TOP 1000 Companies Financial Review FY19

Our Methodology 

We bring you the vital financial data of TOP 1000 companies by market capitalisation. We constantly get requests from our valued reader-investors for financial data and keeping our promise, we lay down for you the financial data for Top 1000 companies by 24 sectors in easy readable format. We are sure that financial data by sectors along with the detailed view on sector dynamics will be an interesting read for you! We have sourced our financial data from Ace Equity, data as on July 8, 2019 P.S. - Companies having year ending as June and December are also included in the financial data with data flowing under FY19.

Agriculture

In India, agriculture is the largest source of livelihood. About 70 per cent of India's rural households depend primarily on agriculture for their livelihood, with 82 per cent of the farmers being small and marginal. 

 

Agriculture is considered to be the backbone of the Indian economy. As India has a high proportion of fertile and cultivable land supported by diverse agro-climatic conditions, farming is extensively practised. India is considered as the world's largest producer of milk, pulses and jute, and ranks as the second largest producer of rice, wheat, sugarcane, groundnut, vegetables, fruit and cotton. It is also one of the leading producers of spices, fish, poultry, livestock and plantation crops. The demand for agricultural products comes from a large and continuously rising population living in urban and rural regions of India. External factors such as increase in the demand for agricultural exports also drive the demand for agri-businesses. 



In India, the growth in agriculture and allied sectors was comparatively lower at 2.9 per cent in 2018-19 even after two years of good agricultural growth. As per the Third Advance Estimates released by the Ministry of Agriculture & Farmers Welfare, the total production of foodgrains during 2018-19 is estimated at 283.4 million tonnes. To support the agricultural sector, Government of India continues to implement various

policies. In the coming year, the government wishes to focus on doubling on farmers' incomes and practising ‘zero-budget farming’ nationwide. The Agriculture Export Policy, 2018, was approved and implemented by the Government of India in December 2018. The policy aims to increase India’s agricultural exports to US$ 60 billion by 2022 and US$ 100 billion in the next few years with a stable trade policy regime. Apart from this, a few other policies to support the Indian farmers are Pradhan Mantri Annadata Aay Sanrakshan Abhiyan, Pradhan Mantri Fasal Bima Yojana, Pradhan Mantri Sinchayee Yojana, etc. To promote business, the agriculture ministry aims to improve infrastructural facilities, including better road and water way connectivity, warehousing and storage facilities, digital support and freight corridors.

Agriculture in India has achieved grain self-sufficiency, but the production is resource-intensive, cereal-centric and regionally biased. There are few risks which loom over the agricultural industry in India. Desertification and land degradation pose a major threat to agriculture in the country. The social aspects around agriculture have also been witnessing changing trends with increasing female participation. The management of agricultural practices on multiple fronts is an area in which the industry must improve on. Improvement strategies for agriculture must include increasing incomes for farming households, diversifying of production of crops, empowering of women, strengthening of agricultural diversity and productivity and also designing careful price and subsidy policies that will encourage agricultural production and consumption of nutrient rich crops.

To analyse the sector we have chosen the top 22 companies according to market cap. The total net sales for the sector in FY19 was Rs.78716.74 crore which is an increase by 0.9 per cent compared to the net sales in FY18 which was Rs.77,976.47 crore. In FY19, the total operating profit also increased by 37.98 per cent to Rs.7839.13 crore from Rs.5681.14 crore in FY18. The total net income of the 22 companies rose by 44.92 per cent to Rs.3531.96 crore for FY19 from 2437.15 crore for FY18.

Comparing the companies having highest YoY growth in net sales, Rossell India for FY19 reported net sales of Rs.248.68 crore with YoY growth of 25.27 per cent and posted an operating profit of Rs.20.70 crore for the same fiscal, with YoY growth of 56.58 per cent. Gujarat Ambuja Exports, which is a solvent extraction company, had 19.10 per cent YoY growth in net sales at Rs.4021.44 crore for FY19. The company’s operating profit for FY19 was Rs.372.38 crore, which is YoY growth of 17.37 per cent and the net income was 198.15 crore. Among rubber products companies, Pix Transmissions reported the highest net sales of Rs.290.17 crore for FY19, with a YoY growth of 15.66. Tata Coffee for FY19 posted net sales of Rs.1803.98 crore with a YoY growth of 15.10 per cent. The company reported an operating profit of Rs.243.19 crore and net income of Rs.106.89 crore for FY19. Bajaj Hindustan Sugar, a sugar manufacturing company, posted net sales of Rs.6806.39 crore for FY19 with a net sales YoY growth of 14.53 per cent. The company’s operating profit rose by 8.85 per cent YoY to Rs.296.18 crore in FY19 from Rs.272.11 crore in FY18. Tata Global Bverages, which has the highest market cap of Rs.16,829.07 crore among the 22 companies, reported net sales of Rs.7251.50 crore for FY19 with a YoY growth of 6.40 per cent and net income of Rs.473.83 core for the same fiscal. A 3.5 per cent increase in demand of agri-products is estimated by the end of year 2020, thus aiming for more than 50 per cent increase in agricultural production and agri-business. 

Automobiles

Indian automobile industry is one of the key drivers that help the country to keep its growth engine running. The sector contributes 7.1 per cent to the total Gross Domestic Product (GDP). India is also the largest manufacturer of two-wheelers, three-wheelers and tractors in the world, and overall, the fifth largest vehicle manufacturer. The industry has four main segments, namely, passenger cars (PVs), commercial vehicles (CVs), threewheelers and two-wheelers. Among these, two-wheelers dominate with domestic market share of 81 per cent during April-December period of FY19, followed by PVs with 12 per cent share and CVs with 4 per cent share and three-wheelers 3 per cent market share. In recent times, the auto industry is going through turbulence due to weak demand and declining sales of auto companies. In June 2019, the sales volumes of all segments, viz. passenger vehicles (PVs), commercial vehicles (CVs) and two-wheeler slid to double digits. 



The slowing economic growth, continuing liquidity crunch, rural stress, etc. have resulted in the decline in volumes. Axle-load norms also added to the woes to auto players which impacted new truck sales. Further, an introduction of new ABS/CBS norms has resulted in higher input cost which, in turn, led to higher ownership cost which affected sales. The weak agricultural demand owing to delayed monsoon and lower Kharif sowing impacted the tractor sales. Owing to the muted demand, many auto producers have slashed their production to reduce high channel stocks and align supply with demand.

To analyse the industry performance, we have taken into consideration 13 auto companies' financial performance. The aggregate sales of these companies grew marginally by 6 per cent yoy to Rs.579907 crore in FY19. The companies that reported exceptionally good revenue growth were HMT (30 per cent revenue growth), Escorts (23 per cent growth) and TVS Motor (21 per cent growth). In recent times, Bajaj Auto has gained market share in the motorcycle segment, which helped it to report 18 per cent yoy growth in net sales. However, companies like Hero MotoCorp and Tata Motors reported muted yoy growth of 3 per cent each.

In terms of operating profit, the industry witness pressure from higher input costs and registered a 7 per cent declined in operating profit to Rs.63350.14 in FY19. HMT and Tata motors reported 86 per cent and 19 per cent fall in operating profit. Despite input pressure the companies like TVS Motor Company and Escorts reported strong operating profit growth of 40 per cent and 31 per cent respectively.

In terms of net profit, the industry performance was dragged down by the CV major Tata Motors which reported net loss of Rs.28933.70 crore. The aggregate bottomline of industry turned in loss of Rs.3143.2 crore as against net profit of Rs.31317.93 crore. However, despite industry headwinds, Escorts, Ashok Leyland, and Bajaj Auto reported 38 per cent, 21 per cent and 16 per cent yoy growth in net profit. The other major players that reported negative PAT growth were Hero MotoCorp and Maruti Suzuki.

In June 2019, the CV segment witnessed nearly 12 per cent decline, but players like Ashok Leyland, Eicher Motors and M&M underperformed the industry, while Tata Motors outperformed the industry as its volume was down by only 7 per cent. The stress in the auto industry has been clearly reflected in the stock prices of auto companies as seen in the chart below. Except Bajaj Auto, no other auto producers managed to even post positive return for its investors.

 
 
Outlook
The price hikes by auto producers owing to higher production cost caused by recently implemented safety norms and a transition to BS-VI norms from April 1, 2020 would put pressure on demand. However, due to transition to BS-VI norms, there could be some pre-buying in Q4FY20, but the recovery is unlikely to support long term sustainable growth. Also, the higher input costs at a time when the industry is facing demand slowdown would cause deterioration in margins. Thus, going forward, the demand for auto industry in the near term is likely to remain under pressure. However, factors such as three rate cut in 2019 and good monsoons are likely to play a pivotal role in reviving the demand outlook for the auto industry in the long run. Further, the Reserve Bank of India's efforts to improve liquidity situation in the country should help dealers and customers to start buying. Weak retail demand and higher channel inventory will continue to affect wholesale despatches. With an early start to the festive season, a slew of new model launches and a low base, we anticipate a gradual improvement in sales starting August '19.

Auto Ancillary

The Indian auto ancillary sector is a noteworthy contributor to the global automotive supply chain. International automobile manufacturers such as Toyota, General Motors, Honda and Volkswagen procure a range of high-value critical auto components from India. The domestic auto ancillary industry is composed of around 800 firms and generates a turnover of approximately US$ 40 billion. The Indian auto ancillary industry is classified into the organised sector and the unorganised sectors. The organised sector accommodates the requirements of OEMs and comprises high-value precision instruments. On the other hand, the unorganised sector is composed of low-value products and is mainly geared towards the aftermarket category. 



On a broader level, the products in this sector are classified as follows: engine parts, transmission & steering parts, suspension & braking parts, equipment, electrical parts, and others. Needless to say, the success of the auto ancillary sector is closely tied to the performance of the automobile sector. It is governed by factors such as low cost manufacturing, superior quality standards and engineering expertise. Therefore, fluctuations in the demand for two-wheelers, commercial vehicles and cars have a tangible impact on the demand for auto ancillary products. The demand is created by the original equipment manufacturers (OEMs) as well as the replacement market. The latter generates higher margins and exports than the former. Owing to the competitive nature of the OEM market, component manufacturers have to settle for lower margins to secure bulk orders. OEMs exert pricing pressure on the auto ancillary sector. As a result, auto ancillary players have to strike a healthy balance between cost reduction and innovation.

The data shared by the Department of Industrial Policy and Promotion (DIPP) reveals that foreign direct investment (FDI) inflows into the sector in the period from April 2000 to December 2018 came in at US$ 20.85 billion. With the BS-VI norms set to come into force in April 2020, automobile manufacturers will inevitably make alterations at both the engine and exhaust level in order to control harmful emissions from vehicles. This will undoubtedly boost the demand for auto components. The auto ancillary industry is also expected to follow in the footsteps of OEMs in the adoption of electric vehicle technologies. The mass conversion to electric vehicles is likely to generate a domestic market for EV batteries in India by 2030 worth an estimated US$ 300 billion.

We took into consideration 67 companies operating in the auto ancillary space and assessed their performance over the last three years. On an average, the revenues in the sector rose 14.98 per cent in FY19. A staggering majority of companies reported growth in topline in FY19, with the exception of Federal-Mogul Goetze (India), HBL Power Systems, Panama Petrochem and Hindustan Composites, which reported de-growth in topline of 1.32 per cent, 22.59 per cent, 5.68 per cent and 3.32 per cent, respectively. Contrarily, some of the companies that reported the highest growth in their topline include Taxmaco Rail & Engineering (63.11 per cent), Ratnamani Metals & Tubes (53.92 per cent) and Welspun Corp (40.71 per cent). It is also interesting to note that over 80 per cent of the companies reported good growth in operating profits. For instance, Texmaco Rail & Engineering’s operating profit showcased an astounding improvement of 166.07 per cent. Several others such as Setco Automotive, Precision Camshafts and JK Tyres & Industries exhibited healthy growth of 60.50 per cent, 58.17 per cent and 51.15 per cent, respectively.

