’s power sector plays an important role which is witnessing increasing in investments, with a capacity addition target expected of 93 GW in the thirteenth plan (2017–2022). Hence, the electrical equipment industry has a steady growth, which is a result of government’s focus on capacity augmentation across generation, transmission and distribution. The electrical equipment sector plays a crucial role in improving the power sector infrastructure. 

The total market size of electrical machinery in India is anticipated to reach US$ 100 billion by 2022 from US$ 24 billion in 2013.

India’s top export market with nearly 15 per cent share is US, followed by UAE, Germany, UK, Nigeria and Singapore. As for imports, China contributes by nearly 45 per cent, including power project imports. Germany, Japan, US, South Korea and Italy are some other major countries from which significant imports take place. Indian electrical equipment manufacturers are continuing to expand their business operations globally with the companies aggressively targeting exports. The government plans to make the country, the perfect choice for production of electrical equipment by reaching an output of US$ 100 billion via balancing exports and imports.

Currently, the sector faces challenges both domestically and internationally such as of low-capacity utilisations in the Transmission & Distribution (T&D) segment and also growing threat of low-cost imports.

Government of India has de-licensed the electrical machinery industry and has allowed 100 per cent Foreign Direct Investment (FDI) in the sector. It intends to set up the Electrical Equipment Skill Development Council (EESDC) to focus on identifying critical manufacturing skills required for the electrical machinery industry. The coming fiscal years are expected to be important and watchful for the Indian electrical equipment industry, as it is set to meet the required rapidly rising domestic demand and also, for establishing its presence as an important player in the global electrical equipment arena amidst the current economic headwinds.

We have considered 22 companies for our analysis. Finolex Cables, which is the largest company by market cap and also a dominant player in the sector, reported muted growth of 1.22 per cent in net sales of Rs.1,523.50 crore for H1FY20, compared to net sales of Rs.1,505.15 crore in H1FY19. The company declared 11.7 per cent gain in net profit of H1FY20 to Rs.204.69 crore from Rs.183.25 crore in H1FY19. Havells posted a degrowth of 8.67 per cent YoY in new profit for H1FY20 to Rs.355.28 crore.


Engineering

Sector Sponsor

Rites Ltd

Of all the industrial manufacturing sectors, the engineering sector is more diverse as it includes many different companies. It plays a significant role as it serves as an input for several other industries. This also means that this sector is affected by the vagarities in other sectors. The overall global economic and the domestic economic health have major effects on this sector. The biggest determinant of a company’s performance is the order book size. Increasing industrialisation and economic development drives growth in the capital goods market. Turnover of the capital goods industry is forecasted to grow to US$ 115.17 billion by 2025. Engineering research and design segment revenues is set to increase fourfold by 2020. ER & D revenues projected to reach US$ 42 billion by FY22F from US$ 28 billion in FY18.

Construction equipment sales are forecasted to advance to 110,815 by the year 2022. Construction equipment market projected to reach US$ 7 billion by 2020 from US$ 4.2 billion in 2017. The market size of textile machinery stood at US$ 4.85 billion in 2018 and is expected to reach US$ 5.2 billion by 2021.

Material handling equipment has four categories: Storage and handling equipment, engineered systems, industrial trucks and bulk material handling. With around 50 units in the organised sector, the material handling equipment industry is engaged in the setting up of coal/ore/ash handling plants and manufacturing associated equipment. BHEL plans to foray into Ukraine. BHEL won the order for Renovation and Modernisation (R&M) of three units of the power plant, located in Chamba district of Himachal Pradesh. The R&M of the other two units is under various stages of execution. RITES have demonstrated its capacity to execute across segments and are simultaneously able to protect its margins in the H1 of FY20. Action Construction Equipment (ACE), which is currently present in 20 countries, is expecting to touch Top 50 countries in the next two years. BEML Ltd, a defence public sector, signed a Memorandum of Understanding (MoU) with IRCON International Ltd to explore opportunities in the overseas market by synergising each other’s strengths for large infrastructure projects in the transportation sector. Praj Industries inks pact with Brazilian ethanol maker Dedini. L&T Technology Services Ltd (LTTS NSE -0.26 per cent) won a multi-million dollar project from one of the world's top plastics, chemicals and refining manufacturers, to deliver the entire spectrum of Engineering, Procurement and Construction Management (EPCM) services for the expansion of an existing site in Europe.

Rising competition is driving domestic players to focus on improving their capabilities, become more quality-conscious and upgrade their technology base in-line with global requirements. More than 2,500 firms in the engineering sector have ISO 9,000 accreditation. To enhance competitiveness in India’s capital goods industry, the Department of Heavy Industry has approved 4 Centres of Excellence in textile machinery, machine tools, welding technology and smart pumps.

Government of India has also renewed its focus on the development of infrastructure of the country. With this, the demand for construction equipment and other machinery is expected to rise significantly. The growing energy requirement will require enhancement of installed power capacity. As per the National Electricity Plan 2018, the total installed power capacity is projected to increase from 356.10 GW in FY19 to 479.42 GW in FY22P. The increase in installed power capacity is expected to boost demand for power generation and transmission equipment.

We analysed the performance of 31 companies. The companies that showed the highest sales growth on YoY basis in H1FY20, over the same period last year, include RITES Ltd (67.55 per cent), CMI FPE Ltd (43.92 per cent), GMM Pfaudler Ltd (38.44 per cent), HLE Glascoat Ltd (44.82 per cent), Ion Exchange (India) Ltd (61.43 per cent), ISGEC Heavy Engineering Ltd (31.45 per cent), Kirloskar Industries Ltd (1348 per cent) and KSB Ltd (26.82 per cent). The companies that showed the most decline in sales in the same period include names such as Action Construction Equipments Ltd (-17.45 per cent), Bharat Heavy Electricals Limited (-15.40 per cent), Mauria Udyog (-30.01 per cent), Skipper Ltd (-34.99 per cent) and Yuken India (-13.38 per cent).


Entertainment 

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

Indian television industry segment is into a shining phase led by increasing digitisation. In 2019, media industry has faced many structural changes like new cable TV pricing regime, which has interrupted India’s television broadcasting sector significantly. Also, usage of online platforms like Hotstar, Netflix and Amazon prime has expanded significantly leading into a jump in the number of subscribers. This would again going to rise at a significant pace led by easy availability of internet and upcoming 5G data.

Looking at the advertising segment, in 2019, advertising spend has jumped by around 11 per cent in India led by world cup, elections, penetration of regional and launch of new channels. 

