Top 1000 Companies

India ranks second in terms of agricultural land, with an aggregate size of 157.35 million hectares. It employs 54.6% of Indian population, which contributes about 17% to country's GVA. India has a diversified climate and has 46 varieties of soil out of a total 60. The production of foodgrains in FY17 stood at 273.83 million tonnes, as compared to 253.16 million tonnes in FY16. The agriculture sector has grown at a CAGR of 6.64 per cent during FY07-16. The country ranks second globally in the production of fruits and vegetables and is a leading exporter of bananas and mangoes.

The total cultivated area for kharif crops in lakh hectares are as follows: wheat ~79, pulses ~74, oilseeds ~56 and coarse cereals ~26. For the kharif crop, the total cultivated area in lakh hectares are as follows: rice ~373, coarse cereals ~184, oilseeds ~179, pulses ~142, cotton ~101, sugarcane ~45 and jute & mesta ~7. India also stands among the top 15 food products exporters in the world. The country share in global agriculture trade stands at 1%.

The food processing industry also plays a crucial role in India's economy and acts as a support to Indian economy's two vital sectors, namely industry and agriculture. With estimation of doubling the food production in India, the processing industry will play a key role in tapping opportunities and will witness huge investments in technologies, skills and equipments.

The government in its Union Budget 2017 has increased agricultural credit to Rs.10 lakh crore, which is aligned with the government's efforts to double farmers' incomes in the next five years. The government has also allocated funds of Rs.13,240 crore to the Pradhan Mantri Fasal Bima Yojana which was launched last year, as compared to Rs.5,500 allocated in the previous year. The government also decided on funding of Rs.8000 crore in the next three years to be allocated for creating dairy processing infrastructure. The government also approved extension on tenure of loans under its Credit Linked Subsidy scheme under its Pradhan Mantri Awas Yojana from the earlier 15 years to 20 years now.

The minimum support price (MSP) is also being defined by the government in advance so that farmers can now take better decisions, which would also shorten the gap between supply and demand. The government is also encouraging the use of hybrid seeds, which would increase the yield per hectare. The government has fixed minimum wages for unskilled labour in C-class towns at Rs.350 per day.

The Goods & Services Tax (GST) would bring in more transparency, reliability and a timely supply chain mechanism which would thus ensure low wastage and bring down the cost for farmers. The segments such as dairy, poultry farming and stock breeding would be taxable under the GST due to their exclusion from agriculture segment. We would witness an increase prices of fertilisers, tractors, milk and milk-related products because of higher taxes imposed on them after implementation of the GST.

Analysing the sector with top 36 companies in terms of market cap, we observe that the overall sales of the companies have increased by ~9 per cent yoy to Rs.1,11,379 crore in FY17. The highest contribution to sales comes from EID Parry Ltd, which contributed more than ~13 per cent. Dwarikesh Sugar Industries Ltd and Triveni Engineering & Industries Ltd were the top gainers in terms of revenues with increase of ~49 per cent and ~46 per cent yoy, posting sales of Rs.1,200 crore and Rs.2,852 crore, respectively, in FY17. Kaveri Seed Company posted degrowth in sales, with sales of Rs.739 crore as compared to Rs.910 crore in FY16, a decline of ~19 per cent.

Triveni Engineering & Industries and Uttam Sugar Mills had a tremendous performance posting a significant rise in EBITDA, posting profits of Rs.522 crore and Rs.217 crore in FY17, an increase of ~221 per cent and ~159 per cent, respectively, amid higher sales in FY17. Dwarikesh Sugar Industries, DCM Shriram Industries and Dhampur Sugar Mills posted rise in EBITDA of more than 100 per cent each in FY17. However,Kaveri Seed Company and DFM Foods posted a decline of ~32 per cent and ~29 per cent yoy, respectively, in EBITDA for FY17.