On the profitability front, Rane (Madras) reported de-growth of 90.01 per cent, while Precision Camshafts and Welspun Corp de-grew by 47.12 per cent and 43.28 per cent, respectively. On the other hand, the net income of Texmaco Rail & Engineering and JK Tyre & Industries increased by an overwhelming 443.39 per cent and 180.18 per cent, respectively. On an average, the sector experienced growth of 7.73 per cent YoY in bottom-line.

In recent months, prominent ancillary firms witnessed a drop in their market capitalisation owing to reduced orders, piled-up inventories and an ambiguous future. This is attributable to the overall slowdown in the automobile sector as a result of complex regulations which will be implemented next year as well as intensifying competition across segments. The consumer sentiment is subdued and the impact of that is evident in the sales numbers reported by auto manufacturers. Despite the sharp decline in volumes, the overall performance of the auto ancillary sector in FY19 is quite satisfactory. Most of the players are not overly alarmed by the not-so-optimistic market sentiment as their exposure is distributed across both domestic as well as overseas markets.

Come 2020, India is likely to become the fourth largest automobile manufacturer in the world after China, US and Japan. The US-China trade war will render both markets volatile, thereby giving countries like India much-needed leverage to rise. As a consequence, the Indian auto ancillary sector is expected to rise to the third largest position in the world by 2025. 

Bank

Indian banking system faced major headwinds in FY19 which kept the overall economy under pressure for most part of the year. The public sector banks can be expected to focus on increasing CASA, with the aim of curtailing costs and containing level of non-performing assets (NPAs). The steps should be taken for concentrated growth with profitability. 



Overall, the banks ended FY19 with strong disbursement numbers that rose in double digits for the second year in a row, after the slow growth in earlier fiscals. The overall banking credit rose 13.24 per cent to Rs.97.67 lakh crore, while deposits grew by 10 per cent to Rs.125.72 lakh crore during the same period.

On a YoY basis, non-food bank credit rose by 13.2 per cent in FY19 as compared with an increase of 9.8 per cent for FY18. Loans to the services sector doubled with a 23.7 per cent growth to 14.2 per cent in the same month last year. The advances to agriculture and allied activities increased by 7.5 per cent and to the industry advances rose by 5.6 per cent.Advances to infrastructure, chemical and chemical products and all  engineering sectors too gained in pace. However, the credit growth to basic metal and metal products, textiles and food processing dropped. Personal loans rose 16.7 per cent in FY19.

During FY19, public sector banks such as SBI, Bank of Baroda, Canara Bank and Indian Bank reported double digit growth in net interest income (NII). During the year, Canara Bank showed the biggest growth in the NII, which is the difference between total interest income and total interest expense. It also reported profit of Rs.547 crore during FY19 as compared to Rs.4000 crore loss in FY18. Improved asset quality and strong advances further pushed the NIM to 2.04 per cent from 1.93 per cent.

Punjab National Bank, though, suffered loss for another year. The net loss for FY19 stood at Rs.10026.41 crore as against Rs.12584.33 crore in FY18. The bank was in the news for alleged scams worth Rs.14,000 crore approx.

Indian Bank said that it would also focus on fund raising which would bring down the stake of the government below 75 per cent as per regulatory guidelines. In FY19, the bank’s business touched Rs.4.29 lakh crore, while overall deposits grew to Rs.2.42 lakh crore along with the advances to Rs.1.87 lakh crore. On the asset quality front, gross NPAs and net NPAs were reduced to 7.11 per cent and 3.75 per cent, from 7.37 per cent and 3.81 per cent, respectively in comparison to the last fiscal. Overall, PSBs saw improved trend in NII. The net income of these banks either grew or improved from the lows of earlier year. Among private banks, HDFC Bank continues to be the leader. It again saw robust NII growth. Its NII for FY19 increased by 23 per cent to Rs.105160 crore as compared to Rs.85287 crore in FY18. Some of the private banks with highest exposure to the stressed assets such as ADAG group, Jet Airways, IL&FS and corporate lending faced pressure on financial performance. Yes Bank’s net profit for the year declined by 60 per cent to Rs.1709 crore. The major reason was the write-offs by the bank. The bank's profit narrowed sharply in Q4FY19 where it reported provisioning of around Rs.1500 crore. The bank also stated that it can recognize further stressed assets worth Rs.10000 crore in FY20. This news created sharp sell-off in the scrip. The bank's GNPA ratio stood at 3.22 per cent, which rose from 1.28 per cent in the lprevious fiscal.

Outlook

The asset quality, which was a major concern for FY19, can be expected to be moderate. Fresh NPAs in the sector are expected to moderate around 1.9 to 2.4 per cent in FY20 due to aggressive recovery and write-offs by banks. The public sector banks can be expected to turn profitable after four successive years of losses. Further, the capital infusion announced by the government in the latest Union budget is also set to boost the sentiment in the industry. Fresh NPA generation stood at 3.7 per cent for FY19. Going ahead, strong monsoon across the country can provide the much-needed boost to the sector. 

Cement

Cement industry is one of the crucial industries for any economy on which 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 global cement production. In India, the per capita cement consumption stood at 210 kg, which is lowest among the developing countries, whereas world’s average per capita cement consumption stood at nearly 580 kg. However, India's fast-developing economy offers great opportunities due to the rising demand for cement. 



On the geographical front, the 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 top 5 players dominate the industry with 51 per cent capacity.

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).

During FY19, the cement industry has achieved the highest double-digit volume growth first time since FY10, led by improving realisations in H2FY19. Also, the capacity utilisations have improved which contributed to the growth journey as the annual industry capacity utilisation rate increased to ~71 per cent, showing improvement by 5 per cent as compared with FY18.

Looking at the price of cement, in February 2019, the cement companies have gone for price hike by Rs.12-16 per bag. The major price hike was in southern region and the lowest price hike was in central and northern regions. The companies have also enjoyed cuts in their production cost from H2FY19.

Almost 65 per cent of the pet coke in India is consumed by the cement industry and, recently, the prices of pet coke have dropped by nearly 16-18 per cent. The cement companies would benefit from this, resulting in an improvement in margins in the coming quarters.

In our analysis, we have considered 19 cement companies according to their market capitalisation. During FY19, the aggregate sales of these companies grew by 12 per cent YoY. The aggregate operating profit of these companies grew by 10 per cent YoY and aggregate PAT grew by 9 per cent YoY.

The cement major, Ultratech Cement reported 17 per cent YoY growth in terms of its revenue and 10 per cent YoY growth in operating profit in FY19. PAT also grew by 9 per cent YoY. Shree Cement reported 24 per cent YoY growth in terms of its revenue and 13 per cent YoY growth in operating profit in FY19. However, PAT has declined by 27 per cent YoY. Ambuja Cement reported 3 per cent YoY growth in terms of its revenue and 4 per cent YoY growth in operating profit in FY19. PAT also grew by 53 per cent YoY. ACC reported 4 per cent YoY growth in terms of its revenue and 7 per cent YoY growth in operating profit in FY19. PAT also grew by 65 per cent YoY. Dalmia Bharat Limited has reported growth in its revenue by 11 per cent YoY. However, EBITDA has declined by 4 per cent YoY. PAT has grown by 20 per cent YoY during FY19.

The initiatives taken by the government in recent budgets such as Rs.25,000 crore allocation for affordable housing should spur the demand for cement in coming times. Also, the demand from infrastructure is witnessing growth at a faster pace, which has been underpinned by the government’s thrust on infrastructure development, viz. construction of roads, metro rail projects, airports renovation, irrigation projects, etc.

Besides, there has been significant improvement in low-cost houses constructed under the Pradhan Mantri Awas Yozana in rural areas. The government is targeting nearly 18.5 million houses during phase II FY22E. Similarly, the affordable housing segment in the urban areas also gained momentum last year. In terms of individual home building, the rural housing market has shown demand traction in major markets. However, tier-2 and tier-3 urban markets are yet to pick-up. In tier-1 or metro cities, with the stabilisation of RERA, the urban demand has witnessed some improvement. Going forward, demand traction, along with slower capacity addition, would further improve utilisation level of the industry. Overall, we expect the cement industry to grow at a steady pace supported by the developing economy and supportive government policies. 

Chemicals

India’s chemical industry is one of the fastest growing in the world and is currently ranked the third largest in Asia and sixth globally in terms of output after the US, China, Germany, Japan and Korea.


The chemical sector, which is knowledge- and capital-intensive, is the mainstay of industrial and agricultural development, and has application across various industries such as textiles, papers, paints, soaps, detergents, and pharmaceuticals, among others.

The chemical industry can be classified mainly into three segments, viz. basic, specialities and knowledge chemicals. (1) Basic: Petrochemicals, fertilizers, inorganic chemicals, alkalies, chloralkalies, aromatics, thermoplastics, thermosets and other industrial chemicals. (2) Speciality: Adhesive, sealant, catalysts, industrial gases, paints and coating, pharma additives, lubricants, water treatment chemicals, plastic additives (3) Knowledge: Agrochemicals, pharmaceuticals, biotechnology. We can further classify the industry product-wise, which comprise of alkali chemicals (soda ash, caustic soda, liquid etc.), inorganic chemicals (aluminum fluoride, calcium carbide, carbon black, etc.), organic chemicals (acetic acid, acetone, phenol, methanol, etc.), pesticides & insecticides and dyes & dyestuffs.

For the purpose of sector analysis, we have analysed 70 companies in the chemical sector according to their market cap. The overall revenue of the sector increased by 18.3 per cent and PBIT also increased significantly by 18.8 per cent during FY19. Also, the net profit of the overall industry jumped significantly by 13.9 per cent in FY19.

Of this set of companies, 90 per cent companies’ revenue grew at steady rate with 47 companies reporting double digit growth in revenue. The revenue of companies like Sadhana Nitrochem, Hindustan Organic Chemicals, Transpek Industry and Deepak Nitrite grew by 133.5 per cent, 82.9 per cent, 63.5 per cent and 61.1 per cent respectively in FY19. The operating profit of companies like Camlin Fine Sciences, Sadhana Nitrochem, Transpek Industry, Godrej Industries, Dharamsi Morarji grew by 343.9 per cent, 245.8 per cent, 147.6 per cent, 134.7 per cent, 133.9 per cent, respectively. Also, PAT of companies like Gujarat Fluorochemicals, Dharamsi Morarji, Transpek Industry, Sadhana Nitrochem and Deepa Nitrite grew by 461.9 per cent, 275.7 per cent, 148.9 per cent, 143.9 per cent and 119.7 per cent, respectively, in FY19.

The top company by market cap, Asian Paints grew moderately with 12.1 per cent growth in revenue, 10.2 per cent growth in operating profit and 9.5 per cent growth in PAT in FY19 on yoy basis. The chemical company Pidilite Industries’ revenue grew by 13.8 per cent, operating profit grew by 2 per cent while PAT de-grew by 3.8 per cent in FY19. The leading company in pesticides and agrochemicals UPL posted 24.7 per cent growth in revenue, 13.3 per cent growth in operating profit and 29.1 per cent de-growth in PAT in FY19.

