Top 1000 Companies Financial Review For FY22

Economic & Sectoral Review

Methodology

We bring you the Vital Financial Data of Top 1,000 companies categorised by market capitalisation, as these are the stocks where liquidity is higher, and they represent a substantial portion of the trade. These companies are then categorised into 24 sectors to provide you with an insight into the general trend of the financial performance for the first half of FY22. The raw data has been sourced from Accord Fintech Pvt Ltd (Ace Equity). The focus of financial data was more on revenue and profitability as many companies do not provide a balance sheet on a half-yearly basis. We hope that our readers get an overall perspective of the different sectors so that they are able to take stock and sectoral calls effectively!

Compiled By - Anthony Fernandes, Armaan Madhani, Shreya Banthia, Shreya Chaware, Shruti Dahiwal, Subramanian K, Vishwajeet Bhandigare
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Agriculture

What comes naturally to our mind when we think of a crucial sector in Indian economy? It’s none other than agriculture. Agriculture has been at the roots of the Indian economy, not because of its contribution to the GDP but simply because of the sheer number of population engaged in the occupation. According to Economic Survey 2021, about 54.6 per cent of the total workforce in the country is still engaged in agricultural and allied sector activities which accounts for approximately 17.8 per cent of the country’s gross value added (GVA). 

In fiscal 2021, the agriculture sector too was greatly impacted by the pandemic. Shortage of labour supply and slow movement of farm inputs during the harvest season adversely impacted the sector. Nevertheless, the sector demonstrated a strong and resilient performance and cloaked a growth rate of 3.4 per cent in FY21. India is the world’s second-largest producer of rice, wheat, sugarcane, cotton, groundnuts and fruits and vegetables. It also produced 25 per cent of the world’s pulses as of last decade until 2019. The sector is highly dependent on seasonal rainfall.

Lower productivity resulting from farmers’ illiteracy and lack of training, poor infrastructure, inefficient distribution system, etc. has been a major challenge. The farm yields have historically been lower than the world averages. Farmers are slowly drifting from traditional farming to horticulture and livestock (poultry, dairy and fishery) production. India continues to be the largest producer of milk in the world. India accounts for 7.8 per cent of global fish production which makes it the second-largest fish producer.

EID Parry (India) Ltd., the largest company in the sector in terms of market capitalisation, is engaged in the business of sugar and nutraceuticals. It reported 13.58 per cent growth in its net sales of 11,332.9 crore in H1FY22 compared to 9,978.3 crore in H1FY21. The company’s net profit witnessed growth of 8.56 per cent to Rs 748.76 crore in H1FY22 from Rs 689.7 crore in H1FY21. Bombay Burmah Trading Corporation Ltd., which is engaged in diverse agricultural activities such as tea and coffee plantations, dairy products, horticulture and others, recorded a growth of 3.11 per cent on YoY basis for H1FY22. The net profit of the company declined 14.77 per cent from Rs 880 crore in H1FY21 to Rs 750 crore in H1FY22.

Balrampur Chini Mills Ltd., the second-largest sugar company in India by market capitalisation of Rs 6,441 crore, recorded de-growth of 13.5 per cent in its net sales of Rs 2,354.27 crore in H1FY22 as against Rs 2,720.13 crore in H1FY21. The company’s net profit decreased by 26.16 per cent to Rs 153 crore from Rs 207 crore in the corresponding period previous year. The sugar stocks witnessed a sharp bull rally in H1FY22. It was at the end of April this year that the sugar stocks picked up pace and in mid-June many of them had hit new 52-week highs. India is the second-largest sugar producer following Brazil.

A production decline from Brazil uplifted the spirits of sugar stocks in India. Since the majority of population engaged in the farming comprises marginal farmers who struggle to have two meals a day, government support is a prerequisite. Various announcements have been made by the government under the Atma Nirbhar Bharat Abhiyan. It has announced an agriculture infrastructure fund of Rs 1 lakh crore to undertake various agricultural infrastructure projects. In October 2021, the Union Ministry of Agriculture and Farmers Welfare announced that 8,20,600 seed mini-kits will be distributed free of cost in 343 identified districts across 15 major producing states under a special programme. This programme is expected to bolster production and productivity by speeding up the seed replacement rate and eventually, help in increasing farmers’ income.

Several measures have been initiated by the government to increase the productivity of livestock, which has resulted in increasing the milk production significantly. The government has also announced stimulus packages of Rs 15,000 crore to boost the animal husbandry segment. As for the September 2021 exports of agricultural produce, India has made a significant achievement of growth of 21.8 per cent in the export of agricultural and processed food products in April- August 2021-22 over the same period of 2020-21. The strong performance of agriculture exports in H1FY22 has brightened the future prospects for this sector. In FY21, exports stood at USD 290 billion. The government expects the export target of USD 400 billion for the year to exceed in the second half of the fiscal 2022. The sector is expected to continue its growth momentum in H2FY21 and H2FY22.

Automobile

The problems faced by the automobile industry do not seem to end. While economic activities have gained traction, the industry is beset with the woes of rising commodity prices, upcoming fuel efficiency and BS-VI Phase II regulations, shortage of shipping containers and import restrictions, all of which have marred the profitability of automobile companies. As per the latest data by the Society of Indian Automobile Manufacturers (SIAM), the total production of passenger vehicles, commercial vehicles, three-wheelers, two-wheelers and quadricycles in April-March 2021 was 2,26,52,108 units as against 2,63,53,293 units in April-March 2020, registering a decline of 14.04 per cent YoY.

During this period, sales of passenger vehicles (PVs) in the domestic markets declined by 2.24 per cent YoY to 27,11,457 units as against 27,73,519 units in the same period last year. Commercial vehicle (CV) sales too saw a decline of 20.77 per cent with 5,68,559 units being sold in April-March 2021 compared to 7,17,593 units in the year-ago period. Similarly, three-wheeler sales during the period de-grew by 66.06 per cent YoY and two-wheeler sales were down by 13.19 per cent YoY to 1,51,19,387 units from 1,74,16,432 in the April-March 2020 period. The disruptions brought about by lockdowns across the globe adversely affected the export sales as well.

Passenger vehicle (PV) exports from India declined by 38.92 per cent to 4,04,400 units in the April-March 2021 period as against 6,62,118 units in the year-ago period. Similarly, commercial vehicle shipments saw a decline of 16.64 per cent to 50,334 units from 60,379 units in the same period of 2019-20. While the YoY sales in FY21 may not seem appealing, the performance in H1FY22 tells a different story. An analysis of H1FY22 results of 13 listed automobile companies forming part of the top 1,000 companies listed by market capitalisation shows that the net sales and other operating income of these companies grew by approximately 47 per cent YoY on an average.

Among these, Eicher Motors posted the highest PBIDT except other income rise of 75.39 per cent YoY and was followed by TVS Motor Company which reported a PBIDT except other income growth of 63.35 per cent YoY. Also, all the four companies operating in the two and three-wheeler segment posted healthy YoY growth in net profits with TVS Motor Company reporting a stellar growth of 5.045 per cent YoY. Further, owing to strong rural sentiments caused by near normal monsoons and back-to-back forth healthy crop output during this kharif season, the demand for tractors remains strong.

Moreover, normalisation of economic activities and preference for personal mobility amid the pandemic is expected to drive the demand for passenger vehicles and commercial vehicles. Speaking about the industry trends, the latest trend emerging in the industry is of automobile companies placing their bets on electric vehicles (EVs). The demand for EVs is increasing and the EV market is estimated to reach a valuation of Rs 50,000 crore by the year 2025. Many companies have announced their plans for introducing their EV models in the market. The rising trend of EV is supported by the government as it aims to decrease carbon emissions and reduce dependency on conventional fuels such as petrol and diesel.

Also, in order to make India a global manufacturing and research and development hub, the government has taken several initiatives. The Automotive Mission Plan (2016-2026), a joint initiative of Government of India and the Indian automotive industry reflects the government’s support to the automobile industry. This plan aims to create 6.5 crore jobs and contribute over 12 per cent to India’s GDP. The government has allowed 100 per cent foreign direct investment (FDI) under the automatic route to encourage foreign investment in this sector. It has established National Automotive Testing and Research and Development Infrastructure Project centres under which five testing and research centres have been set up in the country since 2015.

The National Automotive Board is another initiative to connect the industry with the government. The board is a coordinating authority between all departments and bodies related to the automobile industry and it will frame guidelines on various issues. Moreover, the introduction of the voluntary vehicle scrappage policy, slashed custom duty and tax exemption for foreign investment in infrastructure in Union Budget 2021-22 reiterates this support. The Indian automotive industry is expected to reach USD 300 billion by 2026. The rising average household income, the government’s self-reliant India initiative and increasing focus on research and development is expected to aid the industry’s growth.

Automotive Ancillary

The automotive ancillary industry includes companies that provide supporting equipment to the primary products of a vehicle OEM. This support may be in the form of tyres, batteries, brakes, suspension, etc. Such industries enable vehicle companies to focus on their core competencies while they are able to produce quality parts they specialise in. The high growth prospects of the automotive ancillary industry make it one of the sunrise industries in the Indian markets. The Indian automotive components industry accounts for 2.3 per cent of the Gross Domestic Product (GDP) and employs as many as 1.5 million people directly and indirectly.

It is an attractive destination for investment owing to a stable government framework, increased purchasing power, a large domestic market and an ever-increasing development in infrastructure. The foreign direct investment (FDI) inflow into the Indian automotive industry during the period April 2000-June 2021 stood at USD 30.51 billion as per the data released by the Department for Promotion of Industry and Internal Trade (DPIIT). The Government of India’s Automotive Mission Plan (AMP) 2006-2016 has come a long way in ensuring growth for the sector in the past.

The government has now come up with Automotive Mission Plan (AMP) 2016-26 which will help the automotive industry to grow and will benefit the Indian economy by increasing the contribution of the automotive industry in the country’s GDP to 12 per cent, creating around 65 million incremental direct and indirect jobs while applying an end-of-life policy for old vehicles. As a result, the Indian automotive industry is expected to achieve a turnover of USD 300 billion by 2026 and is expected to grow at a CAGR of 15 per cent from its current revenue of USD 74 billion.

On September 15, 2021, the government approved a production-linked incentive (PLI) scheme for automobile and automotive components with a budgetary outlay of Rs 25,938 crore (USD 3.50 billion) to boost domestic manufacturing capacity, including the production of electric and hydrogen fuel cell vehicles. This moves aims to push forward India’s transition to clean energy along with accelerating India’s share in the global automotive trade (unit production and components). The PLI scheme for the automotive industry will be implemented over a period of five years, starting from FY 2022-23. Therefore, the long-term prospects of the industry remain on a strong footing.

The pandemic dealt the automotive sector, and by extension, automotive ancillaries, a hammer blow in FY21 that put the entire supply chain in disarray. The entire industry took significant time to stabilise again post the gradual unlocking of the economy but as sales and production started improving quarter on quarter, the first half of FY22 saw the industry once again confronted with another round of disruptions due to the second wave of the pandemic that hit the country. This made it the second straight year that the turnover of the industry has slipped. Even as the country recovered from the second wave of the pandemic, the industry saw multiple headwinds on account of rising fuel prices and global semiconductor shortages.

Owing to the shortage of silicon chips, most of the global and domestic OEMs have announced significant production cuts. This has further led to an increase in waiting periods in many models and has resulted in a fairly muted festive season in FY22. In H1FY22, the industry on a whole witnessed 74 per cent top-line growth as compared to the same period last year.