Some small-cap and mid-cap companies posted a significant rise in PAT, increasing their profits by more than ~500 per cent. EID Parry had an outstanding year, posting a PAT of Rs.521 crore in FY17, as against Rs.14 crore in FY16, a surge of ~3636 per cent in its bottomline. The sugar industry performed well with companies such as Balrampur Chini Mills, Dhampur Sugar Mills and Uttam Sugar Mills posting profits of Rs.593 crore, Rs.237 crore and Rs.109 crore in FY17, respectively, an increase of 497 per cent, 815 per cent and 607 per cent, respectively, which was backed by higher production with low expenses.

The companies that outperformed in the sector in term of EPS were EID Parry and Eco Friendly Food Processing Park, posting an EPS of ~3627 per cent and ~1500 per cent,respectively, in FY17. Nestle India posted an increase in sales by ~13 per cent and an increase in bottomline by ~64 per cent because of zero expenses on depreciation and Interest cost.

The Indian agriculture depends upon a variety of factors including land, water, seeds and fertilisers, agricultural insurance, storage and many others. The agricultural yields have been very low when compared to other economies like China and Brazil, with India being the largest producer of pulses but having the lowest yield in the world. With imports growing faster than exports, it has become a major concern for the country. We have also witnessed more and more foods parks being set up in the country, which would prevent food wastage and provide continuous supply of food in the country. Increasing smaller holdings of land creates problem of irrigation, credit facility and government subsidies to farmers. There is also a shift in the use of fertilisers as these cause damage to soil nutrients and farmers are now equipped with better knowledge. Availability of quality seeds is another crucial factor which impacts the food quality in the country. The availability of quality seeds can increase the productivity by 20-25%, which is a significant factor to be considered.

A better monsoon forecast this year is likely to grow the economy as it benefits the agriculture sector. We also expect better credit facilities to be made available to farmers. In May 2017, the Ministry of Agriculture and Farmers Welfare has come up with e-Krishi Samvad, which would act as an interface for solving the problems faced by farmers and stakeholders in agriculture segment. The government also wants to promote more participation from private sector players, which would focus on contract farming and land leasing.

A better monsoon forecast this year is likely to grow the economy as it benefits the agriculture sector. We also expect better credit facilities to be made available to farmers. In May 2017, the Ministry of Agriculture and Farmers Welfare has come up with e-Krishi Samvad, which would act as an interface for solving the problems faced by farmers and stakeholders in agriculture segment. The government also wants to promote more participation from private sector players, which would focus on contract farming and land leasing.

AUTO 

India is currently the sixth largest automobiles producer in the world, produces 24 million vehicles annually. The sector accounts for 7.1 per cent of the GDP. Passenger vehicles accounted for ~14%, commercial vehicles ~3%, three-wheelers ~3% and two-wheelers 80% of the market share in FY16. The industry employees 19 million people directly and indirectly.

The industry has made way for BS-IV complaint vehicles after phasing out BS-III vehicles. The BS-III vehicles were a setback for some of the manufacturers such as Honda, M&M and Tata Motors, which were saddled with huge inventories. The GST is expected to have a positive impact on luxury cars and SUVs. Higher tax on hybrid cars would dampen sentiments of both manufacturers and customers.

Taking the set of first 16 companies by market cap, we have analyzed the overall performance of the sector which showed a mixed trend. The four-wheeler segment experienced high volumes, but the two-wheeler sales did not pick up. During FY17, the sales of Tube Investments of India Ltd and Maruti Suzuki India Ltd grew substantially, showing an increase of 49 per cent and 19 per cent YoY, respectively. Also, the revenues of Maharashtra Scooters Ltd and Eicher Motors Ltd have shown a de-growth of 75 per cent and 54 per cent, respectively. The bottomline for most of the companies have grown, with companies like Escorts Ltd and Maruti Suzuki India Ltd reporting net profits of Rs.131 crore and Rs.7511 crore, an increase by 69 per cent and 59 per cent, respectively.