Some of the companies witnessed turnaround where they earned net profit in FY19 as against net loss in FY18. Camlin Fine Sciences’ net profit in FY19 was Rs.3.06 crore as against net loss of Rs.24.15 crore in FY18. Similarly, Hindustan Organic Chemicals earned net profit of Rs.54.01 crore in FY19 as against net loss of Rs.187 crore in FY18. Also, there are some companies that incurred net loss in FY19 as against net profit in FY18. NACL’s net loss in FY19 stood at Rs.8.32 crore vs net profit of Rs.10.63 crore in FY18. Konoria Chemicals too incurred net loss of Rs.19.5 crore in FY19 as against net profit of Rs.11.57 crore in FY18.

The demand for chemicals has been on the rise since last few years, which is reflecting in terms of growth in volumes. Overall, the growth in profits and margins has been on the rise and is expected to grow going forward.

With China implementing stringent environmental norms, many Chinese capacities are shutting down, which is benefitting large organised Indian players. Large global chemical sourcing chains are forced to look at India as an alternative market. Also, the trade disputes and anti-dumping duty by the US on Chinese imports added to the difficulties. But this has also opened huge opportunities for the Indian players.

The Indian government has approved four Petroleum, Chemical and Petrochemical Investment Regions (PCPIRs) across India that are intended to emerge as hubs improving efficiencies and collaboration with the aim of competing with recognised global hubs.

According to the Indian Chemical Council, specialty chemicals demand is growing at a fast pace and the sector requires investment, technology, local application development and R&D. The opportunity in this segment is tremendous and India, with its strong respect for intellectual property rights (IPR), is well suited for hi-tech chemical to invest and enjoy long-term sustainable growth. Also, the crude oil price movements and trade flow changes across globe are expected to have no impact on India as the domestic market is strong in India.

 All the key segments of specialty chemicals are set for double digit growth over the coming five years, including a CAGR of 13 per cent in personal care and 10 per cent in paints and coatings, according to India Ratings and Research.

The industry in India is expected to grow at around 9 per cent per annum to reach USD 304 billion by FY25, from USD 163 billion in FY18, a report said. The growth is likely to be driven by rising demand in end-use segments for specialty chemicals and petrochemicals intermediates, said the India Chem Strategy report by Tata Strategic Group, brought in association with leading industry body FICCI. 



Construction

In the previous decades, China was the fastest growing economy in the world. The sustained high economic growth coupled with increased competitiveness in manufacturing can be attributed to the gigantic development of physical infrastructure in China. 



India seemed to have realised this and has started investing heavily in improving and building physical infrastructure in the country. The government has identified development of physical and social infra as the first dimension of its 10 most important dimensions that it has identified as part of its Vision 2030. This vision includes building and improving infrastructure of roads, urban transport, seaports, airports, railways, inland waterways etc. To turn this vision into reality, the government has allocated massive funds in the recent budgets.

The construction activity comprises of infrastructure, building and construction. During FY2017-18, the road tender activity reached all-time high of Rs.1.2 lakh crore, but later the tendering activity slowed down and in FY19 it fell to Rs.45,000 crore. However, the state highway awards acted as a cushion for infra players.

According to one of the international property consultants, housing sales in India's eight major cities (Delhi-NCR, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad, Pune and Ahmedabad) grew by nearly 4 per cent to 1.29 lakh units during Jan-June 2019 owing to strong traction in demand for affordable homes, while new homes supply grew by 21 per cent. Notably, unsold inventories with the developers dipped 9 per cent to 4.50 lakh units.

To analyse the trend in the construction industry, we have taken into consideration 83 companies' financial performance. The net sales of these 83 companies increased significantly by nearly 18 per cent in FY2018-19 over the previous year. In terms of net sales, the companies that reported stellar performance were Jaypee Infratech, Parsvnath Developers and DB Realty, whose sales jumped nearly 738 per cent, 370 perent and 205 per cent, respectively. Besides, the large cap companies that posted strong set of sales in FY19 were Oberoi Realty (104 per cent sales growth) and Godrej Properties (76 per cent). However, there were companies like Ganesh Housing, Man Infra and Kolte Patil Developers whose sales dipped nearly 45 per cent, 43 per cent and 38 per cent, respectively.

The aggregate operating profit for all the 83 companies grew nearly 15 per cent yoy in FY19 to Rs.58368.21 crore from Rs.50732.40 crore in the previous fiscal. The companies that outperformed in terms of operating profits are Ramky Infrastructure (1568 per cent yoy growth), Shriram EPC (302 per cent growth), Bharat Road Network (297 per cent growth) and Hubtown (271 per cent). Notably, there were companies that witnessed turnaround in operating profit viz. Vascon Engineers, A2Z Infra and Jaypee Infratech. The aggregate net profit of all the companies grew marginally by 5 per cent yoy in FY19 to Rs.14,561 crore. The companies that outshined in terms of net profit were Gayatri Projects and NCC, whose profit surged 593 per cent and 295 per cent, respectively. Also, companies like Elpro International and KP Energy too reported exceptional gain in profit owing to lower base of the previous year. However, on the other side, Bharat Road Network reported loss in FY19 as against profit of Rs.85.82 crore in the previous fiscal.

In the recent budget the government has decided to spend nearly Rs.3.1 lakh crore on transport sector as against Rs.2.7 lakh crore in the previous fiscal. Of this total investment, the allocation for road sector is around Rs.1.5 lakh crore, while the allocation for railways is Rs.1.6 lakh crore. The government's thrust to build and improve infrastructure in the country can be identified from these enormous spending for the infra.

Besides, with increasing urbanisation in the county, the government is also focusing on projects like Metro rail, Smart Cities and AMRUT. The government has allocated investment of nearly Rs.18,500 crore for metro rail projects, while the allocation for Smart Cities and AMRUT is expected to be Rs.13,750 crore.

In terms of real estate segment, in the Union budget, the area for affordable housing project has been increased from 30 sq. metres to 60 sq. metres for metro cities and from 60 sq. metres to 90 sq. metres for non-metros cities. Notably, the government has announced interest tax benefit on housing loan, deduction of Rs.1.5 lakh has been allowed in computation of taxable income for interest payable on loan availed in addition to Rs.2 lakh already available. Considering the government's impetus for the sector as reflected in terms of enormous investment announced in the Union budget, the construction sector is likely to be lucrative for the investors. 

The government has identified development of physical and social infra as the first dimension of its 10 most important dimensions that it has identified as part of its Vision 2030. This vision includes building and improving infrastructure of roads, urban transport, seaports, airports, railways, inland waterways etc. To turn this vision into reality, the government has allocated massive funds in the recent budgets

Consumer Durables

The technology wave has hit the consumer durables sector favourably and landed it in the sweet spot. With growing disposable incomes in the hands of Indian citizens, electronic items that were once considered luxury goods for a long period of time have become basic necessities of sorts today. The consumer durables sector is one of the most lucrative and fast-growing sectors in India. The Indian consumer durables sector includes a wide range of household and industrial electronics. To talk about a few, air conditioners, televisions, washing machines, refrigerators, laptops, and personal computers, etc. comprise the consumer durables sector. 



A little over 65 per cent of the total revenue for the sector is generated from the urban population. The rural market only contributes 33 per cent to the total sales of the sector, but soon this could witness a positive change with the government’s plan to invest significantly in rural electrification. Owing to multiple government initiatives towards urbanisation and transmission network augmentation, electric supply channels have covered the previously unserved and underserved regions of the country.

The consumer durables market is directly linked to the discretionary incomes in the hands of the end-consumers. With the high rate of urbanisation in the country, the need for domestic goods has risen, coupled with the changing lifestyles of the people that create more demand for consumer durable goods. The consumer durables market portrays a huge potential to develop at a rapid rate in the near future in India with the  government’s initiative of 'Make in India' which is a great opportunity for this sector. With such initiatives, the manufacturers bring in new and different technologies that focus on being energy efficient and environment-friendly products.

The wide usability of online sales and also the rise in the working age population has stimulated the demand. It is to be noted that consumer durables are one of the most sought-after products, especially during the festive season. Among other products that belong to the sector, the sales of TVs have increased the most recently with the rise of on-demand video platforms like Netflix and Amazon Prime. Streaming video is changing every existing relationship in the TV value chain, thereby redefining the role of traditional TV. The prices of the products in the consumer durables segment, especially those of TVs and refrigerators, have been brought down over the years owing to the advancement in technology and the fierce competition in the sector. With the changing taste of the customers in the technology industry, companies have to keep up and deliver the appropriate gadgets. Therefore, companies have to offer progressive and evolving gadgets to their consumers.

To study the consumer durables sector, we have taken into consideration 15 top companies based on market capitalisation. The aggregate net sales of 15 companies put together has jumped 15 per cent to Rs.43,087.96 crore in FY19 from Rs.37,369.13 crore in FY18. The aggregate operating profit in FY19 has been Rs.3,758.33 crore, up by 6 per cent from Rs.3,537.93 crore in FY18. The net profit has jumped 5 per cent to Rs.2,495 crore in FY19 from Rs.2,336.36 crore in FY18. The total EPS of 15 companies has risen by 40 per cent in FY19 to Rs.488.01 as compared to Rs.348.17 in FY18.

Bajaj Electricals has reported the highest growth in net sales, a whopping 41.62 per cent jump in FY19. Amber Enterprises India is in the second place by reporting a growth of 30 per cent in FY19 in terms of net sales. KDDL has registered a net sales growth of 24 per cent in FY19. In terms of operating profit, the company to have posted the highest growth is KDDL with 48.04 per cent jump in FY19. Blue Star and Tejas Networks do not stand far behind as they have reported a growth of 30.33 per cent and 28.34 per cent in operating profit in FY19, respectively. In terms of bottomline, Bajaj Electricals grabs the top position among the 15 companies, posting a 65.59 per cent jump in PAT in FY19. Amber Enterprises comes in second, posting a PAT growth of 52.09 per cent in FY19. Not too far behind is Blue Star as the company registered a jump of 43.11 per cent in PAT for FY19.

What is expected from the future is mostly growth and innovation in the products of the consumer durables sector. However, the challenges will always be daunting as the Indian market remains a matured market with cut-throat competition on innovation, quality and price. If the companies in this sector can keep up with the pace of technology, then all is bright and beautiful for the sector going ahead.  

India imports mainly televisions and air conditioners mostly from China and Southeast Asia. India also imports from Japan, Indonesia, Malaysia, and Taiwan. On the other hand, India’s consumer durables exports include refrigerators and refrigerating equipment compressors, color TVs, air conditioner parts and compressors, and fully automatic washing machines. The U.A.E. is a major export location. 

Electrical Equipment 

Indian electrical equipment industry has become strategically important for India even as India aims to become a $5 trillion economy. The Indian electrical industry is broadly categorised into electrical equipment sector and electricity sector for power generation. The electrical equipment sector can be further broadly classified into two sub-sectors – 



Generation equipment : Boilers, turbines, generators

Transmission & Distribution : Energy meters, transformers, cables, transmission lines, switchgears, capacitors, etc

The Indian electrical equipment sector contributes close to 10 per cent of the manufacturing sector in terms of value and close to 1.4 per cent of India’s GDP. One of the major employment generator, the electrical equipment sector in India is all set for growth in coming years. 