Also, DTH subscription is growing rapidly, driven by content innovation and product offerings.

Print Media industry is a constantly evolving industry with a rising focus on digital reading which is changing preference of the readers. The print industry has seen a significant growth as rising income level and growing lifestyles have driven growth in the magazine segment. Animation & Gaming segment has seen a growth of more than 20 per cent on account of HD animated movies, kids’ genre TV channels and mobile gaming.

Under Radio industry, the cabinet has granted permission to 135 FM channels under Phase III. Besides, the Indian film industry has grown considerably, led by digitisation. Online video platforms like YouTube would capitalise on the massive shifts in consumer behaviour.

To analyse Entertainment segment, we have analysed 9 major companies. During H1FY20, the aggregate sales of these companies grew by 9 per cent while the aggregate operating profit of these companies grew by 99 per cent YoY. However, aggregate PAT went down by 62 per cent YoY. The two major contributors were PVR and Inox Leisure. PVR H1FY20 revenue and operating profit grew by 32 per cent and 128 per cent YoY, respectively whereas, the net profit declined by 24 per cent YoY. Inox Leisure H1FY20 revenue, operating profit and net profit grew by 30 per cent, 148 per cent and 27 per cent, respectively on YoY basis.

To analyse TV broadcasting segment, we have analysed 11 major companies. During H1FY20, the aggregate sales of these companies declined by 3 per cent whereas, the operating profit and net profit grew by 1 per cent and 10 per cent on YoY basis.

We expect media and entertainment industry to grow at a healthy pace led by the government initiatives like Make in India, Skill India and Digital India. Further, due to an increasing digitisation and rising usage of internet over the last couple of years, we expect this to augur well for the industry.



Fertilizer 

India is the second-largest consumer of fertilizers in the world, with an annual consumption of more than 55 million metric tonnes. Fertilizers have played a key role in the success of India's green revolution and subsequent selfreliance in food-grain production. The increase in fertilizer consumption has contributed significantly to the sustainable production of food grains in the country. The Indian fertilizers market is expected to rise at a CAGR of 11.9 per cent during the forecast period of 2019-2024.

Among the various type of fertilizers used in India, urea, used as a source of Nitrogen, is one of the highest consumed fertilizers. Since the country is the world’s second-largest consumer of urea, the Indian Government is working toward increasing its production to achieve self-sufficiency and end imports by 2022.

Out of the overall production of fertilizers, the country produces only 9 to 11 per cent of DAP, which is the second most widely-used fertilizer after urea.

FY20 commenced on a subdued note with a delay in the monsoons, which has considerably affected/delayed the Kharif season sowing. However, the monsoon witnessed after August 2019 has been the wettest monsoon in 25 years and is set to help farmers in expanding the area required for the Rabi crops, which would boost yields. The country received monsoon rains during the June-September season that were 10 per cent above average and the rainfall continued during the period from October to November, increasing soil moisture levels required for sowing the crops. The rainfall also lifted the water level in India's key reservoirs to 86 per cent of capacity, 25 per cent more than the capacity a year ago and 22 per cent more than that of a 10-year average, according to the government data. Hence, the demand for fertilizers is expected to go up during this Rabi season.

Accordingly, the Government has made provisions for the higher stock of all fertilizers, including urea. As per the Agriculture Ministry, the expected need for urea during the 2019-20 Rabi season would be 17.4 million tonnes (mt), nearly seven per cent more than 16.24 mt consumed in the corresponding period last year. While the assessed requirement for di-ammonium phosphate for the coming Rabi season is 5.16 mt as compared to 4.6 mt used in the previous season, the stocks of NPK complex fertilizer to be made available is 5.01 mt, nearly 17 per cent more than what was consumed in the last year's rabi season. The demand for potassic fertilizers, such as MOP is expected to be even higher. For sector analysis, we have assessed 10 companies in the fertilizer sector based on their market cap. The revenue of Chambal Fertilizers, Rashtriya Chemicals & Fertilizers, and National Fertilizers grew by 37 per cent, 14 per cent, and 15 per cent YoY, respectively, in H1FY20. The revenue of all other companies de-grew in double digits in H1FY20 on a YoY basis. EBITDA of companies, such as Chambal Fertilizers (130 per cent) and Southern Petrochemical Industries (50 per cent) grew exceptionally. Zuari Agro incurred loss at the operating level in H1FY20 against the operating profit in H1FY19. PAT of companies also rose significantly. For example, Coromandel International, Chambal Fertilizers, and Southern Petrochemical Industries reported a jump of 24 per cent, 103 per cent, and 50 per cent, respectively, in their PAT. Meanwhile, Zuari Agro generated a net loss against the net profit in the corresponding period last year.

Although the fertilizer sector is expecting the demand for fertilizers to go slight up on account of a healthier monsoon this year, the actual demand may be even higher than what is anticipated. The Fertiliser Association of India said in a note that there would be a modest 2-3 per cent growth in the demand for fertilizers this year. The government has allocated nearly Rs.80,000 crore to meet the fertilizer subsidy, of which around Rs.56,000 crore is for urea and the remaining nearly Rs.26,000 crore is for nutrient-based subsidy for non-urea nutrients.

As per the Care Ratings, the softening of raw material prices and a stable rupee would augment the production, going forward. With the commissioning of the Gandepan-III urea plant and the Ramagundam urea plant coming on board during Q3FY20, the production of urea is also poised to increase.

Finance

Sector Sponsor

PNB Housing Finance Limited


The Non-Banking finance sector continues to face issues regarding credit offtake, liquidity and negative consumer sentiment. The sector which completely lost its momentum after IF & FS crisis last year; saw an increasing number of NBFCs going haywire. Dewan Housing Finance Corporation (DHFL) saga is something that every investor will look at as a key learning before investing in the sector. The challenges for NBFC space refuse to leave its back as low credit availability has fractured credit growth and slowdown in the industry and also, hampered asset quality.

Recently, Reserve Bank of India (RBI) published Financial Stability Report (FSR), which also mentioned the high stress and impacted asset quality in the sector. The stability report has showed that NBFCs witnessed asset quality stress in their financials during first-half of the current fiscal. The gross NPA ratio of the NBFC sector increased to 6.3 per cent in September 2019 from 6.1 per cent in March 2019. Though, its net NPA ratio remained steady at 3.4 per cent during the period under review.