The growth is however due to the low base last year and will look optically strong because of the exceptionally weak first half of the financial year 2020-21. However, headwinds such as sharp increases in commodity prices, supply chain disruptions partly arising from semiconductor shortage and premium freight expenses weighed in on industry margins in H1FY22 and the same is expected for the rest of FY22.

The margins of tyres and allied companies were in particularly affected the most as the tyre business is highly sensitive to movement in rubber and crude oil prices. Crude oil derivatives such as carbon black, synthetic rubber and nylon tyre cord fabric together make up nearly half the cost of producing a tyre. Other sub-sectors such as lubricants also fared relatively worse in H1FY22 as compared to H1FY21. Looking ahead, in the near term, semiconductor shortages and related supply disruptions remain a challenge. Given the fact that the automotive supply chain is long and complex, OEMs and Tier I companies typically follow just-in-time (JIT) inventory management practices.

According to reports, the semiconductor shortage is likely to continue at least till the end of the calendar year 2021. However, in the long term, the prospects of the Indian automotive component industry remain bright. The rapidly globalising world is opening newer opportunities for the transportation industry, especially while it makes a shift towards electric, electronic and hybrid cars, which are deemed more efficient, safe and reliable modes of transportation. This will only lead to newer verticals and opportunities for automotive component manufacturers.

Banking

A bank is a very important intermediary or link in the whole financial system that builds the economy. The banking sector in India is adequately capitalised and well-regulated by the Reserve Bank of India (RBI). The Indian banking system consists of 12 public sector banks, 22 private sector banks, 44 foreign banks, 43 regional rural banks, 1,484 urban cooperative banks and 96,000 rural cooperative banks in addition to cooperative credit institutions. As of August 2021, the total number of ATMs in India reached 2,13,570. The banking sector is exposed to hundreds of factors that have material impact on its functioning.

One such factor that greatly impacts the sector is the interest rate influenced by the RBI. During the pandemic period, the RBI had set the policy rate at 4 per cent in May 2020. It has maintained the same levels ever since to boost demand in the economy. RBI Governor Shaktikanta Das said, “This process has to be gradual, calibrated and non-disruptive while remaining supportive of economic recovery. The potential liquidity overhang amounts to more than Rs 13 lakh crore.” The total deposits stood at about Rs 157.56 trillion as of September 2021, which was recorded at Rs 154.52 trillion at the end of fiscal 2021.

On the other hand, bank credit has witnessed a slowdown at Rs 110.41 trillion as on September 2021 as it stood at Rs 111.57 trillion in FY21. While the lending rates have been down till now, the deposit rate cut has not been in the same fashion which has put banks’ net interest margins (NIMs) under pressure. As corporate lending has slowed down a bit, the upper cap on the lending rates is impacting the NIMs of large banks in India. Several government initiatives too have played an important role in the revival process of the banking sector and the economy as well. The Pradhan Mantri Jan Dhan Yojana (PMJDY), Atal Pension Plan and Pradhan Mantri Jeevan Jyoti Bima Yojana have been crucial.

As of October 2021, the PMJDY reached about 43.57 crore bank accounts and the deposits in the Jan Dhan accounts aggregated to Rs 1.45 trillion. As part of its digital drive across the nation, in H1FY22, Unified Payments Interface (UPI) recorded 3.65 billion transactions worth Rs 6.54 trillion. To strengthen infrastructure in villages, 2,04,000 point of sale (PoS) terminals have been sanctioned from the Financial Inclusion Fund by the National Bank for Agriculture and Rural Development (NABARD). The number of transactions through immediate payment service (IMPS) reached 303.76 million by volume and amounted to Rs 2.84 trillion in June 2021.

The RBI is consistently promoting security and integrity of the banking sector wherein it has taken many security measures to curb frauds and build trust among the citizens. The State Bank of India (SBI) is the oldest and the largest bank in India by interest earned. For Q2FY22, the net interest income (NII) stood at Rs 31,184 crore, up by 10.65per cent on a YoY basis. The NIM expanded by 16 bps to 3.5 per cent. The operating profit increased by 9.8 per cent to Rs 18,079 crore and the PAT grew by 66.7 per cent on a YoY basis to Rs 7,627 crore. For HIFY22 the PAT has grown by 57 per cent when compared to H1FY21.

The largest bank in India by market capitalisation is HDFC Bank. For H1FY22, the bank earned a total income of Rs 75,525 crore as against Rs 70,522 crore in H1FY21. The net profit for the first half of fiscal 2022 stood at Rs 16,564 crore which increased by 16.9 per cent against the first half of fiscal 2021. The bank is well-capitalised and maintained a capital adequacy ratio of 20 per cent, well above the required level of 11.075 per cent. The second-largest bank by market capitalisation and third-largest by revenues is ICICI Bank. For the quarter ended September 2021, its NIM stood at 4 per cent and the net interest income grew by 25 per cent on YoY basis to Rs 11,690 crore. The bank witnessed 30 per cent year-on-year growth in profit after tax at Rs 5,511 crore in Q2FY22.

The net NPA ratio has declined from 1.16 per cent on June 30, 2021 to 0.99 per cent as on September 30, 2021, the lowest since December 31, 2014. The bank maintains a high provision coverage ratio of 80.1 per cent. For H1FY22, the PAT was recorded at Rs 11,293 crore, which jumped by 25.3 per cent from H1FY21. The total capital adequacy ratio stood at 19.52 per cent. India’s digital lending has been impressive in recent times. The pandemic has forced people to adopt digital means for banking and financing purposes. India’s digital lending stood at Rs 5.6 trillion in FY18 and is estimated to reach Rs 75 trillion by FY23 driven by aggressive digital disbursements. By 2025, India’s fintech market is estimated to reach Rs 6.2 trillion.

Cement

Driven by Infrastructure Spend India is the second-largest producer of cement in the world. It accounts for more than 7 per cent of the global installed capacity. The country has a lot of potential for development in the infrastructure and construction sector and the cement sector is expected to largely benefit from it. Some of the recent initiatives, such as the development of 98 smart cities, are expected to provide a major boost to the sector. A significant factor which aids the growth of this sector is the ready availability of raw materials for making cement such as limestone and coal. India’s overall cement production accounted for 294.4 million tonnes (MT) in FY21 and 329 million tonnes (MT) in FY20.

In FY22, cement production in India is expected to increase by ~12 per cent YoY, projected to reach 381 MT by FY22, driven by rural housing demand and the government’s strong focus on infrastructure development. As India has a high quantity and quality of limestone deposits throughout the country, the cement industry promises huge potential for growth. Higher allocation for infrastructure – 34.9 per cent for roads, 8.7 per cent for metros and 33.6 per cent for railways in the Union Budget estimates of FY22, over FY21, is likely to boost the demand for cement.

Industry Trends
Cement stocks have corrected by 10-15 per cent during November 2021 owing to weak demand and rollback of hike in cement prices taken during early November. This provides investors the right opportunity as structural demand drivers such as government’s infrastructure investment, pick-up in residential demand and private sector capex pick-up remain intact. Cement demand is expected to improve from December with peak demand in Q4 FY 2022. The pick-up in demand would also enable cement companies to pass on the rise in power and fuel costs to end consumers.

Price Impact in Different Regions
As per the estimates, average pan-India cement prices in November 2021 have declined by 2.1 per cent month-onmonth (MoM). During November 2021, cement prices in the southern region reported the sharpest fall of 6.8 per cent MoM followed by the eastern and western regions where prices were down 2 per cent MoM and 1.6 per cent MoM. The average cement prices in the central region were up 1 per cent MoM and almost flat MoM in the northern region. Price hikes undertaken by the companies during early November were rolled back due to weak demand impacted by regionspecific headwinds like construction stoppage in Delhi-NCR, non-stop rains in South India, sand availability issues in the East India and Rajasthan apart from festive and marriage season onset. We expect cement demand to improve from December 2021, which should enable cement companies to pass on the increased power and fuel costs to the end consumers through price hikes.

Margin Decline Restricted
Coal and pet coke are the major raw materials required for manufacturing cement. On an average, pet coke and imported coal prices increased by Rs 2,500-3,000 per tonne QoQ. In addition, diesel prices too moved up by ~5 per cent QoQ. This hit the margins of all companies. However, due to low cost coal inventory, the hit on margins was lower than expected. Average cost has increased by ~Rs 147 per tonne (3.7 per cent) QoQ. Lower prices, lower volumes and higher fuel cost led the average EBITDA per tonne to decline by ~Rs 218 (~16 per cent) QoQ.

Financial Performance
Comparing the H1FY21 and H1FY22 performance, revenue of companies like UltraTech, Shree Cements, Dalmia Bharat, JK Cement and Ramco Cement grew by 32 per cent, 22 per cent, 18 per cent, 36 per cent and 18 per cent, respectively. Their net profit too grew significantly by 77 per cent, 39 per cent, 16 per cent, 25 per cent and 96 per cent, respectively.

Impact on Volume
Heavy rains in September hit the already weak quarter, and this resulted in 3-9 per cent QoQ decline in volumes for most of the cement companies. JK Cement, Ramco Cement and Heidelberg were exceptions with QoQ volume growth while UltraTech recorded flat QoQ volume. Star Cement, having exposure in the east, was severely affected and its volume declined by ~19 per cent QoQ. On a YoY basis, except Shree Cement and Star Cement, all companies recorded volume growth.

Capex Plans on Track
Most cement companies have reported that their capex plans are on track, but with a delay of 2-3 months in some cases due to the pandemic. Overall, the industry is expected to add 80 million MT of capacity over FY 2021-24 against similar growth in incremental demand.

Government Initiatives
As per the Union Budget 2021-22, the government approved an outlay of Rs 1,18,101 crore (USD 16.22 billion) for the Ministry of Road Transport and Highways, and this step is likely to boost the demand for cement. As per the Union Budget 2021-22, National Infrastructure Pipeline (NIP) expanded to 7,400 projects from 6,835 projects. The Union Budget allocated Rs 13,750 crore and Rs 12,294 crore for Urban Rejuvenation Mission, AMRUT, Smart Cities Mission and Swachh Bharat Mission, respectively, and Rs 27,500 crore has been allotted under Pradhan Mantri Awas Yojana.

Several government schemes such as MGNREGA, PM Garib Kalyan Rozgar Abhiyan and state-level schemes such as Matir Srisht in West Bengal and public work schemes in Jharkhand have aided demand. The cement sector has faced issues with raw material price hike but in upcoming quarters as the demand will pick up they would be able to pass that on to the customers and get benefited with price realisations. As infrastructure spending is huge, all these government initiatives would be captured in the coming years by construction companies which would be a great benefit to cement players.

Chemicals

Commanding a Global Presence

The Indian chemical industry is one of the largest worldwide. In 2020, it ranked fifth in the world in terms of revenue. With over 80,000 products, it is also one of the most diversified sectors in the country. Furthermore, it provides raw materials to many end-use industries and acts as a backbone in the development process of the nation. Chemical products can be broadly classified into base and specialty chemicals. The vast majority of chemicals manufactured in India are base chemicals. Specialty chemicals are derived from base chemicals and are also known as performance chemicals. These include paints, adhesives, agrochemicals, surfactants, water treatment chemicals, flavours and fragrances, to name a few. The consumption volume of these chemicals is lower in comparison to base chemicals as they are used based on application.

The pandemic set off a chain of events. For India’s specialty chemical industry, a key event was international companies collectively diversifying their supply chains away from China. This trend is called China Plus One or a strategy to consciously diversify production hubs away from China. From chemicals to manufacturing, several industries are heading out of China.