Performance

To analyse the electrical equipment industry, we considered the performance of top 27 companies in the industry by market capitalisation. The net sales of these 27 companies grew by an impressive 24 per cent in FY19 when compared to FY18. This reflects almost 5 times higher growth in FY19 when compared to growth in FY18. The net sales grew by a mere 5 per cent in FY18 over FY17. Similarly, the operating profits grew by an impressive 71 per cent in FY19 over FY18. The operating profits for FY18 grew by 27 per cent for these leading 26 companies. The net income de-grew by 18 per cent in FY18 over FY17. The net income, however, reflected an impressive growth of almost 67 per cent in FY19 over FY18. We observe that HFCL, Inox Wind, HEG, Graphite India, Majestic Auto, Olectra Greentech, Sterlite Technologies, Paramount Communications and Apar Industries are some of the outperformers in the sector. Aksh Optifibre, Swelect Energy Systems and Suzlon Energy are some of the underperformers in the sector, reporting de-growth in net sales in FY19 over FY18. HFCL, Graphite India, HEG, Sterlite Technologies, Paramount Communications, KEI industries, V-Guard Industries, Havells India, CMI, Polycab India and Precision Wires India are some of the companies with return on net worth (RONW) greater than 15.

Government initiatives
The Government of India (GoI), looking at the importance and growth potential of the sector, has taken several steps to facilitate growth. GoI has formulated a ‘Vision 2022’ strategy that focuses on:
✓ Industry competitiveness
✓ Upgrading technology
✓ Skill development
✓ Promotion of exports and
✓ Conversion of latent demand
.

Taking a macro view on the economy and assuming GDP growth of more than 7 per cent per annum, it is obvious that the Indian electrical equipment sector will play an important role. The industry can be expected to grow faster than even the GDP growth. 

Engineering

The engineering sector is the largest and most diversified of all industrial manufacturing sectors. Its significance is monumental as its output supplements a plethora of industries such as mining, oil and gas, refinery, steel, automotive and consumer durables. It can be broadly classified into two key segments, namely – heavy engineering and light engineering. 



The engineering sector experienced healthy earnings growth in Q4FY19. EPC companies hold a strong order book and the pump sector is facing good growth prospects in the upcoming quarters. This is mainly attributable to the pick-up in industrial production, which further resulted in healthy growth in abrasives, ceramics and refractories. The government has slackened investments in capex. As a result, some of the companies are likely to witness lethargic order inflows.

Companies like Grindwell, which are relatively more associated with the auto sector than other companies, experienced volume pressures in abrasives on account of subdued production. The major determinant of revenues in this sector is the size of the order book. Thus, having a strong balance sheet and well-established execution capabilities is essential for attracting big orders. However, this creates a need for massive working capital. But most of the companies receive only a part of this in the initial stages and the remaining is shelled out as the project execution progresses.

The engineering sector contributes the most to India’s export basket and accounts for around 25 per cent of total exports by value. Engineering exports reached an all-time high in FY19 as they crossed the US$ 80 billion mark, marking a growth of 6.32 per cent YoY. India has set a target of US$ 200 billion for engineering exports by 2025.

On an average, net sales of the sector rose 14.87 per cent YoY in FY19. International Conveyors, SKIL Infrastructure, Rites and Engineers India reported growth in net revenues of 44.48 per cent, 40.89 per cent, 36.24 per cent and 35.71 per cent, respectively. Windsor Machines, Skipper and Alphageo (India) reported de-growth in net revenues of 12.25 per cent, 11.23 per cent and 5.67 per cent, respectively.

The operating profits in the sector showcased an average growth of 21.68 per cent YoY in FY19. WPIL reported an impressive growth in operating profit of 141.30 per cent YoY in FY19 to Rs.234.01 crore. Other companies that showcased good growth in operating profits include L&T Technology Services (58.91 per cent), Praj Industries (54.02 per cent), Disa India (57.16 per cent) and Kirloskar Industries (92.44 per cent).

On an average, net income in the sector exhibited growth of 35.41 per cent YoY in FY19. Elecon Engineering and Yuken India showcased an astounding rise in net profit of 1285.98 per cent YoY and 1561.92 per cent YoY in FY19. WPIL, Kirloskar 



Industries, Mahindra EPC Irrigation, Everest Kanto Cylinder and TIL recorded growth of 335.87 per cent, 93.59 per cent, 131.71 per cent, 167.97 per cent and 205.54 per cent, respectively.

The major demand drivers in the engineering sector include capacity creation in sectors such as infrastructure, power and more. Moreover, the approval of a substantial number of Special Economic Zones (SEZs) across India along with the development of the Delhi Mumbai Industrial Corridor (DMIC) across seven states is likely to lend a further boost to the engineering sector. Another positive development is that the allocation to the defence sector was raised to US$ 45.6 billion under the Union budget in 2018-2019. Furthermore, the Ministry of Defence has relaxed its procurement norms, thereby making it a lot easier for Indian engineering firms and start-up ventures to offer equipment, ammunition and associated products to the Indian armed forces.

Overall, the sector witnessed an uptick in execution on account of aggressive capacity expansion across numerous sectors. The inflow of private capex, which has slowed over FY13 to FY18, is now showcasing an improving trend.

Moving forward, India’s manufacturing sector could very well reach US$ 1 trillion by 2025 and could account for as much as 25 per cent to 30 per cent of India’s GDP. Initiatives like ‘Make in India’ in conjunction with 100 per cent foreign direct investment (FDI) permitted through the automatic route have engendered a multitude of opportunities in the country. This has attracted several international players to the Indian market. 

The demand drivers in the engineering sector include capacity creation in sectors. The approval of SEZs across India along with the development of the DMIC across seven states is likely to lend a further boost to the engineering sector. Another positive development is that the allocation to the defence sector was raised to US$ 45.6 billion under the Union budget in 2018-2019. 

Entertainment

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

 

Indian television industry is the second largest television market in the world. This segment is into shining phase, led by increasing digitisation. Digitization in Phase I, Phase II and Phase III has been already completed, which has given boom to the industry. The Phase IV digitization is in progress, which will generate enormous opportunities for the industry. The advertising segment growth was due to elections, penetration of regional channels and launch of new channels. Also, DTH subscription is growing rapidly, driven by content innovation and product offerings. 

Print media industry is the second largest contributor to the M&E industry. The print media has seen significant growth as rising income levels and growing lifestyles have driven growth in magazine segment. With increasing use of internet, coupled with easy availability of 3G and 4G, OOH segment has witnessed a massive growth. Animation & gaming segment has seen growth of more than 20 per cent on account of HD animated movies, kids genre TV channels and mobile gaming.

For the radio industry, the Union cabinet has granted permission to 135 FM channels under Phase III. The Indian film industry has grown considerably led by digitisation. Online video platforms like YouTube would capitalise on the massive shift in consumer behaviour.

To analyse the overall performance in FY19, we have considered a set of top 32 media and entertainment companies by market capitalisation. During FY19, the aggregate sales of these companies grew by 32 per cent YoY. The aggregate operating profit of these companies grew by 15 per cent YoY. However, aggregate PAT de-grew by 31 per cent YoY. Zee Entertainment Enterprises Limited (ZEEL) reported 19 per cent YoY growth in terms of its revenue and 24 per cent YoY growth in operating profit in FY19. PAT also grew by 6 per cent YoY. The ESSEL group (promoters of ZEEL) are in advance stage to divest their 50 per cent stake to a strategic partner. We see the company management looking for an investor to drive growth to the next level in digital space and deleverage balance sheet. Sun TV Networks has reported robust growth in terms of revenue, operating profit and PAT by 28 per cent, 30 per cent and 27 per cent, respectively during FY19. PVR delivered blockbuster numbers in FY19 with jump in terms of revenue, operating profit and PAT by 32 per cent, 46 per cent and 53 per cent, respectively during FY19. Dish TV revenue has grown by 33 per cent and operating profit has increased by 55 per cent. However, the net loss has widened in FY19. TV18 Broadcast also posted robust numbers with growth in revenue and operating profit by 244 per cent and 432 per cent, respectively, on a YoY basis. Also, the bottomline has turned positive in FY19.

We expect M&E industry to grow at a healthy pace led by government initiatives like Make in India, Skill India and Digital India. Further, we expect the increasing digitisation and rising usage of internet over the last couple of years to augur well for the industry. Furthermore, increased spending on advertising is likely to lead to significant growth in overall advertising revenue in the coming years. Also, the rapidly growing demand for HD and rolling out of 5G data would further aid growth of the industry. Overall, we see the prospects of M&E industry to remain bright for the long term. 

Fertilizers

Fertilizers have played a key role in the success of India's green revolution and subsequent self-reliance in foodgrain production. The increase in fertilizer consumption has contributed significantly to sustainable production of foodgrains in the country. As a result, the demand of fertilizers has witnessed double digit growth rates over the past several years. 



Fertilizers are primarily classified into urea, diammonium phosphate (DAP), single super phosphate (SSP), muriate of potash (MOP) and other complex fertilizers like calcium ammonium nitrate (CAN) and various grades of NPK fertilizers (Fertilizers having different grades of nitrogen (N), phosphorus (P), and potassium (K) ). In India, the most largely used fertilizer in the nitrogenous category is urea, DAP and MOP for  phosphorus and potassium.

As per the data provided by ICRA, primary fertiliser sales witnessed healthy growth of 4.5 per cent YoY in FY19 driven by a 4.7 per cent YoY growth in the urea sales, along with a 4.3 per cent YoY growth in P&K fertiliser sales. Indigenous urea sales witnessed a 1.6 per cent YoY growth, while imported urea sales witnessed 14.3 per cent YoY growth. DAP sales witnessed 5.9 per cent YoY growth, while sale of complex fertilizers witnessed a 6.3 per cent YoY growth.

International urea prices have been trending around the five-year average of $246/MT since August 2018, driven by the elevated coal and natural gas prices, lower Chinese exports and sanctions on Iran. The urea prices had started moderating in the beginning of CY2019. ICRA expects the international urea prices to witness an uptick in the near term, driven by slowdown in exports of Iranian urea, upcoming Kharif season in India when the demand is at its peak, coupled with low operating rates of Chinese manufacturers as China focuses on the domestic market. Also, the international DAP prices were trending around the five-year average of US $397 per MT for major part of CY2018 as production curtailments, slower ramp-up of new capacities and rising trend in raw material prices kept the prices firm.

Considering the overall performance of the fertilizer companies in FY19, decline in operating and net profits was seen as the raw material prices increased from end of 2018. For the purpose of sectorial analysis, we have considered 11 leading companies. The overall revenue of the sector jumped by 17.5 per cent during FY19. The operating profit for FY19 grew marginally by 1.3 per cent, while the net profit dipped by 20.2 per cent in FY19.

Companies like Rashtriya Chemicals & Fertilizers and National Fertilizers outperformed in FY19 as compared to others. Rashtriya Chemicals’ revenue during the year grew by 22 per cent, operating profit grew by 66.3 per cent, while net profit increased by 76.6 per cent yoy. Also, national fertilizers’ revenue grew by 36.7 per cent, operating profit jumped by 53.9 per cent and net profit grew by 40.2 per cent yoy. Budgetary allocation towards fertilizers subsidies has increased by 14 per cent to Rs.800 bn, which is expected to boost the fertiliser companies, especially the urea manufacturers. This increase is to account for inflation, the start-up of a new urea plant, and payment of pending dues of fertilizer companies since last year.

According to ICRA, the performance of urea players is expected to remain stable in the upcoming Kharif season given the decline in the natural gas price which will keep the domestic production competitive against imports. In case of normal monsoon with equitable distribution across the country, ICRA expects positive uptick in fertiliser and agrochemicals industries. 

As per the data provided by ICRA, primary fertiliser sales witnessed healthy growth of 4.5 per cent YoY in FY19 driven by a 4.7 per cent YoY growth in the urea sales, along with a 4.3 per cent YoY growth in P&K fertiliser sales. Indigenous urea sales witnessed a 1.6 per cent YoY growth. 