Commenting on the risk asset ratio, the report added that the Capital to Risk Assets Ratio (CRAR) of the sector stood at 19.5 per cent at the end of the H1FY20, which is lower than 20 per cent, as of FY19-end. The liquidity crisis was largely due to asset-liability mismatch in the shadow banking sector. RBI has introduced the Liquidity Coverage Ratio (LCR) requirement for all deposit-taking and non-deposit taking NBFCs with an asset size of Rs.5,000 crore and above. It pointed out that the new regulation mandates NBFCs to maintain a minimum level of high-quality liquid assets to cover an expected net cash outflows in a stressed scenario.

The report also added that the NBFCs were the largest borrowers in the country’s financial system with nearly Rs.8,29,468 crore gross payables and gross receivables of around Rs.66,635 crore as of first-end of the current fiscal. The fund raising breakup gives that these net payables were obtained majorly from banks, nearly 49 per cent of the total borrowings. The remainder of funds was obtained from 26 per cent of the mutual fund companies and 21.3 per cent from the insurance firms.

Overall in India, the finance sector is largely distributed over segments such as asset management, housing finance, investment services, credit & lending, stock broking etc. The asset management companies have certainly been an outperformer in the sector. Segment leaders, HDFC and Reliance Nippon asset management companies have given returns as high as 113 per cent and 128 per cent, since December 2018. The optimism for the segment is due to a large scope of growth in the segment coupled with a strong AUM growth. The domestic AUM has grown at CAGR of 24 per cent between FY14-19. For H1FY20, the top-line growth remained slow. HDFC AMC grew at 5 per cent YoY for the first-half while Reliance Nippons top-line declined by 20.35 per cent YoY during the same period.

The housing finance companies reported 21 per cent YoY growth in the total interest income for H1FY20 over the same period in the last fiscal year. Aavas Financial and HUDCO are the top gainers in terms of the top-line growth registering 38 per cent each. The robust performance was aided by a strong momentum in disbursements which increased by 21 per cent YoY. The troubled financiers such as India Bulls housing finance, on expected lines, reported a decline across the board with top-line down by 7 per cent for H1FY20 and net profit declining by 28 per cent for the company.

The housing finance companies are further well-supported by government and regulators, who are making efforts with an aim to improve the market sentiments and demand in the housing segment. The National Housing Board (NHB) had announced regarding provision of an additional liquidity support of Rs.30,000 crore to HFCs for easing the flow of funds in the housing sector. In addition to this, RBI has plans to double the limit of bank lending to NBFCs & HFCs for on-lending to housing from Rs.10 lakh to Rs.20 lakh per borrower for classification as priority sector housing.

The shadow banking segment, Bajaj Finance, continues to be the leader which reported 48 per cent top-line growth as well as 53 per cent top-line growth. Top ten companies in (terms of market) reported the total interest income growth of 19 per cent for H1FY20, when compared the same performance last year. The small credit providers such as IDFC Ltd, Tata Investment Corporation Ltd, Bajaj Holdings & Investment Ltd, on the other hand, reported a high interest income drop up by 16 per cent. This was largely due to weak operating strategies. Unlike these companies, Bajaj Finance provides loan in a very less time. Further, its presence across the segments and geographies gives an edge to it.

The term lending majors such as PFC, REC, MAS Financial services, IFCI and Satin Credit Care, reported a strong top-line growth of 13 per cent on YoY basis for the first half. Segments growth is led by MAS Financial services, which grew by 28 per cent over the same period last year. Segments NII grew by 22.38 per cent for the period under review. The gains were led by IFCI, which reported healthy NII growth of 64.47 per cent for the period. Advances in the sector grew by 2.91 per cent over previous reported number at the end of March 2019. MAS Financial reported highest growth in advances of 13.65 per cent at the end of H1FY20. The capital infusion will be a key trigger for the sector.

Outlook

The sector certainly needs a much-larger scope from the demand and consumption pickup. The weak consumer demand has hit the credit offtakes in the sector. The liquidity crisis has further impacted the sentiment for the companies. We expect the sector to remain under pressure for some more time, till the initiatives from the regulators and government start yielding returns. In H2FY20, we hope a growth to be seen in the established players such as Bajaj Finance and Bajaj Finserve. Select HFCs may come up with a few positive surprises such as Canfin Homes, Repco homes finance etc.


FMCG 


The Fast-Moving Consumer Goods (FMCG) industry in India has been registering a strong performance over the last few years while scaling up their premium product, which has helped FMCG companies to post stellar numbers. However, in the last few months, the whole industry has been hit due to the economic slowdown and severe monsoon, resulting in muted demand. Also, the liquidity crunch in the country has hit the smaller companies and dealers, consequently, impacting on the working capital of these companies. However, benign few raw material prices have helped companies to maintain their margins.

To analyse the performance of the FMCG industry, we have taken financial performance of 42 companies into consideration. The aggregate sales of all these companies grew by nearly 8 per cent in the first half of FY20 to Rs.1,11,722 crore. In this H1FY20, Zydus Wellness and Hindustan Foods reported stellar sales growth of 236 per cent and 97 per cent YoY respectively. EBITDA of all these companies, increased by nearly 13.2 per cent YoY in H1FY20 while, Profit after Tax (PAT) surged by nearly 17.4 per cent YoY to Rs.18,637 crore. In terms of bottom-line growth, DFM foods and Godfrey Phillips reported a strong PAT growth of nearly 86 per cent and 81 per cent YoY in H1FY20, respectively.

During this challenging time, the players who have been consistently expanding their presence (increasing distribution network), focussing on new and innovative product launches and spending on promotional activity, are likely to be winners going forward. Overall, nowadays, the companies are focussing on increasing their direct reach, which would help them to sustain their market position and scale-up operations in the coming years. Also, e-commerce is likely to play a crucial role in the FMCG growth story. Besides, the companies are focussing on smaller packs of mid-premium and premium products to penetrate in rural India. Notably, the country’s relatively low per capita consumption and aspirations for premium products are likely to be the key triggers in the long-run. In the near-term, comparatively lower raw material prices and most of the companies' cost efficiency initiative are likely to act as a cushion for margins, thereby, pushing profitability. Notably, the recent corporate tax cut is likely to be a game-changer for all the industry players, as this will result in higher profitability, which in turn, can be utilised for the promotion and marketing of products or the benefits that can be passed on to the end-users or as reward to the shareholders (dividend, buyback, etc.).

However, the valuations of most of the FMCG companies are at peak level, owning to the expected revival in the profitability, thus, we need to wisely select the investment opportunity that lies in the FMCG universe.