The scattered diagram shows that the performance of commercial vehicles manufacturing companies such as Ashok Leyland and SML Isuzu was decent in FY17. In the passenger vehicles segment, Maruti Suzuki performed well with a ROE of 18 per cent during the year. However, FY17 has not been so good for the two-wheeler segment, with companies like Scooters India Ltd, Atul Auto and Maharastra Scooters posting negative sales growth.

The passenger and commercial vehicles segment are expected to grow at a CAGR of ~21 per cent and ~35 per cent FY16- FY20E. The industry is in a growth phase with more investments coming into the sector not only from domestic players but from global peers as well. We expect better demand from rural areas which would drive volumes in 2-wheelers and 3-wheelers because of better agricultural production post good monsoons. India's cost competitive manufacturing of SUVs could make it a supply hub to meet global demand. The overall trend that we observe is positive in both short and long term because of increased disposable income, coupled with an overall decrease in tax rates, which is being backed by phasing out of old vehicles sooner rather than later.

AUTO ANCILLARY 

The auto ancillary industry has witnessed a healthy growth over the past few years. The industry is classified broadly into two segments, namely, organised and unorganised. The organised segment caters mainly to OEMs and high-value precision instruments, while the unorganised segment caters to the low-value segments and to replacement markets. The industry accounts for 22 per cent of country's manufacturing GDP. The auto component industry is expected to grow by ~8 to ~10 per cent in FY17-18.

On a functional basis, the auto ancillary industry is classified into engine parts, transmission and steering parts, suspension and braking components, electrical equipments and others. Out of total exports, Europe accounts for about 36 per cent of the export volumes, Asia 25 per cent, North America 25 per cent and remaining from other continents. India being the third largest producer of steel after China and Japan provides cost advantage to the sector.

The industry is likely to be benefited due to GSTimplementation. The effective tax rate for auto ancillary currently stands at 28 to 30 per cent and is expected to be brought under the 18 per cent tax slab. The industry currently gains from a favourable domestic market, along with increased supply to global players as well. Also, with the implementation of the GST, auto ancillaries will now no longer have to be close to OEM facilities to gain from VAT credit chain and can thus bring down their costs. The government's ‘Make In India initiative' has brought a lot of foreign investments into India and we expect the country to emerge as a part of dual-shore manufacturing model which is being adopted by various global auto manufacturers where few components would be manufactured in India.

Taking into consideration the financials of top 53 companies in auto ancillary segment, the revenues have grown on a average of ~7 per cent in FY17. During FY17, companies such as Minda Industries Ltd and Rane Ltd have shown a growth of ~38 per cent and ~37 per cent, respectively, during the year. On the other hand, the tyre industry has witnessed a lag in demand with companies like MRF Ltd and TVS Srichakra Ltd having witnessed a decline of ~34 per cent and ~17 per cent in sales.

As for the EBITDA, companies such as Rare Engine Valve Ltd and Phillips Carbon Black Ltd showed a tremendous increase of ~259 per cent and ~52 per cent, respectively. Rare Engine Valve Ltd's expenses reduced substantially leading to high EBITDA for the company. The EBITDA margins for companies like MRF Ltd and Precision Camshafts Ltd showed a de-growth of ~42 per cent and ~34 per cent, respectively, in FY17. The raw material expenses for MRF Ltd were on the higher side, thus reducing margins.

The bottomline of some companies such as Sundram Fasteners Ltd, Rare Engine Valve Ltd and Phillips Carbon Black Ltd rose by more than 100 per cent. This was because of significant increase in revenues for these companies. But FY17 was not so good for some small-cap companies such as Secto Automotive Ltd and Shivam Autotech Ltd, which suffered losses. The sector reported an overall increase in bottomline by ~10 per cent in FY17, with Motherson Sumi System Ltd contributing ~17 per cent, followed by Bosch Ltd with ~14 per cent.The following is the component-wise market segmentation: engine parts ~31%, consisting of critical engine components and has grown at a CAGR of 6% during FY11-16; drive & steering transmission parts ~19%, consisting of gears, wheels and steering system; suspension & braking parts ~12%, consisting of brakes, brake linings and leaf springs, which has also grown at a CAGR of 6%; body & chassis ~12%, which is dominated by the unorganised sector; equipments ~10%, consisting of headlights, dashboard instruments and wipers; electrical parts ~9% consisting of starter motors, generators, spark plugs, voltage regulators; and others ~7%.