Exports and Imports

Bulk chemicals constitute 25 per cent of the market, while specialty chemicals is 21 per cent, petrochemicals is 19 per cent, agrochemicals is 15 per cent and biotech and pharmaceuticals including active pharmaceutical ingredients and others together constitute 20 per cent of the market. India imported Rs 4.2 lakh crore and exported Rs 3.07 lakh crore worth of chemicals and petrochemicals in the year 2020. Specialty chemicals, especially agrochemicals, dyes and pigments account for over 50 per cent of exports from India. Indian chemical imports have increased steadily in recent years with petrochemical intermediates accounting for over 30 per cent of the total chemical imports.

As international and domestic specialty chemical demand grew, listed players such as Deepak Nitrite, Vinati Organics, Navin Fluorine International, SRF, etc. focused on increasing capacity and introducing new products. This was not limited to the extraordinary year of FY21. Chemical players have a long-term vision to grow India’s position as a specialty chemical hub. Before the pandemic began, domestic specialty chemical makers had a 4.5 per cent share of the global market. In the next five years (FY21-25), this share is expected to double. Needless to say, listed chemical players will benefit. But which chemical verticals will be the luckiest and which companies should investors keep an eye on?

China Plus One

The pandemic set off a chain of events. For India’s specialty chemical industry, a key event was international companies collectively diversifying their supply chains away from China. This trend is called China Plus One or a strategy to consciously diversify production hubs away from China. From chemicals to manufacturing, several industries are heading out of China.

Fluorine in Spotlight

Heading into FY22, the Indian specialty chemicals industry was set to grow. Many pharmaceutical and automobile original equipment manufacturers (OEMs) relocated their fluorine supplies to India from China. This helped India emerge as a fluorination hub in FY21. During this shift, fluorine companies like Navin Fluorine International and SRF began backward integration of their raw materials instead of relying on Chinese supply. This helped them negotiate contracts with American and European customers who wanted to reduce dependence on China. Comparing the H1FY21 and H1FY22 performance, revenue of companies like Navin Fluorine International, SRF and Gujarat Fluorochemicals grew by 24 per cent, 51 per cent and 59 per cent, respectively. Their net profit too grew by 1.5 per cent, 58 per cent and 138 per cent, respectively.

Unexpected Rise in Domestic Demand

Many Indian pharmaceutical, automobile, agrochemical and packaging companies imported raw material chemicals from China. However, following the first wave in Q1FY21, these companies looked for import substitutes due to supply chain bottlenecks. This shift towards domestic specialty chemical makers helped several chemical companies. An end-use industry in which specialty chemicals found a use case is packaging, specifically packaging for FMCG products like packaged foods, hair care, and skincare products. Two specialty chemical companies that benefited from this were Deepak Nitrite and Vinati Organics. Comparing the H1FY21 and H1FY22 performance, the revenue of Deepak Nitrite and Vinati Organics grew by 93 per cent and 68 per cent, respectively. Their net profit too grew by 106 per cent and 20 per cent, respectively.

Humongous Growth in Petrochemicals

Post pandemic, the exporters to India shifted their focus to the more lucrative developed markets while the global movement and logistics issues further restricted the import of polyols and PG into India. In sum, the Indian market witnessed supplies falling short of demand while the prices peaked at unprecedented levels. Though the input costs also increased, the domestic players could reap better benefits, which were being denied to them in the past due to unrestricted imports through free trade agreements (FTAs). Two petrochemical companies that benefited from this were Manali Petrochemical and Supreme Petrochemical. Comparing the H1FY21 and H1FY22 performance, the revenue of Manali Petrochemical and Supreme Petrochemical grew by 151 per cent and 126 per cent, respectively. Their net profit too grew significantly by 726 per cent and 268 per cent, respectively.

Export Boosted Agrochemicals

Agriculture input companies had strong revenue growth led by a rise in volumes and pricing actions but margins came under pressure due to high input, logistic and energy cost. Companies witnessed volume growth primarily in the exports market and implemented partial price hikes. Domestic market witnessed muted volume and revenue growth due to erratic rainfalls. Export-oriented companies like UPL and PI benefited from it. Comparing the H1FY21 and H1FY22 performance, the revenue of UPL and PI grew by 14 per cent and 15 per cent, respectively. Their net profit too had a decent growth of 27 per cent and 16 per cent, respectively.

Margin Pressure in Paints

Raw materials required for manufacturing paints and adhesives indicates that most price hikes are driven by supply chain disruption. Almost all raw materials needed for paints are shipped via containers. Hence, falling container freight rates indicate supply chain easing, leading to price fall. At the same time, companies have already gone for price hikes to compensate for the rise in raw material costs and hence, margins can recover quite fast. Asian Paints and Kansai Nerolac Paints got affected very badly. Comparing the H1FY21 and H1FY22 performance, the revenue of Asian Paints and Kansai Nerolac paints grew by 53 per cent and 50 per cent, respectively. Their net profit too had a marginal growth of 9 per cent and 0.5 per cent, respectively.

Construction

The construction industry, which is a key driver for economic growth, can be classified into commercial construction, residential construction, industrial construction, infrastructure, transportation construction, and energy and utility construction. Owing to its ability to drive overall development, the industry has always been a key area of focus for the government. This industry braved the headwinds of supply chain disruptions, lack of labour, material supplies and logistics which were brought on by the pandemic. The pandemic blow came at a time when the economy was growing at a positive pace. The pangs of this blow rippled across other allied business such as ceramics and wood and glass products, causing an overall slowdown.

Fortunately, with the pandemic under control and the subsequent relaxation in restrictions, the situation has eased, leading to economic traction. The economy has started recovering and there is an increase in the project execution momentum. Let’s take a look at H1FY22 results of 72 listed construction sector companies that are a part of the top 1,000 companies listed by market capitalisation. During the period under review, the net sales of Kajaria Ceramics grew by 55.06 per cent while net sales of Cera Sanitaryware went up by 34.32 per cent YoY. In the real estate space, Mahindra Lifespace Developers exhibited a growth of 359.98 per cent YoY.

This performance was mainly an effect of the lower base of last year when the economy was still reeling from the after-effects of a nationwide lockdown. In the engineering-construction segment, KNR Constructions and Larsen and Toubro reported revenue growth of 39.94 per cent and 22.59 per cent, respectively. However, the PBIDT except other income margins of both these companies contracted on a YoY basis because of rise in the cost of materials consumed. The pandemic caused a paradigm shift in consumer demand. While the provision of ‘work from home’ was expected to be a temporary arrangement, the concept has now been embraced.

Now, many companies are moving towards a hybrid model of work, a combination of ‘work from home’ and ‘in-office’ mode of arrangement. Moreover, homes are also being used as an extension to kids’ study area, play area, workout zones, etc. These requirements, which cropped up during the pandemic, are boosting the demand for online furniture and interior design industry. Acknowledging the importance of the construction sector, in Union Budget 2021 the government allocated Rs 5.54 lakh crore, which was 34.5 per cent higher than last year, to infrastructure development, giving impetus to roads and highways, railways, urban infrastructure, power, port, shipping and airways.

In the budget, the government allocated Rs 54,581 crore to the Union Housing and Urban Affairs Ministry. In order to support initiatives such as ‘Housing for All’ and ‘Smart Cities Mission’, the government allocated Rs 13,750 crore to Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and Smart Cities Mission. Also, in order to fund infrastructure projects in India, in March 2021 the parliament passed a bill to set up the National Bank for Financing Infrastructure and Development. Also, the government’s focus on self-reliance is expected to aid growth. Going forward, these schemes are expected to revive the pandemic-affected construction sector.

Consumer Durables

Adapting to a Changing Lifestyle

Growth in Indian consumer durables, one of the best performing sectors lately, was largely driven by pent-up demand and the growing electronic ecosystem. The sector which had earlier come to a standstill in the face of the pandemic-induced lockdowns has experienced a rebound in the wake of government approval of 100 per cent FDI in electronic hardware, pent-up demand of the retail consumers, the predominance of digitalised lifestyle, government’s thrust on investment in rural electrification and affordable housing – all of which has opened up a Pandora’s box of demand for the allied industry. A pick-up in infrastructure activities is expected to provide additional impetus.

Electronics

Considered a cyclical industry, the consumer durables sector has delivered a CAGR of 26.8 per cent for H1FY22. Dixon Technologies, a leading the electronic manufacturing services (EMS) space in India, emerged as the biggest gainer in the sector at 30.4 per cent for the same period. The company continues to enjoy leadership in Indian market requirement of LED TVs and LED bulbs while increasing its footprint in the mobile space. The ambitious partnership of Dixon Technologies with Acer India to make laptops under the ‘Make in India’ initiative is further viewed as strengthening its market position. Its facility at Noida, UP will have a capacity to manufacture up to 5 lakh Acer laptops annually. The company boosts of a strong order book and is targeting revenues in the range of Rs 17,000-1,75,000 crore for FY 2023. The ODM business which constitutes 90 per cent of the revenue is steadfast while the new verticals of laptops in the telecom branch (JV with Bharti for IoT devices), LED monitors and mobiles have strong revenue triggers.

Air Conditioners

In India, AC penetration is still hovering at 6-7 per cent compared to 90 per cent in developed countries coupled with a large dominance of unorganised players. There is a huge potential for the segment to tap the potential given the tropical climate and rising temperatures. Key drivers of growth would come from brand equity, effervescent e-commerce and innovative product launches by the big players. The air conditioner segment saw a rebound with a growth in net sales of 40 per cent and a sharp jump in operating margins of 121 per cent on account of operating leverage The outperformer in terms of financial performance was the largest player, Voltas, continuing with its Tata legacy whereas Blue Star, Amber and Johnson Controls, despite their increased volume sales, failed to log net profits.

Domestic Appliances

Work from home culture imposed by the pandemic has resulted in an increase in the demand for home appliances. The growing housing needs and an equal urge for upgrades have fuelled the demand for domestic appliances. The refrigerator market in India is set to increase to 27.5 million units by FY25 from 14.5 million in FY19. The washing and laundry machines’ market in India is set to increase to 12.6 million units by FY25 from 7 million in FY19. Majority of the companies in the segment witnessed sales growth. Whirlpool failed to match up to the others in the segment. With supply chain disruption and increased inputs cost, the companies have resorted to price hikes. The present inflationary situation might limit the companies’ pricing powers, thereby negatively impacting profitability. For the half year of FY 2022, IFB, Somany Home Innovation and PG Electroplast Ltd. ended in negative net margins. Whirlpool and Bajaj Electricals were the laggards in H1FY22 while Orient Electric and Crompton Greaves were winners in terms of stock price performance for the half year.

Others

Special mention must be made of Tejas Network as Tata Group has made an open offer to buy 26 per cent stake in the company recently. The shares of the company have given a stellar performance, rallying 161 per cent in the last six months. Tejas Network’s strategic partnership with Tata Group has unleashed an opportunity to build a global top tier telecom equipment OEM. It also has a promising outlook for wireless RAN product.

Overview

Under the PLI schemes, the government has selected 42 air-conditioner and LED manufacturers with a committed investment of Rs 4,614 crore. The beneficiaries include the likes of Panasonic, Syska, Orient Electric, Amber Enterprises, Havells India, Dixon technologies, Voltas, and others. As many as 14 companies have been approved for IT hardware which includes Dixon Technologies as one of the beneficiaries under the scheme. The scheme is designed to make these large-scale electronic manufacturers globally competitive by offering incentive for five years on incremental sales from products manufactured in India. With increasing brand awareness as well as an insatiable need for upgrading the white goods of the urban consumer along with deeper penetration in the suburban and rural India, the consumer durables sector is well-positioned in the near future. The challenges are largely on account of rising inflation, raw material shortages and increased cost.