Hospitality

India has a rich cultural, historical heritage, geographical diversity and natural beauty spread across its lands, making it an attractive destination for both domestic and foreign tourists. The tourism industry is widely-touted as a multiplier, driving growth in the Indian economy since it not only helps bring in foreign exchange but contributes enormously to employment. Additionally, it also encourages the development of multiple-use infrastructure including hotels, resorts, restaurants, transport infrastructure, aviation, roads, shipping, railways and healthcare facilities.

Digitalisation has changed the face of the industry over the years. The widespread use of the internet and improved communications has put relatively unknown Indian tourist destinations on the map. Tourists are now using various digital tools to plan, book and organise various trips and this has made it a pleasant experience than it was before. Digitalisation has also led to the emergence of online players such as MakeMyTrip, Airbnb, Oyo Rooms and initiatives like CouchSurfing which offer better pricing, location and convenience. These digital options have provided support to the growth of domestic and outbound tourism in India. 

International hotel chains have a growing presence in the country and are expected to increase their market share in the Hospitality industry in India. It is estimated that international hotel chains will enjoy a 50 per cent market share by 2022. A good example of such a company is Marriott International, which is looking to grow its footprint in India by adding 50 hotels that will provide 15,000 more rooms over the next five years. According to the data released by the Department for Promotion of Industry and Internal Trade (DPIIT), the tourism sector attracted Foreign Direct Investments (FDI) of around Rs.75,000 crore between April 2000 and July 2019, contributing 2.97 per cent to the total FDI inflow in the country.

The Foreign Tourist Arrivals (FTA) from January 2019 to November 2019 was 96,69,633 as compared to 93,66,478 in January 2018 to November 2018, registering a growth of 3.2 per cent. Majority of the foreign tourists came from Bangladesh (19.34 per cent), followed by United States (14.64 per cent), UK (9.23 per cent), Canada (4.03 per cent) and Australia (3.81 per cent). The growth in FTAs on a YoY is muted and this can be attributed to the global economic slowdown and various geopolitical issues like the Hong Kong protest, the uncertainty in Europe due to Brexit, US-China Trade war, etc.

To study the Hospitality sector, we have taken into consideration the performance of 15 of the top companies in this sector and compared their performance in H1FY20 with that in H1FY19. On an average, the revenue reported by these companies de-grew by 7 per cent from H1FY19 to H1FY20. The bottom line fell on an average by 11 per cent from H1FY19 to H1FY20, clearly indicating the negative sentiment in the industry. The companies which performed the best in terms of growth in sales were- Lemon Tree Hotels, followed by Wonderla Holidays and Mahindra Holidays and Resorts. On the other hand, Hotel Leela Venture, Mac Charles (India) and Oriental Hotels were among those that reported the largest decline in sales volume. There were six companies on the list that reported net losses in H1FY20, namely, Asian Hotels (West), Lemon Tree Hotels, Oriental Hotels, Sayaji Hotels, Speciality Restaurants and Thomas Cook (India).

The government is definitely doing its part to weather the storm. Under Union Budget 2019-20, the government introduced a Tax Refund for Tourists (TRT) scheme like in countries such as Singapore to encourage tourists to spend more in India and boost tourism. This scheme provides an opportunity to the foreign tourists to purchase goods during their stay in any country on payment of GST and obtain a refund of the GST at the time of exit from the country. The government has also launched several branding and marketing initiatives such as Incredible India and Athiti Devo Bhava to provide a driver to growth. A fresh category of visa - the medical visa or M visa was launched for people seeking speciality medical treatment in India for extended periods in order to promote medical tourism in the country.

Additionally, the government plans to develop 17 sites into world-class tourist destinations to boost travel and tourism in the sector. Such steps taken by the government to boost infrastructure and provide an incentive to tourist to spend are expected to stimulate the demand and facilitate growth for the tourism and hospitality industry as a whole.


IT 

IT industry in India is a key part of the country’s economy. In the financial year 2019, this industry in India generated annual revenue close to 180 billion US dollars, a significant increase from the generated revenue ten years ago. A majority of this revenue was generated in exports while domestic revenue totaled to less than 50 billion USD for the mentioned period. IT industry contributed around 7.7 per cent to the country’s GDP. IT industry employs nearly 39.7 lakh people in India. The industry is fuelling the growth of start-ups in India, with the presence of around 5,300 tech start-ups in India. BFSI is a key business vertical for the IT-BPM industry. A major share of revenue of IT majors comes from the BFSI business vertical. Adoption of new technologies is expected to accelerate growth of the BFSI vertical. The need for undertaking investments in IT will also be required for gaining competitive advantage instead of solely reducing operational costs.

US have traditionally been the biggest importer of Indian IT exports; over 62 per cent of Indian IT-BPM exports were absorbed by the US. Non US-UK countries accounted for just 21 per cent of total Indian IT-BPM exports. Both US and UK are the leading customer markets with a combined share of nearly 80 per cent. However, there is a growing demand from APAC, Latin America and Middle East Asia. Being the low cost exporter of IT services, India is going to attract more markets in other regions in the same manner as it tapped US markets.

India's IT and business services market is likely to grow by over 8 per cent to reach USD 13.1 billion by the year-end and expand further to USD 14.3 billion by 2020, according to research firm IDC. 

Indian government's higher spending on the Digital India and Smart Cities initiatives and the increased adoption of next-gen technologies by organisations is driving growth in the IT services market. The other emerging verticals which are expected to adopt IT services and futuristic technologies more aggressively in the next 3-5 years are the manufacturing, retail, healthcare and education verticals. Additionally, a number of technology start-ups offering niche solutions in artificial intelligence, machine learning, Internet of Things (IoT), blockchain, automation, etc have come up, which is further driving adoption of IT services in the country.

IT-SEZs have been initiated with an aim to create zones that lead to infrastructural development, exports and employment. As of May, 2019, there were 273 approved SEZs across the country. Software Technology Parks of India (STPI) has set up 57 centres across the country which provides single window clearance and infrastructure facilities. Under STP scheme, STP units can avail Excise Duty exemptions on procurement of indigenously manufactured goods.

IT & ITeS is the leading sector in receipts of private equity (PE) investments in India. PE investments in the sector stood at US$ 3.6 billion in Q3 2019. Venture Capital (VC) investments in the IT & ITeS sector stood at US$ 67.0 million during Q3 2019. Baring Private Equity Asia (BPEA) is going to acquire a 30 per cent stake in NIIT technologies Ltd for a consideration of Rs.2,627 crore (US$ 375.88 million).

