Uploaded on

 

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
135
On Slideshare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
2
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. CII Associations’ CouncilOutlook on Indian Economy and IndustryMukesh AgarwalPresident, CRISIL ResearchNovember 21, 2012 11
  • 2. Economy Overview 2
  • 3. Current macroeconomic scenario Global risks on the rise – Eurozone officially in recession in 2012 with 40% probability of it continuing in 2013 – US faces a fiscal cliff – automatic tax increases and spending cuts, which, unless halted, will drag it into recession in 2013 (25% probability) – Reflected in weak exports and rupee volatility Domestic macro environment weak – 2012-13 GDP growth expected at 5.5%, inflation at 8.0% – Investments and industrial output at standstill (0.1% growth in H1) and exports shrink (-6.2% growth in April-October) – Fiscal and monetary policies constrained to revive growth – Inflation begins to ease but to stay way above RBI’s comfort-level of 5% Recent reform measures lift mood and raise hopes – Swift implementation/execution critical for material impact on growth 3
  • 4. India Outlook: 2012-13 2010-11 2011-12 2012-13F Real GDP factor cost (y-o-y % growth) 8.4 6.5 5.5 Agriculture 7.0 2.8 0.0 Industry 7.2 3.4 3.6 Services 9.3 8.9 7.6 WPI inflation (average) 9.5 8.8 8.0 Interest rate (10-year G-sec March end) 7.8 8.8 8.0-8.2 Exchange rate (Rs-$ March end) 44.8 51.2 53.0 Fiscal deficit (% of GDP) 5.1 5.8 6.2Note: F- ForecastSource: Central Statistical Organization 4
  • 5. Industry Overview 5
  • 6. Profit margins stabilise in Q2 FY13 Slowdown in revenue growth in 2012-13 However, trend reversal seen for marginsPer cent Per cent Per cent 25 18 18 15.7 15.3 16 16 14.3 14.0 14.1 13.4 13.5 20 14 14 12 12 15 10 10 8 8 10 9.1 6 6 8.1 7.7 7.8 8.0 6.1 6.6 5 4 4 2 2 0 0 0 FY 09 FY 10 FY 11 FY 12 H1 FY13 Q4 FY11 Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13 Revenue growth (LHS) Operating margin (RHS) Net margin (RHS) Operating margin Net marginSource: CRISIL Research, Company reports, based on unaudited interim financials of 2748 companies excluding BFSI and PSU oil marketing companies Overall revenue growth has been tepid at 9 per cent y-o-y in H1 of 2012-13 – Volume pressure in sectors such as automobiles, capital goods, metals and hotels – Sharper increase in realisations has benefited FMCG and cement, while depreciation in the rupee helped IT sector, despite slowdown in volumes Declining trend in EBITDA margins arrested with margins improving 60 bps q-o-q in Q2 2012-13; margins almost stable on a y-o-y basis – Margins have stabilised either because of lower input costs or improvement in realisations (sectors such as cement, sugar, and tea) 6
  • 7. Capital investments to dip for the second year in a row Public sector Private sector Growth in fixed asset base (Rs trillion) 3.3 3.1 2.7 2.7 2.7 26% -2% 2.12 -35% 20% 21% 1.19 2.07 1.35 1.83 16% 12% 1.48 27% 1.14 -6% 1.35 0.92 1.07 2009-10 2008-09 2010-11 2011-12E 2012-13P 2010-11 2008-09 2009-10 2011-12E 2012-13P E: Estimated; P: Projected Source: Company reports, CRISIL Research Poll of 200 companies (together accounting for around 70 per cent of market cap of S&P CNX 500 excluding BFSI cos.) indicates that investment sentiment is depressed Aggregate capex expected to decline by 14 per cent in 2012-13, with investments by private sector (170 companies) projected to decline by a steep 35 per cent Corporate also seem to be less willing to commit investments into fresh projects – Only about one-fourth of investments planned in 2012-13 is towards new projects – 94 companies do not intend to invest in new projects 7