Electric Equipment

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

The Indian electrical equipment industry has a good mix of large private and public sector enterprises, multinational companies and small and medium companies. According to the International Energy Agency (IEA), electricity demand in India is projected to grow by nearly 5 per cent per year till 2040 as the economy is expected to overtake the European Union in terms of its installed capacity in the next two decades, depending on the progress of the current Stated Policies Scenario (STEPS). This directly translates into more demand for power distribution and transmission infrastructure in the economy along with the need to reduce the gap created between peak load and supply due to power outages.

"Electrification is a megatrend which is driving growth and creating new opportunities to participate in infrastructure development as well as demand emanating from semi-urban and rural markets."

To study the financials, we have taken the top 18 companies in this sector and compared their performance in H1FY22 with H1FY21. On the whole, this sector has registered phenomenal sequential growth across the parameters such as net sales and other operating income, profit before interest, depreciation and tax i.e. PBIDT and profit after tax. The aggregate top-line of the sector registered a vigorous growth of 49.70 per cent from Rs 18,138.90 crore in H1FY21 to Rs 27,153.19 crore in H1FY22.

PBIDT doubled from Rs 937.22 crore in H1FY21 to Rs 2,859.45 crore in H1FY22. Profit after tax soared by 3.6 times from Rs 462.48 crore in H1FY21 to Rs 1,668.16 crore in H1FY22. During 2021 the growth in the segment was mainly driven by increased investments in building a viable electricity network as well as supporting regulatory reforms. Going forward, the transmission tower industry is anticipated to see massive electricity demand along with the need to replace an ageing infrastructure. It will require new investments to develop an advanced new-age grid that can support the demands posed by rapid urbanisation and industrialisation.

Government schemes such as Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) which aims to promote electrification in rural areas and Integrated Power Development Scheme (IPDS) for strengthening of sub-transmission and distribution networks in urban areas have added impetus to this sector. The introduction of electric vehicles in India opens up a new dimension for power demand in the country. India is forecasted to have nearly 261 million EVs on the road by 2030. Accordingly, a proportionate number of charging stations and associated infrastructure will be required. Moreover, 100 per cent electrification of broad-gauge routes by December 2023 is expected to add to the demand for electrification of mass transit systems.

Electrification is a megatrend which is driving growth and creating new opportunities to participate in infrastructure development as well as demand emanating from semi-urban and rural markets. The recent impetus to creating a self-reliant India augurs well for the sector. The government’s push towards large capital outlays and uptick in the private capital investment cycle supported by low interest rate regime too will provide the much-needed stimulus. Expanding urbanisation, increasing housing demand, lifestyle improvements, higher disposable incomes, improved power availability, wider product distribution, credit availability and policy reforms such as GST are driving per capita consumption across categories. The ‘Make in India’ initiative and the new domestic sourcing norms for the power sector will also furnish a fillip to growth in the electric equipment sector.

Engineering

The engineering sector in India comprises 27 per cent of the total industrial factories and represents 63 per cent of the overall foreign collaborations, making it the largest industrial sector of the nation. India is considered to be one of the fastest developing nations and the engineering sector has played a crucial role to for India to achieve new heights. The sector is highly correlated with the manufacturing and infrastructure industries due to which it has gained strategic importance. The Engineering Export Promotion Council (EEPC) is a government-appointed body that encourages engineering goods, products and services primarily for exports.

According to a report of EEPC India, the sector contributes almost 25 per cent to India’s total exports and remains the largest foreign exchange earner. Additionally, the sector also contributes approximately 40 per cent of the total manufacturing export. However, uncertainties regarding global trade outlook followed by the pandemic pulled down engineering exports to Rs 5.48 trillion in 2020-21, dropping by 2.95 per cent. The total export target set by India for the fiscal 2021-22 is Rs 30 trillion and the total engineering export target set by India for fiscal 2021-22 is Rs 8.025 trillion. This clearly shows the importance of this industry and the impact it would have on overall exports.

In H1FY22, cumulative engineering exports have reached Rs 3.92 trillion, which witnessed a high growth of 61.4 per cent when compared to the same period in the previous year where exports stood at Rs 2.43 trillion. In the first half of fiscal 2022, India has achieved about 49 per cent of the target exports. The capital goods export which stood at just 12 per cent in 1956-57 has drastically changed to 50 per cent in 2020-21. The capital goods’ turnover is estimated to reach Rs 8.64 trillion by FY25. The engineering education system has provided a consistent supply of skilled labour which has helped to drive growth across the industry.

This has seen India become a favourite outsourcing market for global manufacturers due to its lower labour costs and better technological designing capabilities than those available in competing emerging markets. It has thus attracted huge foreign investments and the 100 per cent foreign direct investment (FDI) allowance has further boosted sectoral growth. With an aim to boost the manufacturing sector, the government has relaxed excise duties on factory gate tax, capital goods, consumer durables and vehicles. On the occasion of the 75th Independence Day this year, the government announced a huge investment of Rs 100 trillion in infrastructure building to stimulate economic growth and boost employment.

According to a CRISIL report, the government’s push towards better infrastructure, increased budgetary allocation and economic recovery will boost revenue of engineering and capital goods’ companies by 15 per cent in FY22. The government has also proposed to grant a sum of Rs 1 crore for MSMEs within 59 minutes through its online portal. Let us take a look at the financial performance of three large companies operating in the engineering space. Bharat Heavy Electronics Ltd (BHEL) is the largest engineering company by revenue. For H1FY22, the company recorded net sales of Rs 8,013.5 crore, which witnessed growth of about 40.9 per cent when compared to H1FY21.

However, the EBITDA was negative at Rs (505.5) crore and the net losses were recorded at Rs (514) crore. The higher input cost has impacted the bottom-line, especially in Q1FY22. However, in August 2021, BHEL secured its largest ever order amounting to Rs 10,800 crore from Nuclear Power Corporation of India Ltd. (NPCIL). The second-largest company by revenues is Bharat Electronics Ltd. The company recorded a strong performance in H1FY22. Ne net sales stood at Rs 5,327 crore, a growth of 9.4 per cent over H1FY21. The EBITDA grew by 20.77 per cent to Rs 934 crore. PAT jumped by 40.5 per cent to Rs 623 crore while in H1FY21 the PAT stood at Rs 443.5 crore.

L and T Technology Services Ltd is the largest engineeringbased company in India by market capitalisation. The company recorded growth of 19.84 per cent in revenues to reach Rs 3,126 crore in H1FY22, while in H1FY21 the revenues stood at Rs 2,608.5 crore. The EBITDA stood at Rs 667 crore which grew by 52 per cent on a YoY basis. PAT increased by 57.5 per cent to Rs 447.8 crore in H1FY22. With an increasing demand for capital goods and high investments in the form of foreign direct investments and government initiatives, the engineering sector is looking strong for the second half of the fiscal. The actual exports are almost well-aligned with the target exports.

Entertainment & Media

Media is consumed by audiences across demographics and various avenues such as television, films, out-of-home (OOH), radio, animation and visual effect (VFX), music, gaming, digital advertising, live events, filmed entertainment and print. The Indian media and entertainment (ME) industry is a potential uprising sector for the economy which is making significant strides. To the world, it has proved its dynamic qualities and the Indian ME industry is on the verge of a strong phase of growth on the back of rising consumer demand and improving advertising revenue.

According to a FICCI-EY report, the advertising to GDP ratio is expected to touch 0.4 per cent by 2025 from 0.38 per cent in 2019. India is currently the world’s second-largest telecommunications market with a subscriber base of 1.18 billion. The expanding India’s mobile economy now constitutes about 98 per cent of all telephone subscriptions. Globally, India stands to be the largest consumer of mobile data and the second-largest television market. The ME industry in India reached Rs 1.82 trillion in 2019, registering a growth rate of 9 per cent. The industry is expected to touch Rs 2.4 trillion by 2022.

Within the media and entertainment sector, animation, visual effects, gaming and comic (AVGC) sector is growing at a rate of approximately 29 per cent, while the audio-visual sector and services is rising at an approximate rate of 25 per cent. It is recognised as of one of the champion sectors by the Government of India. The AVGC sector is estimated to grow at around 9 per cent to reach Rs 3 lakh crore by 2024. According to market capitalisation, the top five companies in the sector are Zee Entertainment Enterprises, Sun TV Network, PVR, Network 18 Media and Investments and Saregama India.

Comparing the half yearly results of the market capitalisationwise top companies in the media and entertainment industry, a higher rise with a wide margin as compared to its peers in net sales and operating income was recorded by PVR of 238.12 per cent. A higher EBITDA and an attractive rise in net profit were recorded by Network 18 Media and Investments of 128.32 per cent and 1,843.12 per cent, respectively.

Some major trends can be observed in the entertainment industry 2021 and the coming years of 2022 and 2023:

• Expansion of Social Video: As 5G network coverage expands through 2021 and beyond, video streaming and download speeds will rise and this is likely to expand the social video usage. • Rise in Streaming Services: Video streaming revenue is expected to total over USD 108 billion per year by 2025. As such, most of the media companies want a slice of the pie. Paid over-the-top streaming platforms are gearing up to compete with Netflix, Hulu and Amazon Prime Video.
• Cloud Gaming: There are lots of important entertainment trends in the gaming industry happening right now but the most attracting trend is cloud gaming. There are about 3.2 billion gamers in the world and very few of them own the hardware required to play the latest, most demanding games. Cloud gaming solves this problem by streaming video game content from remote servers to your device.
• Podcasting: In 2022, it is predicted that 140 million people will listen to podcasts at least once per month. By 2023, that number is estimated to grow to 164 million listeners. Amateur podcasts are adding up each day and in fact there are now over 2 million active podcasts.
• The Korean Wave: The Korean Wave refers to the way South Korean culture is gaining international popularity. The trend has recently picked up more steam in the West.

The Telecom Regulatory Authority of India (TRAI) has pulled up its socks to approach the Ministry of Information and Broadcasting, Government of India, with a request to fast-track the recommendations on broadcasting in an attempt to boost reforms in the broadcasting sector. The government has agreed to set up a National Centre of Excellence for Animation, Gaming, Visual Effects and Comics industry in Mumbai. Additionally, the Indian and Canadian governments have signed an audio-visual co-production deal to enable producers from both the countries exchange and explore their culture and creativity. In October 2021, Prasar Bharati decided to auction its archives with the hope of monetising the content through sale to television and OTT platforms.

One of the main reasons to invest in this sector can be that India has a large broadcasting and distribution sector, comprising approximately more than 800 satellite TV channels. The distribution network consists of 6,000 multi-system operators, around 60,000 local cable operators, seven DTH operators and many IPTV service providers. The Indian ME industry is observed to ride on an impressive growth path. The industry is expected to grow at a much faster rate than the global average rate. Growth is expected in retail advertisement with several players entering the food and beverages segment and e-commerce gaining increasing popularity. Also, domestic companies are heading towards innovation and the rural region is predicted to be a potential profitable contestant.