Technologies, such as telemedicine, health, remote monitoring solutions and clinical information systems, would continue to boost demand for IT service across the globe. IT sophistication in the utilities segment and the need for standardisation of the process are expected to drive demand. Digitisation of content and increased connectivity is leading to a rise in IT adoption by media. RBI is executing a plan to reduce online transaction costs to encourage digital banking in India. The rollout of Fifth Generation (5G) wireless technology by telecommunication companies is expected to bring at least US$ 10 billion global business to Indian IT firms by 2019-25. The companies that showed the highest sales growth on YoY basis in H1FY20, over the same period last year, include Mindtree (31 per cent), Mphasis (23 per cent), Zen Technologies (557 per cent) and Infibeam avenues (41 per cent). The companies that showed the most decline in sales in the same period include names like Vakrangee Ltd (-78 per cent), Birlasoft Ltd (26 per cent), Xchanging Solutions Ltd (-13 per cent).

IT majors like TCS, Infosys, Wipro, HCL Technologies, all showed sales growth. TCS sales increased 8.48 per cent to Rs.77,149 crore in H1FY20 from Rs.71,115 crore in H1FY19. Infosys sales increased 23.85 per cent to Rs.44,432 crore in H1FY20 from Rs.35,877 crore in H1FY19. Wipro and HCL also showed sales growth on 9.04 per cent and 18.15 per cent in the same period, respectively.


Metal 

The metal sector's weak performance during H1FY20 is predominantly driven by several major issues, such as low realizations and macroeconomic sluggishness. Overall, the sector reported the sales growth of just 1.20 per cent for the first half of the current fiscal compared to the same period last year. The decline in the sector was led by a drop in sales growth of key players, such as Usha Martin, Welspun Specialty Solutions, and Hindustan Copper. These companies saw a revenue de-growth up to 45 per cent during the period under review.

The metal sector is categorised in various sub-segments on the basis of iron content and metal type. Ferrous metals (including steel) and non-ferrous metals are the two main segments of the metal sector. In terms of the non-ferrous segment, Hindustan Zinc is the leader by market cap and is followed by Vedanta, Hindalco Industries, and Hindustan Copper. The segment's average sales growth declined by 10 per cent in H1FY20. Hindustan Copper reported the biggest drop in non-ferrous metal manufacturers during the year. Its sales decline by 33 per cent over the period under review. However, it operationally improved its performance, as its EBITDA margin expanded by more than 800 basis points to 35 per cent for the first half of the current fiscal. Other non-ferrous metal companies, on the other hand, reported a decline in margins during the same period. This was due to higher input costs. Hindustan Zinc top-line growth weakened due to low volumes in lead and silver.

The steel segment reported the revenue growth of just 4 per cent in the first quarter of the current fiscal. The slow growth was due to a decline by major players, such as Steel Authority Of India (SAIL), JSW Steel, and Tata Steel, which reported a decline in the range of 12 to 15 per cent for the period under review. Talking about steel manufacturers, Tata steel posted weak earnings for H1FY20 due to weak operating performance in the turbulent European market and losses in domestic subsidiaries. Its revenue declined by 13 per cent on a YoY basis for H1FY20 as compared to H1FY19. The EBITDA margin contracted to 13 per cent during this period from nearly 19 per cent during the same period in the last fiscal. JSW Steel earnings were also down the wing to domestic realizations.

Outlook

The future of the metal sector depends on the Capex revival. The economic slowdown and banking crisis has led to very slow to negligible expansion in the domestic and the international market. The domestic metal industry will keenly watch for the steps taken by the government for industrial revival. For the remaining part of the fiscal, auto sales will also be a major factor for metal manufacturers. Hence, we can expect another weak fiscal year for the metal industry. However, any positive changes in price realizations can improve the performance of these companies.



Petroleum


India is the third largest energy and oil consumer in the world after China and US, as well as the fourth largest importer of Liquefied Natural Gas (LNG). India's current refining capacity stands at 249 Million Metric Tonne Per Annum (MMTPA), comprising of 23 refineries, out of which, 18 is under public sector, 3 under private sector and 2 in a joint venture. At present, about 16,788 km natural gas pipeline is operational and around 12,672 km gas pipelines are under-development.

Fall in the output was expected, considering the 2019 trend seen in the economy. The domestic crude oil production dipped 5.9 per cent to 19.1 MMT in April-October and natural gas output dropped 4.3 per cent to 18,180 MMSCM, in the same period. The development comes at a time when the total consumption of petroleum products in India inched up only 1.4 per cent YoY to 105.7 MMT in the April-September period. Consumption of natural gas increased 2.8 per cent to 31,815 MMSCM. Due to the muted consumption and fall in global oil prices, the value of crude oil and petroleum products in April-September, fell 8.7 per cent to USD 61.1 billion. In the month of April, the crude oil prices were hovering high at USD 66.30 per barrel. Over the next 3 months, the price dipped to USD 51.16 per barrel. Again in mid-September, the price surged to USD 61.2 per barrel and slipped to USD 53.1 per barrel in October. Since then till date, it has been rising and has gone above USD 60 per barrel level.

In our analysis, we have taken up 20 companies from this sector ranked as per their market capitalisation. On an overall basis, the companies delivered mixed performance in H1FY20, as compared to H1FY19. Of these, the revenue of Indraprastha Gas, Confidence Petroleum, Mahanagar Gas and Gujarat State Petronet grew in double digits. Revenue of these companies has grown by 20.9 per cent, 27.8 per cent, 17.6 per cent and 16.03 per cent, respectively on YoY basis. Meanwhile, the revenue of Mangalore Refinery and Asian Oilfield de-grew by 22.8 per cent and 26.1 per cent, respectively, on YoY basis. EBITDA of Tamil Nadu Petroproducts, Mahanagar Gas, Indraprastha Gas and Linde India grew by 31.6 per cent, 27.3 per cent, 24.5 per cent and 31.5 per cent, respectively. However, companies like Chennai Petroleum and Mangalore Refinery generated losses at an operating level in H1FY20 as against the operating profit in H1FY19. PAT of Linde India grew exceptionally by 631 per cent YoY, and that of Indraprastha Gas and Mahanagar Gas jumped by 65 per cent and 66.6 per cent YoY, respectively. Chennai Petroleum and Mangalore Refinery incurred net loss in H1FY20, as compared to the net profit earned in H1FY19.