Finance

The NBFC sector went through liquidity crisis in FY19. The liquidity issue continues to impact the performance of many companies in the sector. However, there are signs that the situation is far better than it was in Q3FY19. The crisis which hit credit growth of the companies further impacted financial status of these firms. Margins growth remained under pressure for larger part of the last two quarters. The major reason for this was the growth in NBFCs was affected as management decided to curtail incremental AUM growth in order to maintain liquidity. The situation became worse as the share of fund flow from MFs to NBFC’s declined. 



The sector can be expected to witness positive sentiment after the recent announcements in the budget. The boost to affordable housing will lead the way ahead for the market. The announcements such as, tax holiday has been provided for developers of affordable housing, proposal to provide additional deduction of Rs.1.5 lakh (Rs.3.5 lakh in total) for interest on loan borrowed up to Mar 31, 2020 with a ticket size of Rs.45 lakh, and the total benefit of Rs.7,00,000 on interest over loan tenure of 15 years will lead the way forward.

The revenue growth in housing finance companies declined in FY19. India's largest housing finance firm HDFC Ltd reported growth of 21 per cent during FY19. The total revenue for the period stood at Rs.95671 crore. The topline of HDFC grew by 32 per cent in FY18 growth as compared to FY17. The decline in one of the biggest firm’s revenue is an evidence of the pressure in the finance sector.

The Indiabulls Housing Finance suffered major decline during last fiscal in terms of revenue. The revenue for FY19 grew by 14 per cent YoY to Rs.17019.62. It had showed a growth of more than 40 per cent in the earlier fiscal. Consequently, its net profit growth declined very sharply to 5 per cent YoY in FY19.

Government of India owned HUDCO can be biggest beneficiary due to the implicit support from the government. It showed robust growth of 33 per cent in FY19 revenues in comparison to FY18. Its revenue for the year stood at Rs.5547.64 crore as compared to Rs.4171.36 crore. Its net profit grew by 17 per cent over FY18 to Rs.1180.15 crore. The growth in HUDCO’s overall financial performance already shows signs of strong revival due to government's implementation of its projects.

In case of general finance, the sector saw a mixed trend with eight companies seeing negative sales growth for FY19, while 7 companies witnessing decline in revenue growth percentage over the last fiscal. Market leader Bajaj Finance continues its robust performance with 45 per cent revenue growth in FY19. Its revenue during the year stood at Rs.18485.09 crore as against Rs.12744.41 crore in the earlier fiscal. Bajaj Holdings & Investment though reported positive revenue growth over the last fiscal, it still ended with negative income growth. Its net income declined to Rs.221.05 crore in FY19 as compared to Rs.269.87 crore in FY18.

Going ahead, the NBFCs are expected to increase securitisation to manage and control rising demand and liquidity situation. The RBI recently announced liquidity management which will ensure that NBFCs will hold cash and liquidity investment in the balance sheet, which can also have some impact in the margins in the near future. The HFCs can be expected to continue to struggle along with vehicle finance companies, which have also seen the impact on account of slower auto industry growth. We expect that on the back of rising demand in the power sector with various resolutions, the sector will lead to higher growth numbers. The acquisition of REC by PFC is expected to create synergy and boost loan growth at more than 12 per cent normal run rate. The total AUMs of all the companies covered by us has grown at the rate of 16 per cent/5 per cent YoY/QoQ, while PAT has grown at the rate of 45 per cent YoY. 



Going ahead, the NBFCs are expected to increase securitisation to manage and control rising demand and liquidity situation. The RBI recently announced liquidity management which will ensure that NBFCs will hold cash and liquidity investment in the balance sheet, which can also have some impact in the margins in the near future. 


FMCG

India being the one of the fastest growing economy in the world has aided high growth of consumption and this in turn is driving the growth of FMCG sector. The FMCG market has grown from USD 31.6 billion in 2011 to USD 52.75 billion in 2017-18 and is fourth largest sector in the Indian economy. 



FMCG companies operate through two primary sales channels, viz; general trade and modern trade. General trade consists of kirana stores which generate largest sales channel for overall FMCG retail sales. Modern trade includes supermarket, hypermarkets etc. and within modern trade, e-commerce has been gaining traction in recent times. The growth in sales through modern trade, especially e-commerce, is gaining momentum and is likely to contribute to the growth of FMCG sector.

In the last couple of years, the FMCG sector is facing subdued demand, but the sector is expected to witness revival. Though the sector performed well in the first half, the growth in the second half of the year, especially in the last quarter. was muted owing to reasons such as tight liquidity conditions and sluggish rural demand. 

The lacklustre growth in the industry has led to lower inventory turnovers, which resulted in pile up of inventories, thereby stretching working capital and higher debtor/creditor days. Thus, the small firms operating in the industry might be going through working capital funding issues due to liquidity crunch among NBFCs who were aggressive in this segment.

The rural segment is a major revenue contributor to the FMCG sector (45 per cent of revenue). In the past, the rural consumption has grown faster than the urban. Thus, the slowdown in demand from the rural segment has dampened the growth of overall FMCG sector. The e-commerce's share in the overall FMCG sales on 2018 was merely at 1.3 per cent, but in the years to come, this share likely to touch double digit. To analyse the industry trend of FMCG industry, we have taken 38 companies' financial performance into consideration. The total sales of these companies for FY19 grew in high single digit 8.2 per cent over the previous fiscal. The company that outperformed in the FY19 is Zydus Wellness, which reported significant jump of 68 per cent in the revenue. Also, companies like KRBL, VIP Industries and Parag Milk reported revenue growth of 27 per cent, 26 per cent and 23 per cent, respectively.

However, the worst performer during the period was Prabhat Dairy, whose revenue plunged nearly 85 per cent owing to sale of its core business. The other players that reported negative revenue growth were Rasoi (revenue down by 11 per cent) and Godfrey Phillips (revenue down by 10 per cent).

The operating profit of the these companies surged nearly 29.4 per cent yoy in FY19 to Rs.41766.32 crore. The top performers in terms of operating profit were ADF Foods and Godfrey Phillips, which reported 80 per cent and 56 per cent yoy growth. However, companies like Prabhat Dairy, Rasoi and Avanti Feed reported 98 per cent, 61 per cent and 40 per cent fall in the operating profit in FY19.

Notably, the net profit of all the 38 companies surged nearly 50 per cent yoy to Rs.29065 crore. The company that reported exceptional profit was Foods & Inns, which reported PAT of Rs.109.22 as against Rs.3.47 crore. However, this was aided by higher non-operating income. The other companies that reported PAT growth in the range of 60-82 per cent are Sukhjit Starch & Chemicals, Godfrey Phillips India and Jubilant Food. However, Ruchi Soya Industries and Prabhat Dairy reported 98 per cent and 97 per cent fall in PAT respectively.

Outlook

The per capita consumption in countries like Indonesia and China is 2x and 4x that of India, which provides strong headroom for India's consumption story in the long run. Additionally, lower penetration provides opportunity for growth.

More than 65 per cent of India's population lives in rural areas and the rural populace spends almost half of its total expenditure on FMCG products. Thus, the government's impetus to increase incomes of rural households should lead to the growth of FMCG sector. Further, FMCG players are investing to increase their distribution network, which would help companies to tap the untapped rural market and in turn would result in higher penetration. Also, the introduction of small-sized packs to attract the rural population would contribute to the growth of FMCG players. In addition to these, an increase in minimum support prices, farm loan waivers and increased government focus on farm income should contribute to demand revival in the rural segment.

The rising aspiration levels of the Indian consumer, mainly on the back of rising income levels, changing demographics and increasing urbanisation, is driving the growth in premium products. These products not only provide incremental revenue growth for companies, but also help improve margins.

FMCG sector in India is highly fragmented and majorly dominated by the small and unorganised players. Going forward, with the implementation of the GST, the share of the organised sector in India's overall FMCG market is expected to grow further.

India has favourable demographics that majorly consist of population under the age of 25 years. It is projected to have the world's largest workforce by 2027. Basically, India is going through a demographic transition, which in turn provides huge legroom for consumption growth and thereby growth of the FMCG sector. In addition to this, the rising prosperity level and disposable incomes, coupled with low penetration level and per capita consumption provides an opportunity for growth. However, the slower demand recovery and higher spend on promotional activity may act as a hurdle in the growth path of the FMCG companies.

The rising aspiration levels of the Indian consumer owing to increasing income levels, changing demographics and increasing urbanisation, is expected to drive the growth of premium products which not only provide incremental revenue growth for companies, but also help improve margins and thereby lead to higher profitability. The monsoon has started on a delayed note but if reaches normal levels during rest of the season, it would be big boost for Kharif production in the country. The increase in MSPs for Kharif crops would further aid agri-income which in turn should push the rural demand. The FMCG market in India is estimated to increase from USD 52.75 billion in FY 2017-18 to USD 103.7 billion by 2020. In the near term, there is likely to be demand pressure, however, in the long term, the demand is likely to pick up, thereby benefiting the FMCG companies.

The per capita consumption in countries like Indonesia and China is 2x and 4x that of India, which provides strong headroom for India's consumption story in the long run.

The FMCG market has grown from USD 31.6 billion in 2011 to USD 52.75 billion in 2017-18 and is fourth largest sector in the Indian economy.

The lacklustre growth in the industry has led to lower inventory turnovers, which resulted in pile up of inventories, thereby stretching working capital and higher debtor/creditor days.

The rural segment is a major revenue contributor to the FMCG sector (45 per cent of revenue). In the past, the rural consumption has grown faster than the urban. Thus, the slowdown in demand from the rural segment has dampened the growth of overall FMCG sector. 


Hospitality


Indian tourism industry has been touted as the next growth engine for the Indian economy owing to its significant potential. The rich cultural and historical heritage, variety of ecology and natural beauty spread across the country makes “Incredible India” irresistible for tourists, both domestic and foreign. Indian tourism industry is strategically important for India not only because it helps generate large employment, but also because it brings in loads of foreign currency for the country. 



One of the most important factors boosting Indian tourism industry is that the Indian tourism market is one of the most digitally advanced market. Increasingly, tourists are using the digital tools for planning, booking and experiencing a journey. This has provided support to the growth of domestic and outbound tourism. The foreign tourist arrivals (FTA) stood at 10.56 million, reflecting a growth of 5.20 per cent YoY.

International hotels chains are also seen increasing their presence in India and are seen increasing their market share in Indian tourism and hospitality sector in India. International hotel chains are expected to enjoy 50 per cent market share by 2022. The sector attracted foreign direct investment (FDI) investments around USD 12 billion between April 2000- December 2018 if we go by the data released by Department for Promotion of Industry and Internal Trade (DPIIT). 

Highlights :-Indian tourism and hospitality sector
International tourist arrivals in India are expected to reach 30.5 million by 2028. Medical tourism of India expected to touch USD 9 billion
India offers geographical diversity, attractive beaches, 30 World Heritage sites and 25 bio-geographic zones.
Under Swadesh Darshan Scheme, 13 thematic circuits in the country have been selected for development of tourism infrastructure.

Performance

To analyse the hospitality sector performance, we tracked the performance of top 19 companies in the hospitality sector in India.

The net sales for the 19 companies de-grew by 8 per cent in FY19 when compared to FY18. The net sales grew by nearly 3 per cent in FY18 as compared to FY17.

The operating profit for these 19 companies was down by nearly 4 per cent for FY19 when compared to FY18 even as the operating profit grew by 5 per cent in FY18 over FY17.