Indian auto ancillaries exports their products to 160 countries. The exports include gear boxes, hydraulic power steering gear systems, diesel engines, drive-axles, suspension parts, brakes, and many others. The advantage that India posses in sourcing auto components include high availability of labour at low cost, availability of raw materials, a skilled manpower and quality assurance. The exports in auto ancillaries have grown at a CAGR of ~18 per cent, and it is expected to perform well post-Brexit, with Europe being a major importer.

A good infrastructure, rise in domestic demand, increase in purchasing power, established financial market and stable government are the factors that would positively impact the growth of auto industry. We expect the organised sector, with a market share of ~15 per cent, to perform well because of government's initiatives to make India a global hub in exports. In the long term, we feel India is well-poised to have a strong growth in automobile Industry, which would drive the growth of auto ancillary industry.

The industry is likely to be benefited due to GST implementation. The effective tax rate for auto ancillary currently stands at 28 to 30 per cent and is expected to be brought under the 18 per cent tax slab. The industry currently gains from a favourable domestic market, along with increased supply to global players as well. Also, with the implementation of the GST, auto ancillaries will now no longer have to be close to OEM facilities to gain from VAT credit chain and can thus bring down their costs. 

BANKS 

The Indian banking sector is currently at a critical juncture largely due to the increasing problem of stressed assets and subdued credit growth. Also, the banking system is returning to normalcy after demonetisation. The sector has gone through the dark woods in the past few years due to deteriorating asset quality and lower capex efficiency. The recent farm loan waiver schemes by various states have also pinched the banking sector, impacting its credit costs and quality. Also, RBI's stance on resolving the NPA problems has been more aggressive and fast, which has also impacted performance of the banks. The recent quarterly and FY17 annual results showed mixed performance by the banks. The public sector banks continue to witness muted earnings due to higher NPAs leading to sharp rise in provisions, while private sector banks remain well-capitalized and also show healthy balance sheet performance across the board.

Financial Performance.
Considering the Q4FY17 results, the public sector banks (PSBs) have seen significant CASA growth, largely benefitted by demonetisation providing cushion to cost of funds. Further, the Q4FY17 results of mostly all PSBs were a mixed bag, while most of the private sector banks posted steady performances. Among PSB's Bank of Baroda (BoB) posted good set of numbers with NII growth of 9% YoY for FY17. Followed by BoB, the country's largest bank State Bank of India (SBI) posted 5% YoY growth in NII for FY17. SBI has recently concluded consolidation with five of its subsidiaries, which is expected to show its impact in the coming quarters. In addition, other PSBs such as Union Bank of India, Syndicate bank and Corporation Bank posted NII growth in the rage of 7-5% for FY17. Indian Bank posted highest NII growth at 16% YoY among major PSBs. While many other PSBs such as Allahabad Bank, Bank of Maharashtra, Central Bank of India, IDBI Bank and Punjab National Bank posted negative growth in the range of -6% to -10% YoY. Bank of Maharashtra reported the most steep decline in NII at 18% YoY.

On the other hand, private banks posted robust growth in NII for FY17, supported by strong capitalisation and steady growth in advances. RBL bank posted the most robust numbers among the private sector banks, with increase in NII at 49% YoY. This was followed by Yes Bank, Federal Bank, HDFC Bank and Kotak Mahindra posting YoY increase of 27%, 22%, 21% and 17%, respectively. The substantial increase in net interest income of private sector banks was aided by rising retention of CASA deposits, thereby improving the cost of funds for these banks.