Fertilisers

India is the second-largest consumer and the third-largest producer of fertilisers in the world. Presently, 25-30 per cent of the domestic demand is met through imports. The Indian fertiliser market reached a value of Rs 887 billion in 2020. The Indian fertilisers market is estimated to record a CAGR of 11.9 per cent during the forecast period of 2021-2026. The rise in fertiliser consumption has contributed majorly to the country’s sustainable production of food grains. Urea is one of the highest consumed fertilisers in India which accounts for about 60-65 per cent of the overall fertiliser consumption.

While India is the world’s second-largest consumer of urea, the Government of India is working toward increasing the production of urea so as to end imports by 2022 and achieve self-sufficiency in urea production. In the recent year, India produced urea of 246 LMT (lakh metric tonnes) and imported 98.28 LMT to meet the total consumption of around 350.98 LMT of urea. 

Overall sale of fertilisers in the country during 2020-21 was 612.19 LMT, up by 7.08 per cent relative to 571.67 LMT recorded in the corresponding period last year.

To study the financials, we have taken the top 10 companies in this sector and compared their performance in H1FY22 with H1FY21. On the whole, this sector has registered decent sequential growth across the parameters such as net sales and other operating income, profit before interest, depreciation and tax i.e. PBIDT and profit after tax. The aggregate top-line of the sector registered double-digit growth of 21.14 per cent from Rs 36,961.83 crore in H1FY21 to Rs 44,777.04 crore in H1FY22. PBIDT for H1FY22 stood at Rs 5,498.03 crore, soaring by 15.76 per cent relative to Rs 4,749.54 crore in H1FY21. Profit after tax exhibited robust growth of 30.15 per cent, from Rs 2,529.15 crore in H1FY21 to Rs 3,291.9 crore in H1FY22.

During the year, the government announced an additional allocation of Rs 65,000 crore to clear the subsidy backlog of the fertiliser industry. This move has significantly brought down the working capital requirement of the sector, thereby encouraging further investment in the sector. Despite the pandemic-inflicted disruptions panning out differently for different geographies, global fertiliser demand witnessed a sequential increase through the crop year 2020-21.

The Government of India is increasing domestic urea production by reviving five units, which can significantly bring down the country’s dependence on urea imports. By virtue of the government’s decision to exempt agriculture and its allied sectors from the nationwide lockdown restrictions along with the favourable climatic and monsoon situation, the domestic fertiliser sector was amongst one of the growth sectors in a pandemic-impacted year. While it had to overcome challenges like the shortage of labour, raw materials and transportation during the early stage, the government’s efforts and relaxations in ensuring seamless delivery of fertilisers to farmers resulted in healthy consumption growth.

Financial Services

Demand Triggers Good Growth
India is expected to be the fourth-largest private wealth market globally by 2028. The rise in income across strata is the driving force for increasing demand for financial services. It is estimated that more than 2,100 fintechs are currently in operation and the increased accessibility to internet and mobile has bolstered India’s position as one of the largest digital markets. On September 30, 2021, the Reserve Bank of India communicated that the applicable average base rate to be charged by a non-banking financial company – micro finance institutions (NBFC-MFIs) – to their borrowers for the quarter beginning October 1, 2021, will be 7.95 per cent. Our review of the sector is sub-categorised into asset management companies (AMCs), housing finance companies (HFCs), investment companies, non-banking finance companies (NBFCs), stock broking, term lending and others.

Housing Finance Companies
The key drivers for housing and real estate are largely attributed to government support and incentives towards affordable housing for all stakeholders through liquidity schemes and refinance facilities for NBFCs, tax incentive for builders and ‘infrastructure’ status to affordable projects, and tax deduction on principal and interest on housing loans to the home buyers. On the back of a sharp growth in annual income, low interest rates and rapid urbanisation are making housing affordability best positioned than it has been in the last 25 years.

HDFC Ltd. is the market leader (14-15 per cent share) and has witnessed strong traction in loan growth. While the first quarter witnessed an eruption of a second wave of the pandemic in India, there has been a sharp recovery in business in the second quarter. During H1FY22, individual loan approvals and disbursements grew by 67 per cent and 80 per cent, respectively, over the corresponding period in the previous year. The total loans sold during the six months ended September 21 amounted to Rs 12,621 crore.

The total assets under management (AUM) as of September 30, 2021 amounted to Rs 5,97,339 crore as compared to Rs 5,40,270 crore in the previous year – a growth of 11 per cent. Net interest margin for the half year ended September 30, 2021 stood at 3.6 per cent compared to 3.2 per cent during the corresponding period of the previous year. GNPA stands at 2 per cent while restructured book is at 1.4 per cent. With the annualised ROE on Tier I capital for the half year ended September 21 at 15.5 per cent, the outlook for HDFC is positive for the remaining half of the year.

NBFCs
Bajaj Finance Limited (BFL) is one of the leading non-banking financial companies (NBFCs) in India. It is engaged in lending across retail, SME and commercial customers and accepts public and corporate deposits. It witnessed a good AUM momentum at Rs 1,67,000 crore with a YoY growth of 22 per cent. PAT came in at Rs 1,481 crore with year-on-year growth of 53 per cent. ROE stood at 3.8 per cent and net NPA came in at 1.1 per cent. The cost of funds reduced to 6.77 per cent in Q2 FY22 as against 7.11 per cent in Q1 FY22. In the absence of a severe third wave, the company estimates its GNPA at 1.7-1.8 per cent and NNPA at 0.7-0.8 per cent by March 31, 2022.

The omnipresence strategy can be a game-changer for Bajaj Finance to acquire new customers and enjoy leadership in the credit lending market. The loan book for vehicle finance companies witnessed divergent trends with Cholamandalam Investment Finance Co. (CIFC) recording 4 per cent YoY growth. The loan book for Mahindra Finance (MMFS) declined 6 per cent YoY. The cost of funds for companies continued to decline, which is likely to support margins going ahead. It reduced by 60-120 bps YoY and 10-30 bps QoQ, respectively.

Asset Management Companies
AMCs witnessed revenue growth on the back of strong growth in AAUM with equity AAUM having a larger pie. Nippon Life India AMC is among the largest asset managers in India with an AUM size of Rs 4.01 lakh crore and a market share of 7.3 per cent as on September 30, 2021. It reported an increase of 21 bps YoY in market share during the quarter. Equity AAUM constituted 43 per cent and debt AAUM 29 per cent of the total AAUM with a change of +400 bps and -100 bps on YoY basis, respectively. Overall, the AMC universe under review witnessed net revenue growth of 27 per cent led by a strong growth in AAUM.

Others
Stock broking companies have reaped the benefits of unprecedented jump in new customer acquisition in the last six months driven by the bull rally. Overall, the jump in revenues was ~34 per cent in H1FY22 compared to H1FY21. Motilal Oswal Financial Services witnessed strong performance across all businesses in Q2 of FY 2022. The business reported highest ever revenue and profit for the quarter. Brokerage revenue growth was led by gain in cash market share coupled with strong growth in volume. In the retail broking business strong traction was witnessed in new clients’ addition driven by online digital acquisition. The asset under advisory (AUA) stood at Rs 2.9 trillion led by all-time high AUM across AMC, wealth and distribution businesses. The net worth crossed Rs 5,000 crore or Rs 50 billion.

Fast Moving Consumer Goods

The Indian fast moving consumer goods (FMCG) market is the fourth-largest sector in the country and is one of the most attractive in the world since consumption in India is growing at an unprecedented rate, thus offering plenty of investing opportunities. The sector is expected to increase at a CAGR of 14.9 per cent to reach USD 220 billion by 2025 from USD 110 billion in 2020. This growth rate can be attributed to drivers such as the growing youth segment and working women population, rising incomes and increasing purchasing power, higher brand consciousness, changing consumer preference, growing urbanisation, increase in the number of upper middle-class and rising internet penetration.

Also, rapid real estate infrastructure development, easy access to credit, increased efficiency due to development in the supply chain and the growing interest of investors are helping the FMCG sector to grow in India. The Indian government has been instrumental in the growth of this sector over the years. The FMCG sector is allowed 100 per cent foreign direct investment (FDI) in food processing and single-brand retail and 51 per cent in multi-brand retail. Foreign investment into the sector has bolstered employment, supply chains and brought on high visibility for FMCG brands across organised retail markets which have thereby increased consumer spending and encouraged more product launches.

The sector witnessed healthy FDI inflows of USD 18.59 billion from April 2000 to June 2021. Moreover, the Goods and Services Tax (GST) was introduced in 2017 to transform logistics in the FMCG sector into a modern and efficient model. Earlier, manufacturers were required to open a warehouse in every state to trade in those areas. However, with the introduction of GST, this is no longer necessary and the supply chain has become more efficient. With reduced indirect and logistics costs, the final production of FMCG goods has become cheaper and this has benefitted both manufacturers as well as end consumers.

While India witnessed a catastrophic second wave of the pandemic in Q2FY21, leading to a dip in its macroeconomic indicators, the Indian FMCG industry remained resilient. This was a very different trend as compared to what occurred during the first wave of the pandemic last year when FMCG industry sales plummeted. Traditional trade channels like grocers and chemists also remained resilient during the recent quarter. Metros in particular had a strong ally in e-commerce to sail through the troubled waters of Q2FY21. The sector was benefited due to the increased preference of consumers for hygiene and in-home consumption. As a result, the Indian FMCG sector fared comparatively better as compared to some of the other sectors in the country.

In Q2FY22 the performance of FMCG companies was affected by a sharp increase in input prices that dragged down the operating profit margin (OPM) to a larger extent than expected. Prices of key raw materials like crude oil, palm oil and palm fatty acid distillate (PFAD) have risen more than 60 per cent YoY, affecting most consumer categories such as food, packaged food, soaps and detergents, among others. Rising crude prices have also pushed up packaging costs. Adding to this burden are increasing fuel prices impacting transportation costs and unseasonal rains pushing up vegetable prices. To combat commodity price inflation, FMCG majors have alluded to input cost pressures in the past two quarters with the likes of Hindustan Unilever, ITC, Procter and Gamble, Dabur, Britannia, Parle, Marico and Godrej hiking prices to offset the input cost burden.

However, the impact of price inflation can be seen if we look at the performance of FMCG companies in the first half of FY22. OPM margins have contracted by 185 bps on an average in H1FY22 as compared to H1FY21. Although raw material inflation is expected to continue in the coming quarters, calibrated price hikes in the product portfolio and stringent cost-saving measures by FMCG companies will reduce the stress on margins. A positive factor is that urban demand is recovering and October was good for most of the companies with the sector witnessing strong double-digit growth largely led by festive demand.

Hospitality

From among all the sectors hit negatively by the pandemic, the hospitality industry has been the worst hit. With lockdowns and travel restrictions in place, hotels chains, resorts, banquets and restaurants across the country came to a standstill and the revenue per available room of the hotel industry declined to as low as Rs 3,600-3700 in FY21 compared to Rs 5,800-5,900 in FY20 and Rs 7,223 in FY19. According to the Federation of Hotel and Restaurant Associations, due to the financial losses during the first wave, almost 40 per cent of hotels and restaurants in India have shut down permanently and about 20 per cent haven’t bounced back fully while the remaining continue to run in losses.

Box item for hospitality - Branded hotels are now being preferred as consumers want trustworthy names for safety and hygiene, automation in bookings, checkouts and orders, larger spaces and vaccinated staff and guests.

Overall, the Indian hotel industry has taken a hit of over Rs 1.30 lakh crore in revenue for the fiscal year 2020-21 due to the impact of the ongoing global health crisis. Recovery started after the second wave of the pandemic on a pan-India level. The Indian hospitality industry witnessed a growth of 169.4 per cent in revenue per available room in Q2FY22 as compared to Q2FY21, mostly on account of a low base last year as the nation cautiously eased travel restrictions. Furthermore, on a quarter-on-quarter basis, there has been a 122.9 per cent growth in revenue per available room in Q2FY22 as compared to Q1FY22 due to a strong recovery in leisure demand.