The foreign investment in India’s oil and gas industry has been on rise, especially in 2019. Some of the prominent investment deals include French oil major-Total S.A signing a definitive agreement to acquire 37.4 per cent stake in Adani Gas Limited for about Rs.5,700 crore. Another deal was ExxonMobil signing a Memorandum of Understanding (MoU) with Indian Oil Corporation to expand Liquefied Natural Gas (LNG) business in India. This tie-up will focus on exploring new models of delivering cost-effective natural gas in India, where it is required to complement traditional pipelines. 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 US$ 15 billion.

According to India’s Oil Minister, India will see a massive investment of USD 118 billion in oil and gas exploration as well as in setting up of natural gas infrastructure in the next few years, as the country prepares to meet the needs of a fast growing economy. As much as USD 58 billion will be invested by 2023 in oil & gas exploration and production, while, another USD 60 billion will be put in creation of natural gas infrastructure such as pipelines, import terminals and city gas distribution networks by 2024. Considering the investment line-up, three rounds of bidding for exploration acreage under the Open Acreage Licensing Policy (OLAP) and two rounds of bidding under the Discovered Small Fields (DSF) policy, had helped garner an estimated investment of USD 58 billion in exploration and production of crude oil and natural gas by 2023. Also, emphasis is being given on the use of biofuels generated from various types of agriculture residue, municipal solid waste and use of compressed biogas produced from biomass waste. It has a target to setup 5,000 compressed biogas plants in different parts of the country.



Pharma 

India is considered as the third largest pharmaceutical industry in the world by volume. It is the source of 60,000 generic brands, across 60 therapeutic categories and manufactures more than 500 different Active Pharmaceutical Ingredients (APIs). This is accomplished with the country being home to nearly 3,000 pharma companies with a network of around 10,500 manufacturing facilities.

In India, the domestic pharmaceutical market's turnover has reached US$ 18.12 billion in 2018, increasing by 9.4 per cent from 2017, growing as a result of increased penetration of health insurance and pharmacies. During H1FY20, the pharma sector in India continued to be baffled by various regulatory approvals, USFDA warnings and pricing issues globally. Despite this, an improvement in exports to the US, which is a key market for Indian drug manufacturers, drove the growth in the overall exports from India. Exports of drugs and pharmaceuticals to the US grew sharply by 23.8 per cent to US$ 3.42 billion during the first six months of the fiscal year 2019-20. During the period from April-September, 2019, it was the second highest growth in double digits in the past five years. Nevertheless, the growth was around 2 per cent lower than the growth registered in comparison to H1FY19 and H1FY18.

On a year-on-year basis, during April-September 2019, the months of May, June and July witnessed 10 per cent growth in drug and pharmaceutical exports. The month of August was the only exception to the case with a decrease of 0.2 per cent, whereas, the remaining two months registered a single-digit growth. From 2018-19, India’s pharmaceutical exports were worth US$ 19.13 billion, registering a growth of 10.72 per cent over $17.28 billion in pharma exports of last year. As per the Centre for Monitoring Indian Economy (CMIE), a growth in exports was on account of easing pricing pressure and new drug launches. Whereas, companies continued to face pricing pressure in the US generics market due to an increased competition and higher Abbreviated New Drug Approvals (ANDAs). The pressure though remained in low single digits as channel and distribution partners in the US considered consolidating. Such changes come at a time when the country’s overall export in dollar terms has declined by nearly 2.6 per cent during the first half of FY20. It grew by around 12.3 per cent in H1FY19 when compared with H1FY18. Pharma companies are directly affected with currency fluctuations. In the first quarter of FY20, the Indian rupee depreciated by 3.76 per cent to Rs.69.6 and then, in the second quarter of FY20 to Rs.70.34.

The Government of India unveiled 'Pharma Vision 2020', which is aimed at making India a global leader in the end-to-end drug manufacture. Also, the government has taken various steps to reduce costs and bring down healthcare expenses. Fast introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies in the future. Additionally, the thrust on the rural health programmes, lifesaving drugs and preventive vaccines also predicts well for the growth of the pharmaceutical companies. To boost investments in the sector, 100 per cent Foreign Direct Investment (FDI) is allowed under the automatic route for greenfield pharma. And also, 100 per cent FDI is allowed in brownfield pharma wherein, 74 per cent is allowed under the automatic route and thereafter, through the government approval route.

Looking ahead, a better growth in the domestic sales will depend on the ability of pharma companies to align their product portfolio towards chronic therapies for diseases such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers that are currently increasing amongst the global and domestic population.

Sun Pharma reported a 16.49 per cent increase in the net sales to Rs.16,497.71 crore for H1FY20, as compared to Rs.14,161.80 crore for H1FY19. The net profit grew significantly as well, to be Rs.2,668.73 crore in H1FY20. As for Dr Reddy’s Laboratories, cost control measures and divestment on non-core investments enabled the pharma company to gain a net profit of Rs.1,755.30 crore in H1FY20, clocking a growth of around 80 per cent YoY. Its net sales also increased by 14.79 per cent from Rs.7,554 crore in H1FY19 to Rs.8,671 crore in H1FY20. Post restoring issues with distributors, Cipla reported a comparatively low growth of 5.46 per cent YoY in the net sales of Rs.8,384.80 crore for H1FY20. Cipla’s net profit for H1FY20 grew by 17.01 per cent YoY to Rs.951.09 crore due to a lack of major launches. On account of missing the expected sales in its US market, Lupin witnessed degrowth by 62.3 per cent YoY in its net profit of Rs.177.33 crore gained in H1FY20. Owing to domestic and EMEA sales growth, the company’s net sales grew by 12.44 per cent to Rs.8,778.03 crore in H1FY20 from 7,806.99 crore in H1FY19.


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 entire plastic industry can be divided into (A) Upstream sector: Manufacturing of polymers and (B) Downstream sector: Making plastic articles from polymers. The major end users of plastic industry are Construction, Electrical and Electronics, Packaging, Automotive, FMCG and Textile sector. Plastic industry is rising in recent years as a result of rapid urbanisation and expanding middle class group. Plastic products are majorly divided into Pipes & fittings, Films & sheets, Wires & cables and Profiles.

The major contributor of plastic products is Pipes, which accounts for 70 per cent of the total plastic products. The said division is further likely to grow led by rising government thrust on Infrastructure, Housing and Irrigation sector. Another contributor of Plastic products is Furniture, which is currently struggling due to slower demand. The plastic processing sector comprises of over 50,000 units involved in the manufacture of variety of items, gaining prominence in different spheres of activity due to the increasing per capita consumption. However, in spite of having a good growth potential, the industry faces many challenges in terms of environmental hazards, lack of advanced technology, limited infrastructure, etc.