The growth in advances in the overall banking system remained strong for FY17, with RBL Bank posting highest level of growth in advances at 46% YoY in the banking sector in FY17. It was followed by Yes Bank, Vijaya Bank, Federal Bank and HDFC Bank, with 35%, 29%, 27% and 20% YoY growth, respectively. SBI has posted muted loan growth of 1% yoy in FY17 largely due to poor performance of its merged entities. The private sector banks reported the most robust advances growth as compared to the public sector banks, mainly due to larger retail contribution. The MSME segment's growth also augured well for private sector banks. Most of the private sector banks' portfolios have larger share of retail segment, implying low risk of NPAs due to low delinquency ratio.

The rising level of stressed assets in the banking system has created woes for further growth. FY17 has witnessed tremendous increase in provisions for bad loans, which impacted bottomline performances of the banks. Despite steep increase in provisions, major private sector banks such as HDFC Bank, ICICI Bank, Yes Bank, Federal Bank and RBL Bank all posted robust increase in profits, as these banks are well-capitalised and are highly capital efficient. Among public sector banks, Indian Bank reported 98% increase in net profit due to nominal increase in provisions, while the Indian banking system proxy SBI reported 5% growth in bottomline due to rising provisions for NPAs. However, SBI on a consolidated basis after merger of its subsidiaries, posted tepid performance. Bank of Baroda and Canara Bank posted turnaround in bottomline in FY17 largely due to steep decline in provisions by 41 % and 29%. respectively. Private banks reported steady bottomline growth in FY17 across the board. RBL Bank, Federal Bank and Yes Bank posted 53%, 75% and 31% YoY growth, respectively, in FY17. HDFC Bank, ICICI Bank and Kotak Mahindra Bank posted good set of bottomline numbers in FY17. On the other hand, Axis Bank reported sharp decline of 53% YoY in profits due to two-fold increase in provisions in FY17. Other small private banks like Karur Vysya Bank, Indusind Bank, City Union Bank also showed growth of 10% -15% in net profits in FY17.

In terms of asset quality performance, almost across the board there was increase in GNPAs for FY17. Particularly, the PSBs have seen more deterioration in asset quality with higher exposure to problem sectors like power and steel. On the other hand, private banks saw comparatively lower increase in GNPAs due to their much-diversified portfolio and low leverage to power and steel sectors. IDBI Bank, Bank of Maharashtra, Dena Bank, Punjab National Bank and Central Bank of India saw steep rise in GNPAs in FY17 in the range of 500 bps to 1000 bps. ICICI Bank, Axis Bank, J&K Bank, Allahabad Bank also saw increase in their GNPAs, while HDFC Bank and RBL Bank maintained better GNPAs as compared to their peers.

Outlook
Increasing demand for credit coupled with rising number of bad loans increases the need for capital in the banking system. The public sector banks especially have seen deficiency of capital and have failed to meet Basel-III capital requirement of 9.5%. Under the government's Indradhanush scheme of capital infusion in the banking system, it has already infused Rs.50,000 crore of capital and the remaining Rs.20000 crore will be infused by the end of 2018. Small public sector banks will find it difficult to raise capital in the market due to their poor asset quality. However, banks are trying to augment their capital base by selling non-core assets, which is tough for small PSBs to strike such deals. Also, we might see more consolidation happening among PSBs, mainly due to such capital inefficiency. On the other hand, private sector banks are better placed in terms of capital requirements. According to industry reports, Indian banking system will require Rs.90,000 crore more of capital infusion.

Banks have reported tepid loan growth in FY17 largely due to depressed industrial outlook and asset quality concerns. However, retail, agriculture and MSMEs (medium and small enterprises) have shown better performance and have eventually helped banks in maintaining their credit growth. Given the current scenario of the economy and government's structural push for core sector reforms, the banking sector is expected to show better credit growth in the coming years. PSBs credit growth will largely depend on how fast the NPA accounts get resolved. Private sector banks with good retail base and extensive network will continue to show strong credit growth. Corporate segment still holds leverage to a large part of banks' credit portfolio, making it more challenging for resolution.