This is because travel restrictions were eased post the second wave of the pandemic. There has, however, been a structural change in the way the sector operates even after the opening of the economy. These include changes in travel patterns and guest behaviour during the pandemic. Branded hotels are now being preferred as consumers want trustworthy names for safety and hygiene, automation in bookings, checkouts and orders, larger spaces and vaccinated staff and guests. On the path to recovery, the hospitality sector is seeking more support from the government to stay afloat.

So far, the only respite has been the government’s decision to extend the Emergency Credit Line Guarantee Scheme (ECLGS) to the sector, under which the ministry recently removed the ceiling of Rs 500 crore in loan outstanding to get credit. Besides, the industry is pinning its hope on revival in domestic travel seen after the waning of the second wave, provided of course that it is not halted by a third wave as indicated by the emergence of the new variant, Omicron. Looking at the performance of the companies in this sector in the first half of FY22 tells a predictable story. The majority of companies in the hotel industry opted for restructuring due to higher operating losses and high leverage.

Although companies such as Indian Hotels Company, EIH and Taj GVK Hotels and Resorts have seen significant improvements in terms of revenue growth in the first half of the fiscal year 2022, this was largely on account of the low base last year. The sector has faced operating losses amid low revenue base and under-absorption of fixed costs, and this has resulted in a negative bottom-line for all companies apart from IRCTC and Easy Trip Planners, which are both engaged in travel services. Going ahead we expect the struggling hospitality sector to continue its recovery if travel sentiments continue to remain positive in the second half of FY22. 

The resumption of inbound travel and the ongoing festive season will fuel leisure travel demand at both popular and offbeat destinations in the country. Corporate demand is also expected to improve steadily as most industries return to a full or hybrid work-from-office model and resume their business travel plans. However, with the new variant now leading to many countries announcing the possibility of lockdowns and restrictions on international travel, this could once again prove to be a setback for the hospitality industry. As it is, travel plans are being changed, especially those concerning vacations to foreign destinations. All this will no doubt raise fresh concerns in the hospitality industry. 

Information Technology

IT Sector facing both Headwinds and Tailwinds
The global sourcing market in India continues to grow at a higher pace compared to the IT-BPM industry. India is the preferred and leading sourcing destination across the world and continues to be a leader in the global sourcing industry with 52 per cent market share (as of FY20) in service exports from the country. The IT industry accounted for 8 per cent of India’s GDP in 2020 and is expected to contribute 10 per cent to India’s GDP by 2025. According to STPI (Software Technology Park of India), software exports by the IT companies connected to it stood at Rs 1.20 lakh crore (USD 16.29 billion) in the first quarter of FY22. As of FY21, the IT industry employed 4.5 million people.

Increasing FDI Investments
Indian IT’s core competencies and strengths have attracted significant investment from major countries. The computer software and hardware sector in India attracted cumulative foreign direct investment (FDI) inflows worth USD 74.12 billion between April 2000 and June 2021. The sector ranked second in FDI inflows, as per the data released by Department for Promotion of Industry and Internal Trade (DPIIT). Leading Indian IT firms like Infosys, Wipro, TCS and Tech Mahindra are diversifying their offerings and showcasing leading ideas in blockchain and artificial intelligence to clients using innovation hubs and research and development centres to create differentiated offerings.

Structural Drivers
It is believed that structural drivers are in place led by acceleration in digital, cloud, core modernisation and cyber security which could drive future earnings’ momentum, while EBIT margin resilience could be driven by operational efficiency, work-from-home tailwinds, reduced selling, general and administrative expenses led by travel and marketing spend, and automation efforts. Although revenue growth leverage is a key EBIT margin tailwind, prolonged elevated attrition could drive employee wage and retention costs higher and is a key risk to estimates.

Revenue and Cost Trend
Infosys’ revenue was largely in-line, but Wipro and Mindtree surprised – the latter was also aided by the one-time unlocking of physical retail in UK. While Wipro’s growth was relatively broad-based, Infosys and Mindtree were more concentrated within a few verticals. Tepid growth was witnessed in key verticals like financial services for Infosys and retail for Wipro. Revenue has been stagnant for Mindtree in the last few quarters. Despite partial wage hikes and supply side cost pressures, all three companies reported impressive margins. Further shift of effort mix towards offshore and step-up in utilisation helped – a trend which is unlikely to sustain as travel or office resumes.

Attrition increased sharply by 400-620 bps QoQ (LTM) with Infosys and Mindtree being the most and least impacted, respectively. This is guided to increase or stay elevated for at least another 2-3 quarters. Both revenue and margin guidance for Infosys and Wipro were in-line with expectations. Comparing the H1FY21 and H1FY22 performances, revenue of companies like Infosys, Wipro and Mindtree grew by 19 per cent, 27 per cent and 20 per cent, respectively. Their net profit too grew by 16 per cent, 26 per cent and 59 per cent, respectively.

Challenge in Getting Deals – Q2FY22
TCS’s total contract value (TCV) declined 6.2 per cent QoQ in 2QFY22 and 17.3 per cent for Infosys. Wipro’s large deal TCV was down 18.9 per cent QoQ while only HCLT saw an increase (17.3 per cent QoQ) in net new wins. The key reason could be the absence of large deals and smaller sized deals. Although 2Q deal wins were healthy YoY, QoQ moderation is a key monitoring factor as outsourcing bookings for Accenture too were down 4.1 per cent QoQ and 6.3 per cent YoY. Any further decline in Q3 and Q4 would spell trouble for IT companies to maintain the yearly revenue and earnings’ guidance.

Tackling the Biggest Problem – Attrition Rate
During the July-September stretch, attrition at Tata Consultancy Services (TCS) — the country’s largest IT firm — was at 11.9 per cent, up from 8.6 per cent in the April-June quarter. For Infosys, voluntary attrition on the last 12 months trailing (LTM) basis was at 20.1 per cent in the September quarter, compared to 13.9 per cent in the preceding quarter. However, Wipro recorded the highest attrition rate among the top-tier pack at 20.5 per cent, as against 15.5 per cent in Q1. HCL Technologies’ attrition rate rose to 15.7 per cent from 11.8 per cent in the June quarter.

According to Infosys, most of its attrition has been for employees with three to six years of experience, and this has been the trend in the IT industry as well. At this experience level, people are still not emotionally connected with the company and sometimes it is easier to move around. In the long term, the IT major is also taking a “fresh look” at the talent strategy approach. This is not only due to the current high attrition but also the company belief that there will be fundamental shifts in employee thinking behaviour in the post-pandemic world, and that means you have to relook at the employee value proposition and fine-tune that. So, that is something companies have started taking a hard look at.

Wipro acknowledges this change of talent landscape and has adapted quickly to the new world of work. Hybrid work environment is definitely a part of this mix. The company has doubled their fresher intake with 8,150 young colleagues joining them from campus in Q2. While announcing the quarterly results, Wipro said that it plans to add over 25,000 fresh graduates in the next financial year. The company don’t believe that attrition will improve in the next few quarters. It actually believes that given the environment, it will continue to face the high level of attrition at least in the next two-three quarters.

Supportive Government Policies
In Union Budget 2021, the allocation for IT and telecom sector stood at Rs 53,108 crore. In August 2021, the Union Minister of State for Electronics and Information Technology, Rajeev Chandrasekhar, announced that the IT export target is set at USD 400 billion for March 2022. In addition, the central government plans to focus in areas such as cyber security, hyper-scale computing, artificial intelligence and blockchain.

Metals & Mining

To define in brief the metals and mining sector, it is an industry dedicated to the location and extraction of metal and mineral reserves around the world. Global reserves of metals and minerals are mined for profit and have an extensive use in jewellery-making, industrial applications and investments. The sector bears a handsome number of companies located internationally and operates with large revenues. India is blessed with leverage in production and conversion costs in steel and alumina. The strategic location has helped in magnifying export opportunities to developing as well as fast-developing Asian markets.

As of FY21, the number of reporting mines in India were estimated at 1,229, of which reporting mines for metallic minerals were estimated at 545 and non-metallic minerals at 684. The expansion of infrastructure development and automotive production can be identified as drivers of growth along with power and cement industries aiding growth for the sector. Demand for iron and steel is predicted to continue sensing strong growth expectations for the residential and commercial building industry. Talking about the market size of the sector, coal production in the country stood at 715.95 million tonnes (MT) in FY21.

Between April 2021 and September 2021, coal production in India stood at 315.718 MT. A point to note is that India qualifies as the second-largest coal producer in the world as of 2021. Iron ore production in the country stood at 189 million tonnes in FY21. According to Directorate General of Commercial Intelligence and Statistics, in FY22 until August 2021, iron ore exports registered an increase of 21.8 per cent on YoY basis. In FY20, India owned a total number of 914 steel plants producing crude steel whereas in FY21 India’s crude steel production stood at 102.49 million tonnes. The crude steel output in India registered 46.9 per cent YoY growth. India is poised to be the world’s second-largest crude steel producer as of 2020 with an output of 99.6 MT.

In the last six months the BSE Metal index has exhibited quite a volatile performance. It has recorded a return of mere negative 0.6 per cent in the last six months whereas on an YTD basis the index has zoomed up to 63 per cent. If we go according to the highest market capitalisation, the top six companies, namely, JSW Steel, Tata Steel, Hindustan Zinc, Vedanta, Hindalco Industries and Coal India have posted decent half yearly results in FY22 compared to H1FY21. On a YoY basis, the highest growth in net sales and operating income was posted by JSW Steel of 97.79 per cent followed by Tata Steel and Vedanta posting rise of 84.98 per cent and 58.61 per cent, respectively.

The lowest rise was posted by Coal India at 22.54 per cent. The highest increase in earnings before interest depreciation and taxes (EBITDA) numbers was recorded by Tata Steel at 392.22 per cent followed by JSW Steel and Hindalco Industries at 259.53 per cent and 105.42 per cent, respectively. Coal India managed to post only 36 per cent rise in EBITDA numbers as compared to its peers. JSW Steel has posted an attractive increase in the half yearly net profits at 1,092.64 per cent. On the other hand, the net profits of Hindalco Industries and Vedanta zoomed 450.62 per cent and 250.41 per cent, respectively. Hindustan Zinc and Coal Industries posted a mere rise of 21.25 per cent and 21.55 per cent in their net profits as compared to the half yearly performance.

Here are some recent developments and announcements made by major players in the sector as well as the government initiatives undertaken so far:

• In March 2021, Coal India Ltd. (CIL) approved 32 new coal mining projects of which 24 are related to the expansion of existing projects and the remaining are greenfield. Estimated cost of the project is Rs 47,000 crore.

• In May 2021, Vedanta Ltd. announced its plan to invest Rs 10,000 crore (USD 1.34 billion) in setting up an aluminium park in Odisha to facilitate companies that use metal to set up their manufacturing units in the facility.

• In July 2021, JSW Steel announced that the company registered a 62 per cent YoY surge in crude steel production at 4.93 million tonnes in the first quarter of FY22.

• The National Steel Policy aims to boost per capita steel consumption to 160 kg by 2030-31. The government has a fixed objective of increasing rural consumption of steel from the current 19.6 kg per capita to 38 kg per capita by 2030-31.