  • 8. Companies blame ‘policy inaction’ for slowdown in investments Over half the companies believe that Policy inaction gets a weighted average policy inaction is the biggest reason for the score of 1.8, indicating that it’s by far the slowdown. most important factor impacting slowdown. Most influential Policy and administrative Unavailability of funds Demand Policy inaction 1.8 reforms required in key slowdown High interest areas: 3% 11% rates 11% Global uncertainty 2.6  Land acquisition High interest rates 2.9 Global  Mining policy uncertainty 20% Demand 3.2 slowdown  Fuel linkages Unavailability of 4.1 55% funds  Rollout of GST Least influential Policy inaction/ delay  Fiscal consolidation in clearances Source: Company reports, CRISIL Research Over 70 per cent of the companies have cited ‘policy inaction’ as one of the top 2 factors impacting slowdown in investments Close to 60 per cent companies felt that unavailability of funds had the least impact on slowdown of investments 8
  • 9. Risk-wise distribution of industries CRISIL’s Credit Quality Vulnerability Matrix Likelihood effect of demand slowdown / increased competition  Crude Oil  Petroleum Product Marketing  Natural Gas Low  Tea  Pharmaceuticals  NBFC  Hospitals  FMCG  Automobiles and Auto-ancillaries  Cement  Infrastructure (Roads,  Non-ferrous metals Airports, Ports) Medium  Transport Operators  Petroleum Refining  Power (excl. state discoms)  Gems and Jewellery  Petrochemicals  Consumer Durables  IT/ITeS  Telecom  Steel  Airlines  Construction  Real estate  Capital Goods  Power – State Distribution Utilities High  Hotels  Textiles  Shipping  Sponge iron High Medium Low Consequent financial distress 9
  • 10. Ratings Overview No. of companies Rated amount Weighted % negative Sector Median rating rated* (Rs. Crore) average rating outlookPower 47 127,608 BBB AA 15Textiles 952 47,188 B BB 4Real Estate 302 33,580 B BBB 3Construction 701 154,444 BB A 4Steel Products 534 22,405 BB BB 4Steel 92 5,946 BB B 5IntermediatesCement 27 13,219 A AA 4Roads 60 29,159 BBB BBB 8Telecom 13 43,707 A A 8Automobile 13 33,041 AA AA 8Auto Ancillaries 320 16,659 BB BB 4IT Services 29 752 BB B 7 Consequent financial distressAll 10,001 983,277 BBB AA 4* As of September 30, 2012Source: CRISIL Rating 10 10
  • 11. Power: Fuel availability a key challenge 25% Financial Stress Wt Distribution of rated entities 20% avg. MedianLow High 15% New generation projects face high risks - 10% domestic fuel linkage and inability to pass on increase in cost of imported coal are key 5% challenges 0% AAA AA A BBB BB B C D Transmission and operational generation units Power 9% 23% 15% 13% 17% 13% 0% 11% less vulnerable – based on fixed RoE model Percentage of Negative Rating Outlooks = 15% Source: CRISIL Ratings, No. of rated entities: 47, rated amount : Rs 127,608 Cr Financial health of SEBs weak; outstanding short- term liabilities stood at Rs. 1.9 trillion as on March Non-coking coal imports for power sector to rise 2012 (mn tonnes) 800 30% Most banks hitting exposure limits 700 23% 24% 25% 600 20% 17% 20% Key drivers/monitorables 500 14% 400 15% 11% 300 Approvals 10% Financial 200 Fuel & project 5% Health of 100 availability implemen- SEBs tation 0 0% 2010-11 2012-13P 2014-15P Demand Supply Imports Imports share (RHS) P:Projected Source: CRISIL Research 11
  • 12. Textiles: Credit profile likely to remain weak Financial Stress 50% Distribution of rated entities 45%Low High 40% 35% 30% Wt avg. Median Garment exports are expected to decline by 9-10% in 25% 20% 2012 (vs 19.2% growth in 2011). Domestic demand 15% growth is also weak. Operating margins for RMG 10% players to remain constrained 5% 0% AAA AA A BBB BB B C D Power outages in South India pushing up yarn prices Textiles 0% 1% 2% 13% 25% 45% 2% 13% Margins for spinners are expected to improve in Percentage of Negative Rating Outlooks = 4% 2012-13 due to high yarn prices and lower cotton Source: CRISIL Ratings, No. of rated entities: 952, rated amount : Rs 47,188 Cr prices High yarn prices and low cotton prices improve the margins High leverage of spinners with gearing of over 2 300 times constrains the credit profile 250 Capex plans are being postponed due to the 200 slowdown in demand 150 100 Key drivers/monitorables 50 0 Raw Demand High material from EU leverage costs and US Cotton Yarn Prices (Rs./kg) Cotton Prices (Rs./kg) Source: CRISIL Research 12