Within the hospitality sector, The Indian Hotels Company and Lemon Tree Hotels reported growth in net sales, operating profits and net profits as well.

Overall, the sector struggled to report growth in sales. Thomos Cook (India) was one of the biggest disappointments in the sector in terms of net sales, even as Chalet Hotels, Speciality

Restaurants, Cox & Kings (India) and EIH reported above average growth in net sales. India’s travel and tourism sector's contribution to India’s GDP is expected to reach Rs.32.05 trillion in 2028. India has been ranked 7th among 184 countries in terms of travel and tourism’s total contribution to GDP in 2017.

Government Initiatives

Recognising the importance of tourism sector in India, the Government of India (GoI) has taken several steps to boost the sector. The government’s focus on infrastructure development and improving accessibility is widely believed to boost the Indian economy. The GoI’s plan to develop 17 sites into world class tourist destinations is also expected to boost the travel and tourism sector in India.

Various steps taken by the GoI to boost infrastructure, undertake labour reforms, provide easy access to capital and talent for start-ups and MSMEs alike is expected to stimulate demand in the economy, which in turn is expected to facilitate growth for travel and tourism industry in India.

The GoI aims to gain one per cent share in world’s international tourist arrivals by 2020 and two per cent share by 
India’s travel and tourism sector's contribution to India’s GDP is expected to reach Rs.32.05 trillion in 2028. India has been ranked 7th among 184 countries in terms of travel and tourism’s total contribution to GDP in 2017


IT

The Indian IT sector contributed nearly 7.7 per cent to India’s GDP and the percentage of contribution is expected to increase to 10 per cent of the nation’s GDP by 2025. India has emerged as a conspicuous digital capabilities hub of the world with around 75 per cent of the global digital talent available in India. 



We included 62 IT firms in our study. On an average, the net revenues in the sector climbed by 15.92 per cent in FY19. Only a handful of companies witnessed a YoY decline in net sales in FY19. These include Vakrangee, Allsec Technologies, 63 Moons Technologies and Aptech as their net sales plummeted by 76.80 per cent, 19.63 per cent, 18.97 per cent and 11.54 per cent, respectively. However, some firms demonstrated an astounding improvement in net sales. These include Zen Technologies, CESC Ventures and Infibeam Avenues, which reported growth in net revenues of 136.68 per cent, 119.21 per cent and 78.07 per cent, respectively.

Presently, the margins in the IT sector are under pressure primarily on account of cross-currency tailwinds. Wage hikes, rising visa costs and investments are exerting pressure on margins. On an average, the operating profits of companies operating in this sector exhibited growth of 17.51 per cent YoY in FY19. Majesco particularly stood out as its operating profit surged by a whopping 321.15 per cent to Tata Rs.95.18 crore in FY19. Cigniti Technologies, D-Link (India) and R Systems International reported a growth in operating profit of 155.11 per cent, 152.03 per cent and 73.29 per cent, respectively.

On an average, the net income in the sector rose by 13.37 per cent YoY in FY19. Infibeam Avenues, Intellect Design Arena and Cigniti Technologies reported growth in PAT of 188.72 per cent, 148.30 per cent and 358.02 per cent, respectively. Vakrangee, Matrimony.com, Aptech and Allsec Technologies recorded a fall in net income by 96.29 per cent, 41.62 per cent, 72.72 per cent and 73.68 per cent, respectively.

Our observation is that usually, the first quarter of a fiscal year is seasonally strong. However, the revenue momentum is weakening in FY20. Moving forward, investors should watch out for management commentary regarding the demand outlook. Deal wins and execution will improve revenue visibility. Although the prominent IT players boast a healthy deal pipeline, the pace of deal wins has certainly fallen owing to the subdued macroeconomic environment. The need of the hour is to see some improvement in demand in the domestic market as well as in the US.

Companies such as TCS seem to be on track for achieving double-digit revenue growth in FY20. Wipro kicked off FY20 with a slow start owing to volatility in the consumer vertical in Q1FY20.

The small-cap IT companies are looking at good prospects with the potential for substantial upside in stock performance and good valuations. The Indian IT and ITeS industry grew to US$ 181 billion in FY19. The exports from the industry rose to US$ 137 billion in FY19. Moreover, the domestic revenues (including hardware) climbed to US$ 44 billion. The decline in global client spending is likely to put the Indian IT sector under pressure. Although the global IT services spending is expected to cross the US$ 1 trillion mark to reach US$ 1.031 trillion in 2019, the pace of growth is likely to drop to 3.8 per cent in 2019 as against 6.7 per cent in 2018.

IT firms are well-known for indulging in share buybacks in order to return money to shareholders with ease, rather than shelling out dividends. However, the 20 per cent tax levied on buyback considerations less issue price has rendered buybacks less attractive. This is detrimental for the valuations of the IT sector. The buybacks enabled smart capital allocations, which helped IT companies achieve attractive valuations.

However, the tax imposed on buybacks has taken away the incentive to make share repurchases. The impact on TCS and Infosys will be limited. However, players like Wipro will face some challenges in compensating shareholders through the buyback route.

IT and IT-enabled services (ITeS) continued to be the top job creators in India in May 2019. Based on the data released by the Department of Industrial Policy and Promotion, the core competencies of the firms operating in the IT space succeeded in attracting significant foreign direct investments (FDIs). Noteworthy players such as Infosys, Wipro and TCS are diversifying their offerings and demonstrating commendable ideas in blockchain and artificial intelligence.

Overall, 2019 seems to be an arduous year for the IT sector as the services market is experiencing slowdown on the back of economic concerns such as Brexit and burgeoning trade war tensions. 

Metals

The metal sector plays a vital role in economic growth of the country. The sector has major importance by virtue of its role as raw material in almost every industry. India’s metal industry is driven on the back of huge deposits of natural resources in the form of minerals like copper, chromite, iron ore, manganese, bauxite and gold. The Indian metal industry is divided into two main divisions, namely, ferrous (iron-based) and non-ferrous (non-iron-based). The iron-based industry segment includes the manufacturing of steel such as carbon steel, ferro chrome steel and stainless steel, while the non-ironbased category includes the production of copper, tin, brass, lead, zinc, aluminum, and manganese. The main operations of these metal industries in India are mining of ores, refining of the ore, casting, alloying, sheet, and rolling into foils. 



The non-ferrous metal industry is led by Vedanta Ltd in terms of market cap. The company has its presence in aluminium, copper, zinc, etc. Aluminium is the second most used metal in the world after steel and the third most available element in the earth constituting almost 7.3 per cent by mass.

India has the seventh largest bauxite reserves of around 2,908.85 million tonnes. Bauxite is the key raw material for aluminium production. India’s aluminium production capacity has increased to 4.1 MMTPA, driven by investments worth Rs.1.2 lakh crore (US$ 18.54 billion). The total imports of aluminium and aluminium products in India during FY18 stood at US$ 3.55 billion, whereas in FY19, it reached US$ 4.16 billion.

National Aluminium Company (NALCO), a Central government owned entity, is set to join the club of million-tonne producers in the metal segment by 2020. NALCO is ready with investments of about US$ 3.72 billion for increasing its alumina, aluminium and power production capacities. In April 2017, NALCO readied about US$ 3.72 billion investments for increasing its alumina, aluminium and power production capacities. The consumption of aluminium in India is estimated at 3.4 million tonnes in FY17 and is forecasted to reach to 5.3 million tonnes by 2020. NALCO reported robust margin expansion to 25 per cent in FY19 from 15 per cent in FY18.

The sector gained substantially from global economic growth with a surge in demand from the user industries for both aluminium and copper. China controls about 50 per cent of the world production and consumption of both the metals.

Hindalco Industries reported 13 per cent revenue growth at Rs.130542.25 crore in FY19 over the last fiscal. The copper production fell by 46 per cent during FY19. This was mostly due to Hindustan Copper and Hindalco, which had low production due the planned shutdown of their smelters during the first half of the year. This created pressure on the overall margins and the company could not capitalise on strong performance in aluminium business. The margins stood at 12 per cent for FY19, which is same as FY18.

The ferrous metal companies reported strong topline growth. The largest steel firms such as JSW Steel, Tata Steel, SAIL, Jindal Steel & Power posted 16 per cent, 27 per cent, 14 per cent and 39 per cent revenue growth for FY19 over the last fiscal. In FY19, the finished steel production rose by 5.9 per cent YoY to 111 million tonnes on the back of consumption growth of 7.5 per cent to 98 million tonnes. An increase in demand from the user industries like infrastructure and construction, railways, consumer durables, among others, were the driving factors for the rise in steel output and consumption during the year.

Indian steelmakers had strong operational performance. The margins for FY19 were largely higher than what they were in the earlier fiscal. The strong performance was due to relatively strong domestic finished steel consumption growth. Imports increased by 4.7 per cent (0.4 million tonnes), much slower than what the market had feared last year in the wake of the imposition of steel import tariffs by the US. For FY19, JSW Steel and Tata Steel reported increase of 28 per cent and 40 per cent, respectively, in their EBITDA. 



JSW Steel has initiated huge capex programme with an aim to expand current capacity of 18MT to 24.7MT by FY21 and through addition of value-added products. This is expected to drive EBITDA margins and profitability growth, while maintaining balance sheet strength.

The share of exports to China has increased from 63 per cent during FY18 to 75 per cent during FY19 and share of imports from Japan has increased from 68 per cent during FY18 to 71 per cent during FY19.

Going ahead, as no major capacity is expected to come up from large steel players, while the small steel players are estimated to increase their output at a rate similar to last year, the finished steel production growth is likely to decelerate to 3%-4% during the year FY20. On the pricing front, the international steel prices are expected to be around USD 525-550 per tonne, mostly on account of stable demand growth. Considering this, we can expect global prices to witness an upward trend, if the current trend of higher raw material prices, especially iron ore, continues.  India’s aluminium production capacity has increased to 4.1 MMTPA, driven by investments worth Rs.1.2 lakh crore (US$ 18.54 billion). The total imports of aluminium and aluminium products in India during FY18 stood at US$ 3.55 billion, whereas in FY19, it reached US$ 4.16 billion.

Petroleum

As of April 1, 2019, the oil refining capacity of India stood at 249.4 million tonnes, making it the second largest refiner in Asia. India's current refining capacity comprises of 23 refineries—18 under public sector, 3 under private sector and 2 in a joint venture. Top three companies – Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Reliance Industries (RIL) - contribute around 66.7 per cent of India's total refining production from FY19. 



In terms of natural gas, at present about 16,788 km natural gas pipeline is operational and about 14,239 km gas pipelines are under development. Natural gas in India is mainly used to generate power, cooking fuel as piped natural gas (PNG), production of petrochemicals and manufacturing products in the fertiliser and steel industries.

As per the official data, India’s crude oil production fell over 4 per cent in FY19 after aging fields of state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) missed the target for the year. India produced 34.2 million tonnes of crude oil in FY19, down from 35.7 million tonnes in FY18, according to data released by the Ministry of Petroleum and Natural Gas. However, the natural gas production edged up to 32.9 billion cubic metre (BCM) in FY19, from 32.6 BCM in the previous year as ONGC produced 5.3 per cent more gas at 24.67 BCM.