Post-demonetization, banks have seen sudden surge in CASA (current account and savings accounts) deposits, thereby easing their cost structure. In Q4FY17, banks have witnessed equally large number of withdrawals. However, many PSBs and private sector banks managed to retain the CASA share in deposits, which aided their improvement in cost of funds. Majority of banks are focusing on expanding retail business, which will further drive their CASA share upwards. Improving cost of funds will benefit banks in terms of lending funds at cheaper costs. Rising NPAs have compelled RBI to intervene and take hard measures to resolve the issue as early as possible. Recently, the central bank announced the names of 12 major defaulters, which contribute 25% to overall banking sector NPAs of Rs.10 lakh crore. The strong steps taken by the RBI will compel banks to increase their provisioning, thereby denting their earnings. Out of the overall Rs.10 lakh crore NPAs, the NPAs of PSBs constitute more than 60% , while the remaining NPAs are those of private sector banks and others. However, there are some exceptions among the PSBs as these have stopped growing their advances owing to NPAs and insufficient capital. Going forward, public sector banks will continue to witness more challenging times and more consolidation of small banks. However, private sector banks continue to remain well-capitalised and comparatively maintain sound balance sheet. Infusion of capital in public sector banks will remain a crucial aspect for the banking system and for credit growth in the banking system. The government's push to steel and infrastructure sector will improve health of these industries, thereby improving overall stressed asset quality of the banking system.

CEMENT 

The cement industry in any country plays a dynamic role towards the development of the nation. India is the second largest producer of cement in the world after China, ahead of the US and Japan, since last two decades. India's total cement production capacity is ~421 million tonnes (MT) as of FY17, which accounts for 6.7 per cent of world's total cement output. India has a lot of potential for development in infrastructure and construction sectors, which will drive cement industry's growth.

The total installed cement production capacity of 350 million tonnes is distributed over around 210 large plants. Out of these 210 large plants, 77 are situated in Andhra Pradesh, Rajasthan and Tamil Nadu. Further, private sector companies contribute majorly to the total production capacity with ~98 per cent share and the remaining ~2 per cent being contributed by public sector companies. Top 20 cement companies account for almost 70 per cent of the total cement production.

Cement industry is a highly capital-intensive industry with a long gestation period. Also, existing companies are on the way to expand their production capacities to cater to future demand. All these factors act as headwinds for new entrants in the industry. There has been around 57 per cent reduction in the number of companies operating in the industry between 2013-15. Also, cement industry is highly competitive as differentiation in the types of cement is very marginal. Due to this, cement companies need to constantly remain competitive to retain their market share.

The cement industry is cyclical in nature. So, normally in the month of March its demand cycle is at a peak, while from August to September, the cycle reverses as demand remains muted. In the current scenario, the cement industry has been adopting technological changes via upgradation and integration. At present, almost ~93 per cent of the total capacity is based on the modern dry process, which helps in environmental improvement, whereas the remaining ~7 per cent still use old wet and semi-dry process technology. Despite being second largest cement producer in the world, our country is amongst countries having lowest per capita consumption of cement at 125 kg, which is much lower than the developed and other developing economies. However, the cement industry, since last couple of years, is witnessing overcapacity leading to lower utilisation, along with slackening of demand and higher input costs.

India's cement production capacity is expected to reach 550 million tonnes by FY2025. The housing sector, which contributes 64 per cent to the total cement demand, is the biggest demand driver of the cement industry. This is expected to deliver significant growth on account of various government initiatives such as ‘Affordable Housing Scheme', ‘Housing for All by 2022' and rural low-cost housing under Pradhan Mantri Awaas Yojna. Further, housing demand is expected to boom, supported by easy home loan availability and rising urbanisation.