  • 13. Real Estate: Cash flow remains a concern Financial Stress 45% 40% Distribution of rated entitiesLow High 35% 30% Wt avg. 25% Median Developers (especially small and mid-sized 20% players) facing cash flow problems due to decline 15% in volumes 10% 5% High mortgage rates exacerbating demand 0% AAA AA A BBB BB B C D slowdown Real Estate 0% 3% 6% 7% 29% 43% 2% 9% Oversupply putting pressure on commercial lease Percentage of Negative Rating Outlooks = 3% Source: CRISIL Ratings, No. of rated entities: 302, rated amount : Rs 33,580 Cr rentals – of ~243 mn. sq ft space estimated by 2014, only 30% likely to be absorbed 300,000 Absorption/Actual offtake (no. of houses) 250,000 200,000 Key drivers/monitorables 150,000 100,000 50,000 Volume Liquidity & Asset 0 growth funding prices 2007 2008 2009 2010 2011E 2012P 2013P 2014P * Absorption nos. correspond to Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai, NCR and Pune. E: Estimated, P:Projected Source: CRISIL Research 13
  • 14. Steel: Weak demand to keep margins range bound Financial Stress 40%Low High 35% Wt Distribution of rated entities 30% avg. Median 25% Demand growth to slow down further to 3-5 per 20% cent in 2012-13 (5.5 per cent growth in 2011-12) 15% HRC prices expected to decline further by 5-7 per 10% 5% cent in 2013 from around $590 per tonne in 2012 0% due to: -5% AAA AA A BBB BB B C D – Weak demand and decline in raw material prices SteelProd 0% 0% 1% 16% 35% 29% 1% 17% Operating margins for domestic players, Percentage of Negative Rating Outlooks = 4% Source: CRISIL Ratings, No. of rated entities: 534, rated amount : Rs 22,405 Cr especially small and mid-sized players, expected to remain under pressure due to: Margin pressure to continue – Limited availability and high prices of domestic iron Operating ore and non-coking coal 2010-11 2011-12 2012-13E 2013-14P margins (%) – Limited pricing flexibility owing to demand With Mines 26 22 21-23 22-24 moderation Without Mines 20 18 16-18 17-19 Key drivers/monitorables Small Integrated 15 10 7-9 7-9 Small Non-integrated 5 3-4 1-3 1-3 Raw Domestic Demand material iron ore Re-rollers 4 3-4 1-3 1-3 growth cost supply E: Estimated; P: Projected Source: CRISIL Research 14
  • 15. Steel Intermediates: Rising input costs hitting margins Financial Stress 45% Median Distribution of rated entities 40%Low High 35% 30% 25% 20% Wt avg. Sponge iron demand forecast to grow at 2-3 per 15% cent CAGR during 2011-12 to 2016-17 10% 5% – Increased long steel production by large integrated 0% players using blast furnace route -5% AAA AA A BBB BB B C D SteelInt 0% 0% 1% 12% 39% 15% 1% 32% Weak demand, intense competition and limited domestic availability of key inputs – iron ore and Percentage of Negative Rating Outlooks = 5% Source: CRISIL Ratings, No. of rated entities: 92, rated amount : Rs 5,946 Cr coal – will exert pressure on utilisation levels Iron ore and coking coal prices to remain firm – Forward integrated sponge iron manufacturers better (Rs. per tonne) placed compared to standalone manufacturers ~6,900 6,500 ~6,400 Profitability is likely to remain under pressure 4,800 3,602 ~3,350 ~3,650 Key drivers/monitorables 2,505 2,383 ~2,500 ~2,400 Demand 1,667 Input from end- 2010-11 2011-12 2012-13 P 2013-14P costs user segments Iron ore fines (62% Fe) Iron ore lumps E-auction non-coking coal P: Projected Source: CRISIL Research 15
  • 16. Cement: Sharp price rise to offset escalation in input costs Financial Stress 25% Medi Distribution of rated entities Low High 20% Wt avg. an 15% Cement demand to grow moderately at 7-8 per 10% cent in 2012-13 but operating rates to remain 5% under pressure at 73 per cent 0% AAA AA A BBB BB B C D Cement 15% 19% 22% 7% 4% 11% 0% 22% Pan-India average cement price to register sharp Percentage of Negative Rating Outlooks = 4% Source: CRISIL Ratings, No. of rated entities: 27, rated amount : Rs 13,219 Cr increase of 16-17 per cent y-o-y in 2012-13 Industry operating margins to improve by 400 bps Incremental supply to continue to outpace demand to 25 per cent in 2012-13 as steep price rise 94% 88% 84% offsets escalation in input costs 76% 73% 73% 38 40 32 Key drivers/monitorables 26 24 19 17 16 14 14 Demand growth 10 8 Capacity driven by Energy & additions infrastructure and freight costs housing growth FY08 FY09 FY10 FY11 FY12 FY13E Incremental demand … Incremental supply … E: Estimated Source: CRISIL Research 16 16