• In Union Budget 2021, the government reduced customs duty to 7.5 per cent on semis, flat and long products of non-alloy, alloy and stainless steels to provide relief to MSMEs.

Currently, the metals and mining sector is affected by scarcity of resources and product innovation. Adding to it is the uncertainty related to the pandemic. The scarcity of resources will make the prices rise unless a new product, technique, technology or consumer trend is developed in this sector. If that happens, some companies may adapt better as compared to others and realise greater margins for their products. There is a significant scope identified for new mining capacities in iron ore, bauxite and coal and considerable opportunities for future discoveries of sub-surface deposits. Also, infrastructure projects continue to create business opportunities for steel, zinc and aluminium producers. Iron and steel qualify as the core components of the real estate sector and hence demand for these metals is predicted to indicate strong growth expectations for the residential and commercial building industry.

Petroleum

The oil and gas sector is among the eight core industries in India and plays a major role in influencing decisionmaking for all the other important sections of the economy. India’s economic growth is closely related to its energy demand and hence the need for oil and gas is predicted to expand more, thereby making the sector a potential candidate for investment. India is poised as the fourth-largest importer of liquefied natural gas (LNG). The country’s projected oil demand is estimated to grow at CAGR of 4 per cent during 2016-2030 against the world average of 1 per cent, though the projected oil demand will be much lower as compared to the US and China.

The government has adopted several policies to cater to the increasing demand. It has allowed 100 per cent foreign direct investment (FDI) in many segments of the sector which includes natural gas, petroleum products and refineries, among others. Moreover, it attracts both domestic as well as foreign investment as attested by the presence of Reliance Industries Ltd. (RIL) and Cairn India. As of September 1, 2021, the sector’s total installed provisional refinery capacity stood at 246.90 MMT and IOC emerged as the largest domestic refiner with a capacity of 69.7 MMT. The oil and gas industry in India is predicted to witness a sea change on the back of recent developmental ambitions of the Government of India.

These include 175 GW of installed capacity of renewable energy by 2022, the aim to achieve 100 smart cities, 10 per cent reduction of oil and gas import dependence by 2022 and provision of clean cooking fuels. Petroleum products have recorded positive growth during August 2021 as compared to August 2020 to the tune of 144.6 per cent. Export of petroleum products was valued at USD 3820.03 million in November 2021 and covers 12.79 per cent of the total exports of the country. The BSE Oil and Gas index has outperformed the domestic benchmark indices and has expanded 2.56 per cent in the last six months whereas it has grown 25.71 per cent in 2021, so far.

The top six companies according to market capitalisation in this sector are Reliance Industries, Oil and Natural Gas Corporation, Adani Total Gas, Indian Oil Corporation, Bharat Petroleum Corporation and GAIL (India). Comparing the half yearly results posted by the companies on a YoY basis, Adani Total Gas reported 86.66 per cent growth in net sales and operating income whereas Bharat Petroleum Corporation posted growth of 63.47 per cent. Indian Oil Corporation and Oil and Natural Gas Corporation recorded growth of 58.74 per cent and 57.52 per cent, respectively. Looking at the EBITDA numbers apart from BPCL, the other companies registered positive growth.

The EBITDA for GAIL (India) grew by 195.78 per cent and for Adani Total Gas and Oil and Natural Gas Corporation (ONGC) it increased by 52.86 per cent and 49.91 per cent, respectively. BPCL registered de-growth of 13.26 per cent. From the aspect of growth in net profit, GAIL (India) and ONGC were leading with growth of 324.78 per cent and 259.52 per cent, respectively. Some of the developments that may have contributed to the good set of numbers of half yearly results include the National Company Law Tribunal (NCLT) approval for state-owned gas utility GAIL (India)’s acquisition of Infrastructure Leasing and Financial Services’ 26 per cent stake in ONGC Tripura Power Company (OTPC).

OTPC is a special purpose vehicle between ONGC, Infrastructure Leasing and Financial Services and the Tripura government for setting up of a 726.6 MW combined cycle gas turbine (CCGT) thermal power plant at Palatana in Tripura. In July 2021, Bharat Petroleum Corporation announced a plan to establish its first-generation ethanol production plant in Telangana at an estimated investment of Rs 1,000 crore. Also, in July 2021, Indian Oil Corporation (IOC) announced its plan to establish India’s first green hydrogen plant at Mathura refinery to introduce green hydrogen activities and projects in the oil and gas sector in the country. The energy demand of India is anticipated to grow faster than the energy demand of all major economies on the back of continuous robust economic growth.

Moreover, the country’s share in global primary energy consumption is expected to increase two-fold by 2035. India is ready to expand its natural gas grid to 34,500 km by adding another 17,000 km gas pipeline. The re-gasification capacity of the existing 42 MMT per annum will be improved to 61 MMT per year by the year 2022. The oil and gas industry has rebounded strongly throughout 2021 with oil prices reaching their highest levels in six years. While the industry’s recovery is better than expected, uncertainty remains over market dynamics in 2022. As the economy moves into 2022, many oil and gas companies are looking to reinvent themselves by practicing capital discipline, focusing on financial health, committing to climate change and transforming business models.

Pharmaceuticals

Health is Wealth
The country’s healthcare sector has grown rapidly over the last five years with annual CAGR of ~ 22 per cent since 2016. At this rate it is expected to become an industry valued at USD 372 billion by 2022. Healthcare has become one of the largest sectors of the Indian economy in terms of both revenue and employment. India’s healthcare industry comprises hospitals, pharmaceuticals, medical devices and equipment, clinical trials, telemedicine and medical tourism.

The country’s domestic pharmaceutical market is estimated at USD 42 billion in 2021 and likely to reach USD 65 billion by 2024 and further expand to reach approximately USD 120-130 billion by 2030. The hospital industry is expected to increase at a CAGR of 16-17 per cent to reach USD 132 billion by 2023. Our sectoral analysis of the pharmaceutical sector consists of a universe of 76 stocks which can be broadly classified as hospital and healthcare (nine companies), medical equipment (one company) and pharmaceuticals and drugs (66 companies).

Pharmaceutical and Drugs
Indian companies have emerged as a significant and rising contributor in the global pharmaceutical market. India is the largest provider of generic drugs globally. The Indian pharmaceutical sector supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicines in the UK. Globally, India ranks third in terms of pharmaceutical production by volume and 14th by value. The revenue growth for the pharmaceutical sector came at around 9 per cent YoY basis. Sun Pharmaceuticals has shown sustained and consistent growth in the past few quarters which shows its resilience.

The company reported sales growth of 19.87 per cent with EBITDA and PAT growth of 35.72 per cent and 47 per cent, respectively, for the half year. The growth was largely driven by new product launches and better supply chain management. Dr Reddy’s also posted strong half yearly numbers due to strong growth in India and EM markets, partially led by its corona virus portfolio. Cipla also reported double-digit sales growth and EBITA. Together these three companies accounted for more than 25 per cent of the pharmaceutical and drugs market with Sun Pharmaceuticals (13.37 per cent), Cipla (7.62 per cent) and Dr. Reddy’s (7.42 per cent). The companies have many products in the pipeline. Sun Pharmaceuticals is awaiting approval from the US FDA for 88 ANDAs and 13 NDAs while Dr. Reddy’s has 93 pending ANDAs, including 36 Para IVs and 23 FTFs.

Hospitals and Healthcare
The hospital segment constitutes ~80 per cent of the total healthcare market and is showing growing traction from across the globe given its cost-effectiveness. Apollo Hospitals is one of Asia’s foremost integrated healthcare services provider and has a robust presence across the healthcare ecosystem, including hospitals, pharmacies, primary care and diagnostic clinics as well as several retail health models. It accounted for~ 35 per cent of the revenue in the category. The company’s hospital business had shown the most resilience to the pandemic-induced disruptions. Consolidated revenues of the company increased by 51.6 per cent to Rs 7,477crore in Q2FY22 compared to Rs 4,932 crore in H1FY21 while the EBITDA increased by 238 per cent for the period under review. The next big players in the category are Aster DM Healthcare (23 per cent) and Fortis Healthcare (13 per cent).With improved normalisation and increased occupancy the category saw a strong growth in revenues of 54 per cent and improved profitability.

Outlook
The overall healthcare sector is expected to reach USD 372 billion by 2022 driven by India’s demographic and epidemiological trends and the emergence of PPP models in the healthcare sector as well as the PLI scheme floated by the government. Under the PLI scheme for developing a self-reliant India, a total of 55 applicants have been selected by the government for a cumulative incentive of Rs 15,000 crore over a maximum period of six years – FY 2023-2028 – subject to minimum threshold investment and incremental sales growth. The beneficiaries of the scheme include Sun Pharmaceuticals, Aurobindo Pharmaceuticals, Lupin, Cadila, Cipla, Glenmark, DRL, Biocon, Alembic Pharmaceuticals and Natco Pharmaceuticals to name a few.

This is coupled with the increase FDI inflow in the Indian pharmaceutical sector with 100 per cent in greenfield and 74 per cent in brownfield projects. Care Ratings has projected India’s pharmaceutical industry to grow at about 11 per cent in the next two years to reach a size of over USD 60 billion. The hospital industry in India is witnessing huge demand from both global and domestic investors. The government’s plans to increase budgetary allocation for public health spending to 2.5 per cent of the country’s GDP by 2025 will benefit the hospital sector as well. The outlook for this category remains stable given the rising middle-class population, increasing lifestyle diseases and enhanced medical tourism given India’s cost-effective and competitive advantage.

Plastic Products
India is recognised as a plastic hub in the world because of its low-cost production, cheap labour, low cost of raw materials and easy availability. Over the last few years, the plastic products’ sector has played a significant role in driving technology and innovation growth in the country as well as adding value to the various manufacturing sectors, including agriculture and FMCG. The potential of the Indian plastic sector has motivated domestic manufacturers to acquire technical expertise, achieve superior quality standards and build further capacities.

To study the financials, we have taken the top 22 companies in this sector and juxtaposed their performance in H1FY22 with H1FY21. On the whole, this sector has registered robust sequential growth across various parameters such as net sales and other operating income, profit before interest, depreciation and tax i.e. PBIDT and profit after tax. The aggregate top-line of the sector registered a healthy growth of 38.94 per cent from Rs 20,691.95 crore in H1FY21 to Rs 28,749.62 crore in H1FY22. PBIDT for H1FY22 stood at Rs 4,674 crore, escalating by 41.96 per cent from Rs 3,292.50 crore in H1FY21.

Profit after tax for the sector zoomed by a whopping 75.26 per cent from Rs 1,527.32 crore in H1FY21 to Rs 2,676.75 crore in H1FY22. In terms of individual company performance in H1FY22, Kingfa Science and Technology (India) was the top gainer across the board among its peers, reporting a whopping 2.3 times surge in top-line and profit after tax skyrocketing by 9.35 times. Finolex Industries, Xpro India and Jai Corp exhibited robust growth in top-line of ~75 per cent each. Time Technoplast and Shaily Engineering Plastics saw net profit expand by 5.6 times and 3.3 times, respectively, during H1FY22.

The Indian plastic pipe and fittings sub-sector is expected to reach Rs 500-550 billion by 2025, growing at a CAGR of 10 per cent from the current level of Rs 290-300 billion. The primary driver of growth in the piping and fitting sub-sector is the rapid pace of urbanisation and infrastructure development. The Indian PVC pipe sector has witnessed greater realisation supported by a sharp rise in PVC prices in FY21. However, PVC prices have now started easing and may stabilise in the near future. The Government of India’s initiative for affordable housing, irrigation sector and focus on rural water management along with higher capex for infrastructure growth continue to be the major drivers for the growth of the PVC pipe sector in the country, particularly for organised players.