Infrastructure sector, commercial construction and industrial construction contributed 17 per cent, 13 per cent and 6 per cent, respectively, to the total cement demand in FY16. All these sectors are expected to benefit by several government initiatives viz. ‘100 Smart Cities', ‘Swatch Bharat Scheme' and AMRUT (Atal Mission for Rejuvenation & Urban Transformation).
Further, the infrastructure development will grow significantly due to projects such as dedicated freight corridors as well as new and upgraded airports and ports. Also, the metro rail projects in Mumbai, Bangalore, Hyderabad and the expansion phase in Delhi has been driving cement demand. 

Further, investments by the government on road transport (Rs.29,000 crore) and highways (Rs.64,900 crore) will lift the cement demand during the next fiscal. Also, the government decision to shift from bitumen to cement for construction of all upcoming projects will impact the industry positively. The decision was taken as cement is more durable and cost effective and the move will benefit the cement companies, both in the medium and long term.

The government has fixed GST rate of 28 per cent for cement, whereas existing tax rate is 24 per cent. This slight increase in tax rate may lead cement companies to hike prices. However, GST on cement's raw material, limestone, has been fixed at 5 per cent. Also, for coal, the GST has been fixed at 5 per cent, which was 11.69 per cent earlier. This cut in tax rate on coal will help cement companies in cost reduction and will lead to profitability in coming years. However, the reduction in cost for the end consumer will happen only if cement companies pass on their savings to their consumers.

Out of 1000 companies, we have considered 32 companies according to their market capitalisation. The cement major Ultratech Cement has posted muted growth in terms of revenue and operating profit in FY17, while reporting 19 per cent YoY increase in its bottomline in FY17. Also, the acquisition of the cement business of Jaiprakash Associates Ltd worth Rs.16,189 crore having total capacity of 21.1 million tonnes per annum, is about to complete in July 2017. This will give Ultratech Cement foray into Madhya Pradesh, Uttar Pradesh East, Himachal Pradesh and coastal Andhra Pradesh, where it does not have presence currently.

Shree Cement posted impressive growth in terms of revenue and operating profit, which were up by 57 per cent YoY and 64 per cent YoY respectively in FY17. It reported 194 per cent YoY growth in terms of bottomline in FY17. The company is focusing on robust capacity expansion in the East and North and planning to expand its capacity from 23.6MTPA to 33.6MTPA by FY2019. Ambuja Cements has also reported impressive growth in terms of revenue, operating profit and PAT by 112 per cent, 92 per cent and 39 per cent, respectively, in FY17. Also, ACC and Ambuja Cements are planning to merge, creating the second largest cement producer in India by market capitalisation, after Ultratech Cement.

However, ACC, one of the oldest manufacturer in India, has disappointed in the latest quarter and posted de-growth in revenue and operating profit by 5 per cent YoY and 8 per cent YoY, respectively, in FY17. However, its PAT has increased by 3 per cent YoY in FY17. The company is struggling with higher operating costs due to lower capacity utilisation and persistent inefficient operations. Dalmia Bharat Ltd has grown revenue,operating profit and PAT by 31 per cent, 9 per cent and 81 per cent, respectively, in FY17. It is likely to complete its merger with OCL India by Q3FY18, which will provide substantial advantage on the cost front. It also plans to spend US$293 million for capacity expansion in Odisha. It has become the first cement company in India to provide itself with 100 per cent renewable power.

Other cement companies such as Ramco Cements, JK Cements, OCL India Ltd., Birla Corporation Ltd. and India Cements have reported stable and continued growth in terms of revenue, operating profit and PAT in FY17.

We expect the cement industry to see recovery in volumes and realisations. Leading players are focusing on capacity expansion to cater to the boost in demand. Total cement production capacity is likely to jump to almost 474 million tonnes per annum over the next couple of years. Also, the total investment of these projects is estimated to reach Rs.27,960 crore, which involves both public as well as private sectors. Overall, the cement industry is expected to grow at ~9 per cent CAGR over FY17-20 supported by normal monsoons and increased focus of government on various housing and infrastructure projects. Besides, the launch of Smart Cities and urban infrastructure development along with implementation of GST will also bring opportunities for the growth of the sector in the coming years.