  • 17. Construction: Growth to slow down in the near term Financial Stress 40% Distribution of rated entities 35%Low High Wt avg. 30% 25% Media n 20% In 2012-13, revenue growth to be sluggish due to 15% slow pace of order execution; profitability to 10% decline 5% 0% Working capital requirements have shot up due to AAA AA A BBB BB B C D Construction 0% 1% 4% 19% 36% 28% 4% 8% increasing debtor days Percentage of Negative Rating Outlooks = 4% Huge opportunity in the long term – construction Source: CRISIL Ratings, No. of rated entities: 701, rated amount : Rs 154,444 Cr opportunity to nearly double over the next 5 years, driven by infrastructure investments – Roads, irrigation and urban infrastructure to be the Construction opportunity to double major drivers Rs 19.2 tn Key drivers/monitorables Rs 10.9 tn 86% 81% 1.8 x Working Govt. capital Input 19% 14% policy manage- prices 2007-08E to 2011-12E 2012-13P to 2016-17P ment Industrial Infrastructure E: Estimated, P:Projected Source: CRISIL Research 17
  • 18. Roads: Investment to double over next 5 years Financial Stress 45% 40% Distribution of rated entitiesLow High Media 35% n 30% 25% Wt avg. Speed bumps in national highway awarding in 20% 2012-13 15% 10% – Poor awarding in H1 2012-13 due to funding 5% constraints & relatively less attractive projects 0% AAA AA A BBB BB B C D – Project awarding to pick up in H2 2012-13; larger Roads 3% 3% 8% 42% 28% 8% 0% 7% share expected to be bid on EPC basis Percentage of Negative Rating Outlooks = 8% Source: CRISIL Ratings, No. of rated entities: 60, rated amount : Rs 29,159 Cr Investment growth to be driven by national highways National highway awarding declines – We expect an investment of Rs. 7 trillion over next 5 (km) 7,406 years in roads 6,417 5,143 Key drivers/monitorables 3,214 Govt. Land Traffic policy acquisition growth 2009-10 2010-11 2011-12 2012-13 CRISIL Research estimate Source: NHAI, CRISIL Research 18
  • 19. Automobiles: Margins to remain stable in 2012-13 Financial Stress 45% Median 40% Distribution of rated entities Low High 35% Wt avg. 30% 25% Sales growth to moderate further to 7-8 per cent in 20% 15% 2012-13 from ~13% in 2011-12 10% 5% – Car sales to grow at a sedate pace due to high cost of 0% ownership and production disruptions; UVs to -5% AAA AA A BBB BB B C D continue high growth driven by new model launches Auto 15% 38% 8% 15% 8% 15% 0% 0% and higher availability of diesel models Percentage of Negative Rating Outlooks = 8% Source: CRISIL Ratings, No. of rated entities: 13, rated amount : Rs 33,041 Cr – Scooters will continue to drive two-wheeler demand – Sluggish MHCV sales due to economic slowdown to Auto growth rate to moderate further in 2012-13 be offset by continuing growth momentum in LCVs (in per cent) 37 40 Lower input cost in 2012-13 to be offset by lower 30 26 29 25 30 capacity utilisation and higher marketing expenses 20 14 8-10 9 13-15 8-10 5 10 Key Drivers/Monitorables 0 -10 -20 (12)-(15) Extent of Two wheelers Passenger MHCV goods LCV goods Fuel Interest economic vehicles Prices rates 2010-11 2011-12 2012-13P slowdown P:Projected Source: CRISIL Research 19
  • 20. Auto ancillaries: Growth to moderate in line with slowing OEMdemand Financial Stress 35% Distribution of rated entities Low High 30% Wt avg. 25% Media 20% n Growth to slow further to 9-11 per cent in 2012-13, 15% in line with deceleration in growth across all OEM 10% 5% segments 0% AAA AA A BBB BB B C D Export growth to remain healthy with increasing AutoAnci 0% 3% 11% 31% 26% 19% 1% 9% Percentage of Negative Rating Outlooks = 4% penetration of domestic players Source: CRISIL Ratings, No. of rated entities: 320, rated amount : Rs 16,659 Cr Margins to remain stable in 2012-13 OEMs to weigh down auto component growth – Lower input costs will be offset by low OEM demand (Rs billion) and limited pricing flexibility in replacement market. 2500 2,355 2,146 2000 1,868 Key Drivers/Monitorables 1500 1000 Moderation in 500 Input costs automobile 0 demand 2010-11E 2011-12E 2012-13P OEM Replacement Exports E: Estimated, P:Projected Source: CRISIL Research 20
  • 21. CRISIL Limitedwww.crisil.com 21