We have considered top 25 companies from the sector based on market cap comprises. ONGC, Indian Oil Corporation (IOCL) and Bharat Petroleum Corporation Ltd (BPCL) are the companies with highest market capitalisation within the sector. The revenues of ONGC, IOCL and BPCL have grown in double digits. The revenue of these companies in FY19 grew by 25.2 per cent, 19.7 per cent and 21.9 per cent, respectively. ONGC’s net profit grew by 30.4 per cent yoy in FY19, however IOCL and BPCL net profit de-grew by 26.8 per cent and 10.7 per cent yoy in FY19. Some of the outperforming companies in this sector were Hindustan Oil Exploration and Jiya Eco-products. Both have shown tremendous growth of 444.3 per cent and 87.1 per cent, respectively, in revenues, while their net profits recorded growth of 313.9 per cent and 66.2 per cent, respectively.

Natural gas companies like GAIL, Indraprastha Gas, Adani Gas, Gujarat Gas and Confidence Petroleum performed well during FY19. The revenues of all these companies grew in double digits, recording growth of 39.3 per cent, 26.8 per cent, 25.1 per cent, 25.6 per cent and 65.5 per cent, respectively. The net profit of these companies too grew strongly by 24.3 per cent, 16.2 per cent, 38.9 per cent, 43.2 per cent and 142.2 per cent, respectively. However, companies like Deep Industries, Asian Oilfield Services and Aban Offshore de-grew in FY19 on yoy basis. Jindal Drilling staged a turnaround as it earned net profit of Rs.40.01 crore in FY19 as against net loss of Rs.19.27 crore in FY18. However, Chennai Petroleum turned into a lossmaking company with a net loss of Rs.219.3 crore in FY19 as against net profit of Rs.907.6 crore in FY18.

In FY19, the crude oil prices were too volatile. From April to September 2018, the crude oil prices ranged between $70-75 per barrel. Between October to December 2018, the price dipped to as low as $46 per barrel. Again, in the last quarter of FY19, the price had surged and the year ended with the price closing at $64 per barrel.

Considering the volatility of crude oil prices, the pressure on profit margins of both upstream and downstream oil companies is expected to continue going forward. Also, the CNG and PNG prices are rising, which would benefit the gas distribution companies. The growth in volumes would drive the toplines of these companies.

As per the IBEF data, the crude oil consumption is expected to grow at a CAGR of 3.6 per cent to 500 million by 2040 and the natural gas consumption is forecasted to increase at CAGR of 4.31 per cent to 143.08 million by 2040. Bharat Petroleum, Hindustan Petroleum and Indian Oil Corporation plan to spend US$ 20 billion on refinery expansions by 2022. 

Pharma 

India is considered as the largest provider of generic drugs globally. Companies engaged in the Indian pharmaceutical sector supply over 50 per cent of the global demand for various vaccines, supporting 40 per cent of generic demand in the US and 25 per cent of other medicinal demand in the UK. This sector includes companies conducting business operations related to pharmaceuticals and drugs, hospital and healthcare services, medical equipment and medical supplies. The Indian pharmaceutical market grew by 10 per cent year-on-year in February 2019. India’s pharmaceutical exports stood at US$ 15.52 billion in FY19. The pharma exports include bulk drugs, intermediates, drug formulations, biologicals, herbal products and surgicals. 



As part of the government initiatives for the sector, the allocation to the Ministry of Health and Family Welfare in the Union budget 2019-20 has increased by 13.1 per cent to Rs.61,398 crore .The Union Cabinet has approved the amendment to the existing foreign direct investment (FDI) policy in the pharmaceutical sector so as to allow FDI up to 100 per cent under the automatic route for manufacturing of medical devices, subject to certain conditions. The Government of India has also unveiled 'Pharma Vision 2020' which is aimed at making India a global leader in end-to-end drug manufacture. The approval time needed for functioning of new facilities has been reduced to boost investments and business opportunities in the sector. The government has also introduced mechanisms such as the Drug Price Control Order and National Pharmaceutical Pricing Authority so as to deal with the issues of affordability and easy availability of medicines in the markets.

The country’s pharma industry is forecasted to expand at a CAGR of 22.4 per cent over 2015–20 to reach US$ 55 billion. Receiving warning letters from USFDA stalls the business of the companies, but new product launches boost the revenues as has happened with some companies such as Sun Pharmaceutical Industries, Cipla, Lupin, Alembic Pharmaceuticals, etc. A double digit growth is expected in Q1FY20, with more focus on specialty business. As branded drugs receive patents, the sector's exports receive a boost. By 2020, the Government of India has aimed to make India a global leader in end-to-end drug manufacturing. The country’s biotechnology industry, which comprises of biopharmaceuticals, bio-services, bio-agriculture, bio-industry and bio-informatics, is forecasted to grow at an average growth rate of approximately 30 per cent per year and will reach US$ 100 billion by 2025. The medical device market is expected to grow by around US $50 billion by 2025. Having the potential to reach US$ 70 billion is thought to be an aggressive growth scenario by the market.

We have analysed data of 62 companies base on market cap to compare and comment about the financial performance. Considering the entire pharmaceutical sector, the total net sales increased by 13.82 per cent to Rs.240430.51 crore in FY19 from Rs.211246.71 crore in FY18. For FY19, the total operating profit for all 62 companies combined rose by 17.21 per cent to Rs.49833.27 crore as compared to Rs.42515.77 crore for FY18.

Their aggregate net income was Rs.22705.48 crore in FY19 which is an increase by 7.55 per cent as against the aggregate net income of Rs.21112.24 crore in FY18.

Valiant Organics, which is a company having business in pharmaceuticals and drugs, posted net sales of Rs.605.98 crore for FY19, which is the highest YoY net sales growth by 402.28 per cent among the 62 companies. For the same fiscal, the company's operating profit was Rs.177.71 crore having YoY growth of 572.99 per cent and PAT YoY growth of 642.26 per cent. Following it, Solara Active Pharma Science reported a YoY net sales growth by 147.44 per cent with net sales of Rs.1386.68 crore in FY19 and Rs.560.40 crore in FY18. Kilitch Drugs (India), a small company having market cap of Rs.223.40 crore, posted net sales of Rs.82.49 crore in FY19, a YoY growth of 61.71 per cent. For FY19, the company’s operating profit was Rs.7.01 crore, a YoY growth 32.82 per cent. It registered net income of Rs.3.83 crore. In FY19, the net sales of Nectar Lifesciences grew by 46.39 per cent YoY to Rs.2782.95 crore from Rs.1901.09 crore in FY18. The company in FY19 made an operating profit of Rs.264.26 crore and net income of Rs.47.60 crore, a YoY growth by 46.39 per cent and 11.69 per cent, respectively. Sun Pharmaceutical Industries has the highest market cap of Rs.89999.05 crore amongst the pharma companies in the data set, which has reported net sales of Rs.29065.91 crore in FY19, an increase by 9.73 per cent YoY. The company’s net income for the same fiscal was Rs.3209.32 crore and its operating profit grew by 12.47 per cent YoY to Rs.6307.59 crore. Cipla is another globally well-known pharmaceutical company whose net sales for FY19 increased by 7.51 per cent YoY to Rs.16362.41 crore. For the same financial year, Cipla’s operating profit rose by 9.59 per cent YoY to Rs.3097.31 crore and net income increased by 6.36 per cent to Rs.1509.61 crore

Plastic Products 

The plastic industry has been one of the fastest growing industries in the Indian economy. The whole 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 the plastic industry are construction, electrical and electronics, packaging, automotive, FMCG and textiles sector. Plastic industry is growing in recent years led by rapid urbanisation and expanding middle class. Plastic products are majorly divided into pipes & fittings, films & sheets, wires & cables and profiles. 



The major contributor to plastic products is pipes, which accounts for 70% of the total plastic products. The pipe division is further likely to grow led by rising government thrust on infrastructure, housing and irrigation sector. Other contributor of plastic products is furniture, which is currently struggling led by slower demand.

The plastic processing sector comprises of over 30,000 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.

The Indian plastic industry has 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 protect 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 23 companies in the plastic industry according to their market cap. During FY19, the aggregate sales of these companies grew by 7 per cent YoY. The aggregate operating profit of these companies grew by 11 per cent YoY. However, their aggregate PAT de-grew by 1 per cent YoY. Major PVC pipe maker, Astral Poly Technik reported 19 per cent YoY growth in terms of its revenue and 21 per cent YoY growth in operating profit in FY19. PAT also grew by 13 per cent YoY. The plastic major, Supreme Industries’ revenue increased by 13 per cent, whereas its operating profit remained muted. PAT grew by 9 per cent YoY in FY19. Finolex Industries also showcased robust performance with jump in revenue and operating profit by 9 per cent and 25 per cent, respectively, on YoY basis. PAT also jumped by 22 per cent YoY in FY19. Essel Propack also posted healthy numbers with jump in revenue and operating profit by 11 per cent and 7 per cent, respectively, on YoY basis. PAT also jumped by 8 per cent YoY in FY19. Kama Holdings delivered shining numbers with jump in revenue, operating profit and PAT by 37 per cent, 48 per cent and 40 per cent, respectively, on YoY basis in FY19.

In the recent Union budget, customs duty on certain plastic products has been increased from 10% to 15%. Also, basic customs duty on PVC increased from 7.5% to 10%. This would help the domestic plastic industry to further grow. The government initiatives to boost rural infrastructure is pushing the demand for PVC extrusions in the construction sector. The market for pipes has grown by 12% CAGR since 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, 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

Having the fifth largest power generation capacity in the world, India ranks third globally in terms of electricity production. India’s power sector is considered to be a very diversified sector as sources of power generation include conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power and also non-conventional sources such as wind, solar, and agricultural and domestic waste. The demand for electricity in the country has been increasing rapidly with increase in population, manufacturing and business activities. Electricity production in India reached 108.90 billion units (BU) in April 2019. As of February 2019, total installed capacity of power stations in India stood at 350.16 gigawatt (GW). 



To redefine the power industry outlook, this sector is currently going through significant changes with the Government of India focusing on providing power for all with its slogan as ‘One Nation, One Grid’. As of September 2018, a draft amendment to Electricity Act, 2003 has been introduced which discusses about separation of content and carriage, direct benefit transfer of subsidy, 24x7 power supply as an obligation, penalisation on violation of PPA, setting up smart meters and prepaid meters and also regulations related to the same. The Government of India has approved a National Policy on Biofuels – 2018, which is expected to have benefits such as health benefits, cleaner environment, employment generation, reduced import dependency, boost to infrastructural investment in rural areas and additional income to farmers. As of September 2018, the Government of India has launched a voluntary programme for promoting energy-efficient chiller systems in India. It labels the energy performance by providing star ratings and it will be effective up to December 31, 2020.

As renewable energy is a fast emerging major source of power in India, the Government of India plans to double wind power generation and solar power generation capacity. The Government of India aims to achieve 175 GW capacity in renewable energy by 2022, which includes 100 GW of solar power and 60 GW of wind power. The Union government has been preparing a 'rent a roof' policy to supporting its target of generating 40 gigawatts (GW) of power through solar rooftop projects by 2022.

To analyse the sector, we have chosen the top 23 companies based on market cap. The total net sales for the sector in FY19 was Rs.3,05,976.21 crore, which is an increase by 10.61 per cent compared to the net sales in FY 18, which was Rs.2,76,631 crore. In FY19, the total operating profit also increased by 8.79 per cent to Rs.1,05,560.98 crore from Rs.97,030.42 crore in FY18. The total net income of the 23 companies rose by 1.39 per cent to Rs.21,385.86 crore for FY19 from Rs.21,091.82 crore in FY18.