On the packaging front, plastic is widely used in the industries like Pharma, Retail, Food and Beverages etc. Going ahead, the growth in the packaging industry is directly related to the growth in major industries like FMCG and pharma. The Indian packaging industry, which constitutes about 3 per cent of the global packaging industry, has been growing at an annual rate of 13 per cent and is expected to touch US$ 32 billion by 2020. In the current scenario, the 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 a massive unrealised growth potential indicated by very low usage of plastic, as compared to the global standards. At the same time, in the coming decades, the industry has to encourage reasonable development by investing in technologies that protects the environment and inspires growth, while balancing economic needs and financial constraints. Also, 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.

For the purpose of sector analysis, we have analysed 21 companies in the plastic sector according to their market cap. During H1FY20, the aggregate sales of these companies declined by 2 per cent YoY, and the aggregate operating profit declined by 3 per cent YoY. However, aggregate PAT grew by 11 per cent YoY. Major PVC pipes maker, Astral Poly Technik reported 16 per cent YoY growth in terms of its revenue and 34 per cent YoY growth as operating profit in H1FY20. PAT also grew by 54 per cent YoY. The plastic major, Supreme Industries’ revenue increased by 2 per cent whereas, its operating profit and PAT declined by 15 per cent and 14 per cent YoY, respectively, in H1FY20.

Finolex Industries posted a jump in revenue by 11 per cent YoY. However, operating profit and PAT declined by 36 per cent and 3 per cent, respectively on YoY basis. Essel Propack also posted healthy numbers with a jump in revenue and operating profit by 3 per cent and 11 per cent, respectively on YoY basis. PAT also jumped by 11 per cent YoY in H1FY20. Kama Holdings delivered healthy numbers with a jump in revenue, operating profit and PAT by 12 per cent, 13 per cent and 4 per cent, respectively on YoY basis in H1FY20.

In the recent budget announcement, custom duty on certain plastic products has been increased from 10 per cent to 15 per cent. Also, Basic Customs duty on PVC increased from 7.5 per cent to 10 per cent. This would help the domestic plastic industry to grow further. Government initiatives to boost rural infrastructure is pushing the demand for PVC extrusions in the construction sector. Pipes market has grown by 12 per cent CAGR since the last five years.

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, a 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 

Power sector in India is a diversified sector as it is a crucial component of infrastructure and economic growth. With the continuous economic and industrial growth, there has been a continuous increase in electricity demand. It is expected that the per capita electricity consumption will increase at 5 per cent CAGR between FY19 and FY23 from 1,149 units in FY18 to approximately 1,450- 1,470 units by FY23.

The total installed capacity as of November 2019 in India stood at 3,65,981 megawatts with maximum contribution by the private sector (46.6 per cent) followed by state sector (28.5 per cent) and central sector (25.2 per cent). Thermal power generation has increased by 4-5 per cent during H1FY20. According to Ministry of Power, Government of India, the electricity generation target of conventional sources for the year 2019-20 has been fixed as 1,330 Billion Unit (BU) which is a growth of around 6.46 per cent over actual conventional generation of 1,249.337 BU for the previous year 2018-19. Energy generation from conventional sources for 2019-20 considering till November 2019, has been about 6,51,509 BU. The government had launched the Ultra Mega Power Projects (UMPPs) i.e. 4,000 MW Super Thermal Power Projects for developing large capacity power projects providing growth opportunities for various power companies.

The power sector is under a huge stress in spite of several initiatives undertaken by the government. The issue pertains to Distribution Companies (discoms) which are bearing losses or reporting mere profits. As theft in electricity continues, the discoms are unable to gain revenue to pay back to power generating companies thus, increasing the stress. Along with distribution reforms, a huge amount of technological interventions are needed by the private sector, so as to bring in people who have an expertise in running distribution companies. A proper regulatory framework for fixing tariffs and subsidy will boost the sector’s growth.

Investments in power sector are expected to grow over the next few years but with a shift away from conventional power generation towards renewable power generation, transmission and distribution. Government of India had been focussing on attaining ‘Power for all’, which has accelerated capacity addition in the country. It is assumed that if the demand from the power sector remains low and the industrial demand also remains low then, there is a possibility of pressure on coal import volumes as well. For the next fiscal year, the project orders flow looks positive for power sector companies.

As we have considered 24 companies belonging to the power sector for our analysis, the average growth in the net profit for H1FY20, compared to net profit for H1FY20, is calculated to be 24.77 per cent. The sector reported a 23.98 per cent average growth in net sales YoY. Among the power sector companies, NTPC which has the largest market cap, reported a low growth in sales by 4.43 per cent to Rs.46,957.16 crore in H1FY20 from Rs.44,964.68 crore in H1FY19. Hence, the net profit decreased by 0.33 per cent YoY to Rs.4,997.48 crore. With a growing emphasis on renewable energy, the net sales of Adani Green Energy for H1FY20 doubled to Rs.1,348.96 crore from Rs.920.81 crore. Subsequently, the company reported a net profit of Rs.3.49 crore for H1FY20. Net sales of Tata Power for H1FY20 came in at Rs.15,444.54 crore growing by 4.04 per cent YoY. But the net profit declined drastically with the company facing debt issues and deleveraging its assets to repay debts.


Services

Within a short span of 72 years since independence, the service sector has grown massively and now accounts for a lion’s share of 60 per cent of the county's GDP.

The service sector has been of the most dominant sectors in India in recent years, contributing significantly to the exports and attracting substantial Foreign Direct Investment (FDI). The sector comprises of various sub-sectors like trade, hotels and restaurants, transport, storage, communication, financing, insurance, real estate, business services, social and personal services. These sub-sectors employ a total of 25 per cent of the Indian population. On the whole, the service sector also requires less capital investment than the other sectors, since it is more of a knowledge-intensive sector, based mainly on human resources in a country.

India supports a rapidly growing population, which are looking to migrate from the agriculture to the other sectors. Thus, there is a plethora of cheap manpower available to the Indian Services sector, which gives it a distant advantage over other countries. Many foreign companies prefer to set up their companies in India owing to the lower labour cost. As a result, this sector attracts the highest FDI among all sectors in the country. The sector as a whole, as brought in Rs.435,763.68 crore of equity FDI into the country from April 2000 to June 2019, contributing 17.63 per cent of FDI equity inflows during this time. 