The Indian plastic packaging market was valued at USD 75 billion in 2020 and is expected to reach USD 204.81 billion by 2025, registering a CAGR of 26.7 per cent during the period of 2020-25. Packaging is amongst the high growth industries in India and the country is becoming a preferred hub for the packaging industry. With the arrival of the pandemic, people have become more conscious of the food products they consume. The food industry has increased its focus towards better and safer packaging for its consumers, resulting in robust demand for packaging material. It has also helped in prolonging the shelf life of many products.

Change in consumption patterns and lifestyle, consumer awareness surrounding packaged food, and a boom in e-commerce and organised retail is expected to enhance the growth of the plastic packaging sector and per capita consumption in the near future. Market growth and diversification are the two factors that have contributed to the rapid strides taken by the Indian plastic sector in recent years. Latest reports indicate that the sector is likely to see increasing demand in the post-pandemic era. In fact, among the very few sectors to have done so, the Indian plastic sector has shown resilience by staging healthy recovery from the pandemic-induced slowdown in the first two quarters of FY21.

Power

The power sector is one of the most important sectors that provide support to the infrastructure of a country, thereby providing support to economic development. In India, sources of power range from conventional sources such as coal, lignite, natural gas, oil, hydro and nuclear power to viable non-conventional sources such as wind, solar, and agricultural and domestic waste. In recent years, hundreds of millions have received electricity connections in the country, and there is an increasing adoption of highly‐efficient LED lighting along with a massive expansion in renewable sources of energy, led by solar power.

Being an emerging economy, where population, urbanisation and industrialisation are on the rise, India is set to witness a huge demand for power. Also, China’s power crisis in recent times has re-emphasised the importance of switching from non-renewable sources of energy to renewable ones. At present, solar accounts for less than 4 per cent of India’s electricity generation and coal accounts for almost 70 per cent. However, the cost-competitiveness edge that solar enjoys over coal is set to increase the share of solar power and decrease the share of coal-generated power in India’s energy mix.

Analysing 21 public listed power generation companies, we can see that on an average the net sales in H1FY22 grew by 28.06 per cent YoY with Rattan India Power showing the highest increase of 312 per cent. However, PBIDT excluding other income on an average went up marginally by 5.96 per cent YoY with BF Utilities Ltd. and Indian Energy Exchange posting the highest gains of 92.23 per cent and 64 per cent, respectively. The net profit on an average went up by 40.42 per cent YoY, led by Adani Green Energy.

Further, India, in its commitment to the UN Energy Compact, announced ambitious targets of reaching 450 GW of renewable capacity by 2030. Post this many renewable energy companies are on acquisition and collaboration sprees. For instance, in October 2021, JSW Energy announced that it has signed a contract with Senvion India, a leading manufacturer of wind turbines, for procuring 591 MW of onshore wind turbines for the company’s under-construction pipeline of renewable energy projects. Around the same time, Adani Green Energy acquired SB Energy Holdings in an all-cash deal.

The latter has one of India’s highest quality renewable portfolios and owns 5 GW renewable assets spread across four states in India via its SPVs. On the policy front, the government has a wide range of policies in place that aim to bring about a secure and sustainable energy future. For example, the National Wind-Solar Hybrid Policy aims to provide a framework for promotion of large grid-connected wind-solar PV hybrid system for optimal and efficient utilisation of transmission infrastructure and land, reducing the variability in renewable power generation and achieving better grid stability.

The government is also committed to enhance energy efficiency in agriculture, buildings, industry and transport sectors and promote energy-efficient appliances and equipment to reduce India’s emissions intensity of GDP. Earlier this year, in April, the Union Cabinet approved Rs 4,500 crore production linked incentive (PLI) scheme to boost domestic manufacturing capacity of solar PV modules. This scheme is aimed at reducing dependency on imports in a strategic sector such as electricity. In the transportation sector, while most of the vehicles run on conventional sources of fuels such as petrol and diesel, the country is witnessing a shift towards electric vehicles. To cater to this changing demand, many automobile companies have announced their plans of launching electric vehicles.

Moreover, with the aim of reducing dependency on conventional fuels, Minister of Road Transport and Highways Nitin Gadkari has asked the automobile manufacturers to introduce flex-fuel vehicles (FFVs) that can run on 100 per cent ethanol and gasoline within a period of one year. Ethanol can be made from sugarcane, potatoes andcorn, which are easily available in the country. To encourage ethanol production, the government has launched a scheme that provides assistance to distilleries. With a sharp focus of the government in this sector and clarity in terms of target, efficient actions and so many policies in place, the future of the power sector looks bright.

Services

The service sector has been a key driver of the Indian economy over the last three decades. India’s service sector covers a wide range of activities that include healthcare, tourism logistics, transport, hotel, restaurants and even space. It accounts for 54 per cent of India’s gross added value (GAV) as of this year. It is a dominant segment and contributes over 60 per cent to India’s GDP while employing only about 28 per cent of the workforce. The service sector is not only the dominant sector in India’s GDP, but has also attracted paramount foreign investment, contributed significantly to exports and also provided large-scale employment.

According to the Reserve Bank of India, between April 2021 and August 2021, India’s service exports stood at USD 92.08 billion, while imports stood at USD 53.81 billion. To study the financials, we have taken the top 38 companies in this sector and juxtaposed their performance in H1FY22 with H1FY21. On the whole, this sector has registered robust sequential growth across parameters such as net sales and other operating income, profit before interest, depreciation and tax i.e. PBIDT and profit after tax. However, we must keep in mind that low base effect is at play to some extent due to lockdown restrictions in the country during certain months in H1FY21.

The aggregate top-line of the sector grew by 41 per cent from Rs 72,105.32 crore in H1FY21 to Rs 1,01,671.56 crore in H1FY22. On similar lines, PBIDT jumped by 37.85 per cent from Rs 11,020.56 crore in H1FY21 to Rs 15,191.44 crore in H1FY22. Profit after tax for H1FY22 came in at Rs 6,653.98 crore in H1FY22, up by 40.41 per cent in comparison to Rs 4,738.92 crore in H1FY21. In terms of individual performance, Gateway Distriparks and Allcargo Logistics saw profits after tax mushroom by 5.8 times and 3.97 times, respectively, on a sequential basis.

Likewise Seamec, Sundram Fasteners and Transport Corporation of India exhibited a mega three-fold growth in profits. The seasonally adjusted India Services Business Activity Index rose from 55.2 in September 2021 to 58.4 in October 2021, signalling the strongest rate of growth in 10.5 years, driven by a substantial upturn in business activity amid favourable demand conditions. This development has come in despite companies hiking prices of their products owing to cost input inflation pressure. For the third straight month, the service sector witnessed an expansion in output.

On the employment front, service companies continued to hire additional workers in October. Although moderate, the pace of job creation quickened from September 2021 to the strongest level since February 2020. However, the latest data from the survey continued to point towards weak international demand for Indian services. New export business decreased in October 2021, a trend that has been recorded since the outbreak of the pandemic. On the price front, with input costs again rising sharply, companies lifted their fees at the fastest pace in nearly 4.5 years. Monitored companies cited higher fuel, material, retail, staff and transport costs.

According to the IHS Markit Purchasing Managers’ Index (PMI) survey, companies indicated that a notable pick-up in new business led to the fastest expansion in output in over a decade and as a result more jobs were created, even though business confidence remained subdued due to growing inflationary concerns. To quote an excerpt from a report published by Deloitte India, “India’s different competencies and competitive advantage formed by the knowledge-based services makes it a unique emerging market in the world. Backed by several government initiatives, the services sector in India has the potential to unlock a multi-trillion dollar opportunity which can create symbiotic growth for all nations.

Textile

The textile sector has close integration with agriculture and the ancient culture and traditions of the country from the textile perspective makes this sector unique in comparison to other industries. India’s textile industry has the capacity to produce a wide variety of products suitable for different market segments, both within India and across the world. In fact, India’s textile sector stands to be among the oldest industries in the Indian economy, tracing its roots back to several centuries. The industry is extremely varied with hand-spun and hand-woven textiles sectors at one end of the spectrum and the capital-intensive sophisticated mills sector on the other end.

The decentralised power looms, hosiery and knitting sector forms the largest component in the textile sector. The Indian retail market size is estimated at approximately USD 845 billion with organised retail accounting for USD 101 billion, which is 12 per cent of the overall retail market as of FY20. The overall retail market is expected to grow at a CAGR of 6 per cent to reach a size of USD 1.1 trillion by FY25. The prominent growth drivers can be increased consumption with a growing workingage population, rapid urbanisation, higher per capita disposable incomes, increasing number of households and rural growth.

The organised apparel and accessories segment is expected to grow at a 10 per cent CAGR during FY20-25 with increased penetration of around 40 per cent. The total organised retail market size is expected to grow at a 15 per cent CAGR to USD 201 billion in FY25 from USD 101 billion in FY20. The textile sector has observed an increase in investment during the last five years. The industry (including dyed and printed) attracted foreign direct investment (FDI) worth USD 3.75 billion from April 2000 to March 2021. In May 2021, Indo Count Industries Ltd. (ICIL) announced an investment of Rs 200 crore to expand its production capacity.

The production-linked incentive (PLI) scheme for man-made fibre and technical textiles will help manufacturing, increase exports and attract investments into the sector. Companies in home textile are making use of technology to optimise the value chain. To note some developments, in October 2021, Welspun India introduced Wel-Trak 2.0—an upgraded, patented end-to-end traceability technology—to track textile raw materials throughout the supply chain. These home textile companies in India are also taking advantage of strategic partnerships to harden their business operations and footprint in the country.

In October 2021, Welspun India collaborated with DuPont Biomaterials to introduce a home textile range and strengthen the company’s sustainable textiles business. Some of the top companies in the textile sector are Page Industries, Trident, KPR Mill, Welspun India, Lux Industries and Vardhaman Textiles. The companies have recorded a positive performance in H1FY22 as compared to H1FY21. Vardhaman Textiles has recorded the highest growth in net sales and operating income of 76.53 per cent followed by 68.6 per cent recorded by Trident and 65.54 per cent recorded by Lux Industries. Vardhaman Textiles reported a 708.28 per cent increase in EBITDA whereas Trident posted a 128.03 per cent in EBITDA. The net profit of Trident and Page Industries ascended 283.13 per cent and 140.42 per cent, respectively, in H1FY22 as compared to H1FY21 followed by 101 per cent rise in net profit posted by Lux Industries.

After experiencing a significant decline in 2021 due to the corona virus pandemic and a challenging road to recovery, India’s textile sector expects to reach stability in the 2022 financial year. With cotton spinning and apparel export segments faring especially well, stabilisation is expected next year. Cotton spinning and apparel exports could increase by 15 per cent to 20 per cent in the 2022 financial year. Fabrics and domestic apparel segments are expected to step up by 30 per cent to 35 per cent and 35 per cent to 40 per cent, respectively. However, these segments have seen steeper declines in the financial year 2021.

India is working on major initiatives to boost its technical textile industry. The government is supporting the sector through funding and machinery sponsoring. Top players in the sector are adopting sustainability in their products by manufacturing textiles that use natural recyclable materials. With accelerated consumerism and disposable income, the retail sector has experienced rapid growth in the past decade with the entry of several international players. The future for the Indian textile industry is predicted to be promising on the back of increasing domestic consumption as well as export demand.

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