Comparing the companies having highest net sales YoY growth, Adani Green Energy for FY19 reported net sales of Rs.2057.98 crore with YoY growth of 137.07 per cent and gained operating profit of Rs.1471.34 crore for the same fiscal having YoY growth of 114.61 per cent. Adani Transmission had net sales growth of 85.21 per cent YoY at Rs.7305.45 crore for FY19. The company’s operating profit for FY19 was Rs.2858.07 crore, which is YoY growth of 1.13 per cent and the net income was Rs.559.20 crore. Following the two Adani Group companies, Nava Bharat Ventures posted a YoY growth of 32.19 per cent for net sales of Rs.3103.46 crore in FY19. The company gained an operating profit of Rs.1328.07 crore, which is a YoY growth of 67.48 per cent for FY19 and for the same fiscal, its net income was Rs.464.79 crore. Ravindra Energy, a company having a small market cap of Rs.380.42 crore, has posted net sales of Rs.518.19 crore for FY19.

Among the set of 23 companies, NTPC and Power Grid Corporation of India have the largest market cap of Rs.135,011.23 crore and Rs.107,666.11 crore respectively. For FY19, NTPC registered net sales of Rs.95,742.03 crore with a YoY growth of 8.69 per cent. The company posted a net income of Rs.11961.38 crore with operating profit of Rs.24109.51 crore, having YoY increase by 7.53 per cent for FY2018-19. Power Grid Corporation of India reported net sales growth of 17.04 per cent YoY at Rs.35,059.12 crore. The company’s operating profit in FY19 was Rs.30,220.54 crore, with a YoY growth of 15.71 per cent and the net income for the same financial year was reported at Rs.12431.57 crore. 

Service

The economic segment that provides services to its consumers is the tertiary sector, which is the highest contributor to the GDP in almost every economy. The tertiary sector includes a wide range of businesses, financial institutions, schools, restaurants, etc. For an economy to flourish, it is very pertinent for the three sectors (primary, secondary and tertiary) to grow and evolve. In the developed countries, the service sector is more dominant than the others and, over the years, in terms of output, income and employment, the service sector is turning out to be the fastest growing sector that is contributing a huge chunk to the GDP. If we were to compare the productivity per worker in the service sector to that of the agriculture and industrial sector, we will find that the service sector has higher productivity. If the agricultural sector exhibits stagnancy, the enormous number of the new activities that are constantly being added to the service sector can aid the economic growth of the country. Hence, it is evident that the service sector is playing a major role in the economic development of any country.


The service sector requires relatively less capital investment than the other sectors. Also, a majority of the activities of the service sector require relatively lesser space for operations as it is a more of a knowledge-intensive sector as the inputs of human resource are necessary for the growth of the sector.

Service sector in India

The service sector contributes more than 50 per cent to the Indian GDP since early 2000s. According to Statistics Times Feb 2019 report, the services constitute 61.5 per cent of the GDP, which is approximately $1500 billion, thereby putting India in the eighth position in the world. The tertiary sector was contributing only around 30 per cent in 1950s, which then rose to 42.8 per cent in 1990s and in 2007, the service sector jumped to contributing 53 per cent, while the primary and secondary sectors contributed 18 per cent and 29 per cent, respectively. According to latest reports, we have service sector contributing 61 per cent to the GDP and this highlights the fact that the share of tertiary sector to the GDP has been constantly rising over the years. We can also say that this shows the country is moving from being a developing nation to being a developed country. India stands as one of the leading economy because its growth has been led by the service sector. It plays a larger part in the Indian economy not only in terms of employment potential, but also due to its contribution to national income. Service sector is the most dynamic sector in the economy and has remained the key driver of economic growth along with being a major contributor to GVA and the export basket of the Indian economy.

Factors leading to growth in service sector

The influence of high demand and supply has led to the growth of the service sector. On the demand side, the high requirement of the input usage from the other sectors comes into play. On the supply side, many reforms of 1990s followed by liberalisation policies have induced the growth of the tertiary sector. The liberalisation in trade is responsible for the development of finance, transport, communication, etc. among other service sectors. Also, with the increase in demand for education for employability purposes and with many educational reforms and allowances pushing the young Indians to go for quality education, the service sector is meeting the equilibrium of demand and supply.

Service sector statistics (Economic Survey 2018-19)
Services sector (excluding construction) has a share of 54.3 per cent in India’s GVA and contributed more than half of GVA growth in 2018-19.
The IT-BPM industry grew by 8.4 per cent in 2017-18 to US$ 167 billion and is estimated to reach US$ 181 billion in 2018-19.
The services sector growth declined marginally to 7.5 per cent in 2018-19 from 8.1 per cent in 2017-18.
Accelerated sub-sectors: Financial services, real estate and professional services.
Decelerated sub-sectors: Hotels, transport, communication and broadcasting services. 



Financial performance


To further understand the service sector, we have studied the financials of top 38 companies belonging to the service sector chosen as per market cap. These companies put together have posted positive growth in FY19 in terms of net sales, operating profit, net profit and EPS.

The aggregate net profit has grown by 15 per cent in FY19 to Rs.2,26,770.49 crore from Rs.1,97,900.65 crore in FY18. Grandeur Products has emerged as the top company in terms of net sales growth of 4000 per cent to reach Rs.3.80 crore in FY19 as against Rs.0.09 crore posted in FY18. Sat Industries and MMTC posted net sales growth of 128 per cent and 78 per cent, respectively.

In terms of operating profit, MMTC has registered the highest growth among the 40 companies in FY19 at Rs.182.18 crore, up by over 700 per cent from Rs.21.10 crore posted in FY18. Sat Industries follows MMTC by posting a growth of 226.83 per cent in operating profit to reach Rs.32.68 crore in FY19 as compared to Rs.10 crore posted in the previous fiscal. Spice Mobility posted a growth of 172 per cent in operating profit at Rs.15.43 crore in FY19 versus Rs.5.66 crore in FY18.

In terms of PAT growth, Future Retail emerges as the winner by posting Rs.732.81 crore in FY19, up by 6000 per cent from Rs.11.31 crore posted in FY18. Riddhi Siddhi Gluco Biols and Future Enterprises come in after Future Retail by posting growth of 675 per cent and 409.58 per cent, respectively. 


Textiles

The Indian textile industry is one of the leading textile industries in the world. The industry has been through several phases since Independence, transforming from being an unorganised industry to being an organised one, post liberalisation of the economy in 1991. Liberalisation gave new impetus to the sector and opened the doors for its quite successful journey up until now. 



The Indian textiles industry is extremely diversified, ranging from the hand-spun and hand-woven textiles sectors at one end of the spectrum to the capital-intensive sophisticated mills sector at the other end. The textile industry is very closely linked to agriculture and the ancient culture and traditions of the country, which makes the Indian textiles sector unique in comparison to the industries of other countries.

India is a global manufacturing hub for textiles and apparel, coping with growing international and domestic demand. The global textiles market is projected to reach $1.3 trillion by 2025. Similarly, the domestic market for apparel is projected to reach $59.3 billion by 2022 and the textiles market is tipped to grow to $223 billion by 2021. The industry is critical in terms of income and employment generation. The textile industry currently contributes 5 per cent to India’s GDP.

Government initiatives

Government doubles import duty on 328 textile items to 20%: The government has doubled import duty on as many as 328 textile products to 20 per cent to provide a boost to manufacturing of these items in the country.

Ministries of Power & Textiles join hands for SAATHI initiative: Ministries of Power and Textiles have joined hands under SAATHI (Sustainable and Accelerated Adoption of efficient Textile technologies to Help small Industries) initiative. Under this initiative, Energy Efficiency Services (EESL), a PSU under Ministry of Power, will procure energy efficient power looms, motors and rapier kits in bulk and provide them to small and medium powerloom units at no upfront cost.

Govt plans 'super premium' segment for Khadi: The government plans to create a 'super premium' segment for Khadi in a bid to increase sales of products made using the hand-woven fabric by tapping the luxury customer base. For this, the government will first make a list of actual super premium Khadi products which are already being manufactured in other parts of country and try to showcase that in one place so that youngsters who are looking for stylish clothes can opt for super premium Khadi products.

Textile policy for 2018-23 gets cabinet nod: The Union cabinet has given its nod to the new textile policy for 2018-2023, which aims to create over 10 lakh jobs in the next five years and would double the farmers' income by the year 2023.

Hurdles and Challenges

The financial crisis of NBFCs has hit the Indian textile industry. The unavailability of working capital has restricted companies from capacity expansion and made servicing of existing loans difficult. The MSMEs form a large part of the textile sector which largely used NBFCs for working capital as the commercial banks were slow in extending credit.

Another important issue is the rising import from Bangladesh. CMAI says the cumulative average growth rate of apparel shipment from that country is 52 per cent. Large retailers are allegedly importing apparel made of Chinese fabric from Bangladesh at nil duty, under our free trade agreement with the latter country. However, the same agreement does not permit duty-free export from here.

Another serious concern is that 60 per cent of Indian textiles are cotton-based and cotton cultivation consumes 25 per cent of the world’s pesticides. The wet processing of textiles generates a huge quantity of waste sludge and chemically polluted waters. In addition, textile is the third biggest contributor of dry waste in most Indian states.

Despite the multiple challenges, the Indian textile industry has the capacity to produce a wide variety of products suitable for both domestic and global markets.

STRENGTHS
1 Huge capacity of textile production  
2 
Availability of enormous work force
Entrepreneurial Skills
Low import content
Humongous domestic market
Efficient multi-fiber raw material manufacturing capacity

WEAKNESS
Cut throat global competition  
Use of obsolete manufacturing technology  
Cost of production is much higher relative to other Asian countries
Imports of cheap textiles from Asian countries
Wide existence of unorganized and decentralized sector.     

Financials

We have taken the top 40 companies as per market cap to study the sector. In terms of aggregate net sales for FY19, there is 8 per cent expansion. However, the operating profit of the sector in FY19 has improved significantly and turned around with an operating profit of Rs.9012.06 crore from an operating loss of Rs.4,543.78 crore. The aggregate PAT has however fallen significantly by 31 per cent to Rs.909.87 crore in FY19 from Rs.1,315.04 crore in FY18. According to net sales growth, Swan Energy has registered the highest growth of 157 per cent YoY, followed by Bombay Dyeing & Manufacturing Company posting a growth of 64 per cent. In terms of operating profit, Pearl Global tops the list with a jump of 248 per cent growth, followed by Swan Energy.

Conclusion

The Indian textile industry is set for strong growth due to both strong domestic consumption as well as export demand. The measures taken by the government to increase the import duty on various textile and apparel items will help in further reducing the imports in the coming months. The rising per capita income, favourable demographics and a shift in preference to branded products are likely to boost demand. However, there are some challenges the industry faces in terms of production and technology because a lot of small-scale players do not have fiscal support. Besides, stiff competition from other home textile exporting nations such as China, Vietnam, Pakistan and Turkey is expected to continue.

Looking ahead, budget 2019 grant for textile & apparel is budgeted at Rs.4,831.48 crore, which is approximately 30.41 per cent lower than the previous year’s revised grant. In terms of percentage change, the maximum change in grant is for the Integrated Wool Development Programme, which has witnessed a jump of about 447 per cent to Rs.29 crore. In terms of value, the maximum grant is for procurement of cotton by Cotton Corporation of India (CCI) under the Price Support Scheme, which is 118 per cent higher than the last year, and stands at Rs.2,017.57 Crore. It also has a maximum share of 42 per cent in overall grant for textiles. For handicraft development programme, the grant has been increased by about 18.9 per cent to Rs.286.17 crore, while for silk and jute industries, the grant has been increased by 23.2 per cent to Rs.740 crore and Rs.34.55 crore, respectively. The power loom sector got an increase of 49.8 per cent to Rs.159.08 crore in the total
  

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