To study the financials, we have taken the Top 49 companies in this sector and have compared their performance in H1FY20 with H1FY19. On the whole, this sector has provided a positive growth in sales, operating profit and net profit. The aggregate top line of the sector grew by 11 per cent to Rs.99,850.53 crore in H1FY20, from Rs.89,946.89 crore in H1FY19. The aggregate operating profit increased by 32.32 per cent to Rs.10,063.04 crore in H1FY20, from Rs.7,604.51 crore in H1FY19. The bottom line of the sector expanded by 87.72 per cent to Rs.3,652.22 crore in H1FY20, from Rs.1,945.51 crore in the same period for the previous fiscal year.

In terms of individual sales, the company to have the highest share is Reddington (India) at Rs.24,014.02 crore, followed by Adani Enterprises and MMTC with Rs.19,025.56 crore and Rs.13,176.36 crore, receptively. The company which showcased the highest growth in sales was Apollo Tricoat Tubes, which reported sales of Rs.205.38 crore in H1FY20, as compared to Rs.3.14 crore reported in H1FY19. The company was followed by ABans Enterprise, which reported a sales growth of 290.26 per cent to Rs.271.39 crore in H1FY20, from Rs.69.54 reported in H1FY19. In terms of PAT, the companies that contributed the most to the aggregate PAT were Adani Ports and Special Economic Zone, that reported a net profit of Rs.2,087.86 crore in H1FY20, increasing by over 59.18 per cent over Rs.1,311.63 crore reported in H1FY19. Out of the 49 companies, there were 11, which reported net losses for the second half of the fiscal year. Reliance Naval Engineering, Arshiya and Shipping Corporation of India were some of those that reported net losses. They posted net losses of Rs.676.2 crore, Rs.185.82 crore and Rs.95.9 crore, respectively.

Government of India recognises the importance of promoting the services industry and has taken steps in this regard. The government has introduced the Services Exports from India Scheme (SEIS), aimed at promoting export of services from India by providing duty scrip credit for eligible exports. Under this scheme, service providers in India would be rewarded for all eligible export services from India. The implementation of Goods and Services Tax (GST) will help reduce cost in the long-run on account of the availability of GST input credit, which will lead to a decrease in the price of services. Thus, despite the economic slowdown, there was an expansion in the services industry driven by a boost in capacity and demand along with favourable public policies introduced in the past.


Textile 

Sector Sponsor

Raymond


Textile Industry is one of the oldest industries in India with the first cotton textile mill in Mumbai established all the way back in 1854. India has a wide and farreaching segment in this industry ranging from the unorganised hand-woven segment to the organised capital and technology-intensive segment. Today, the textile and apparel market has become a vital contributor to the Indian economy, providing employment to more than 45 million people and contributing 12 per cent to the total export earnings of the country. This can be attributed to the abundant availability of raw materials used for manufacturing apparel such as cotton, silk, wool, etc. India is the largest producer of jute and cotton and the second-largest producer of silk in the world. The high abundance of raw material coupled with cheap labour cost, makes the cost of manufacturing textile and apparel significantly low as compared to competing industries. With a strong population base and one of the largest Gen Y populations in the world, the expanding middle class is also boosting Indian consumption patterns. The size of the Indian textile market is expected to touch US$ 223 billion by 2021, growing at a CAGR of 10.14 per cent between 2009 and 21.

To study the textile industry, we have computed the performance of 44 companies in this sector and have compared their performance on a YoY basis from H1FY19 to H1FY20. On an average, the sales for this sector increased marginally by 0.32 per cent, the EBITA on an average increased by 1.07 per cent and the net profit increased by 9.58 per cent. Although the highest growth in sales was reported by Indo Rama Synthetics (India) at 47 per cent to Rs.1,103.96 crore in H1FY20 from Rs.749.95 crore in H1FY19, it reported net losses for both the periods under consideration. It had net losses of Rs.74.16 crore in H1FY20 and losses of Rs.61.82 crore in H1FY19. Vishal Fabrics reported strong growth in the net sales as well which came in at Rs.626.64 crore in H1FY20 from Rs.483.78 crore in H1FY19. The company reported net profits of Rs.16.61 crore in H1FY20 from Rs.8.45 crore for the same period in the previous corresponding year, registering a massive growth of 93.94 per cent in net profits. Among those companies that had a decline in net sales, Swan Energy recorded the biggest drop of 82 per cent. The sales reported by the company were Rs.123.92 crore in H1FY20 from Rs.688.58 crore in H1FY19. The company reported a significant drop in net profits as well with Rs.2.82 crore reported in H1FY20, a drop of 91.91 per cent from Rs.34.85 crore in H1FY19. On a whole, 4 companies out of 44, reported net losses in the first half of the fiscal year, namely, Alok Industries, Indo Rama Synthetics, Zodiac Clothing Company and Jaybharat Textiles and Real Estate.

With the introduction of various international apparel giants starting operations in India, the textile industry in India is experiencing a significant increase in collaboration between global majors and domestic companies. The textile industry had Rs.18,564.40 crore of FDI equity inflow from the period of April 2000 to June 2019. Additionally, the proposed hike in FDI limit in multi-brand retail will bring in more players, more investment thereby, providing more options to consumers. Exports in the Indian textiles and apparel industry are expected to reach US$ 300 billion by 2024-25, resulting in a tripling of Indian market share from 5 per cent to 15 per cent.

To bolster the performance of the industry, the government has undertaken various schemes to drive the growth of the Textile Industry. Under the Union Budget 2019-20, the government allocated Rs.700 crore (US$ 97.02 million) crore for Amended Technology Upgradation Fund Scheme (ATUFS) which aims to promote modernisation and upgradation of the textile industry by providing credit at reduced rates. This scheme is estimated to create employment for 35 lakh people and enable investments worth Rs.95,000 crore (US$ 14.17 billion) by 2022.

The government has allocated Rs.159.08 crore (US$ 22.05 million) towards schemes for power loom units and an additional Rs.20 crore (US$ 2.77 million) for the Scheme for Integrated Textile Parks. The National Handloom Development Programme will get Rs.456.80 crore (US$ 63.31 million) and the Integrated Processing Development Scheme will get Rs.3.50 crore (US$ 0.49 million). The Government of India has assigned 207 Harmonised System Nomenclature (HSN) to promote India’s technical textile industry and further increase its market size to Rs.2 lakh crore (US$ 27.72 billion) by 2020-21.

All these efforts are expected to drive growth in the already large textile industry for the years to come, despite the current economic slowdown. The increased penetration of organised retail, favourable demographics and rising income levels among India's growing population is expected to continue to drive the textile demand in the country. Thus, the overall prospects of the textile sector look promising.


Miscellaneous 

Sector Sponsor HFCL Group