Many foreign players are likely to enter the cement sector in upcoming years due to favourable profit margins and consistency in demand. Also, cement companies could go for listings either through the FCCB route or the GDR route.

The growth in the cement industry is likely to continue in upcoming years supported by strong growth in the economy and favourable government policies. We see steady increase in both demand as well as production over the next couple of years.

We expect the cement industry to see recovery in volumes and realisations. Leading players are focusing on capacity expansion to cater to the boost in demand. Total cement production capacity is likely to jump to almost 474 million tonnes per annum over the next couple of years. Also, the total investment of these projects is estimated to reach Rs.27,960 crore, which involves both public as well as private sectors.

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CHEMICALS

While India holds a bright spot in the otherwise uncertain global economic scenario, the Indian chemical industry continues to drive its growth as the third largest chemical industry in Asia and the sixth largest in the world.

With over 70,000 commercial chemical products, including petrochemicals and basic chemical products, the Indian chemical industry accounts for nearly 16 per cent of the total production of dyestuffs and dye intermediates and the third largest producer of agrochemicals.

On the global front, the chemical industry is estimated to be worth USD 4.3 trillion, with the Indian chemical industry contributing USD 147 billion to the global chemical industry till 2015. At present, the global chemical industry is heading towards an upward trend and realignment. The industry is being spearheaded by Chinese state-owned companies that may see a merger, consolidating into the world's largest chemical manufacturer.

Further, the global chemical industry witnessed a string of mergers in the recent past, resulting in a creation of ‘3 trillion yen club' with the US and European chemical majors as members, focusing on maximising utilisation of management resources. The Japanese chemical manufacturers, covering a major fraction of the global chemical market, are strategically coping up with the global industrial downturn.

As the markets are witnessing an expanding global demand for specialised chemicals, the companies are being equipped with opportunities to penetrate into new as well as the erstwhile niche market.

The chemical industry at large is also witnessing a growing trend of mergers and acquisitions. With uncertainty hovering over the international oil prices, mergers and acquisitions have come across as an escape window for companies distressed with lowering oil prices and in need of offloading non-core assets. Large global chemical players, including Mitsubishi, BASF, Syngenta, Lanxess and AkzoNobel have also opted for mergers and acquisitions to strengthen their position in the chemical manufacturing industry.

In 2016, the Indian chemical industry recorded a market size of USD 139 billion with a market size projection of USD 403 billion by 2025. The industry that contributes about 2.11 per cent of India's GDP is expected to further increase its share by two-fold to 5-6 per cent in the global chemical industry by 2021. India's specialty chemicals industry, which is currently valued at USD 25 billion, is expected to hit USD 70 billion by 2020 with rising exports of inorganic and organic chemicals. The specialty chemicals industry has witnessed a growth of over 13 per cent over the last five years, majorly driven by domestic consumption of the economy, with specially polymers and agrochemical segments reigning over the Indian markets strong opportunities and growth potential.

In FY16, the industry reported exports of USD 1.21 billion of inorganic chemicals and an organic chemicals market worth USD 11.51 billion in FY16, with organic chemicals export worth USD 4.02 billion during the corresponding period.

The growth momentum of the industry is likely to continue due to the growing focus on India as a manufacturing hub, lower labour cost, easy availability of key raw materials, large consumer markets and greater adaptability to technology.

The industry has witnessed a higher growth in recent years as an impact of the government's programmes including the second phase of "Chemistry Everywhere" campaign launched by CII in 2015 and lifting of FDI restrictions on the Indian chemical sector. Furthermore, the delicensing of the manufacturing of most of the chemical products, setting up of PCPIRs and the launch of the Draft National Chemical Policy to promote safe operations and R&D in the sector, has aided the Indian chemical industry to grow manifold. The sector is further expected to benefit from normal monsoons during the current year.

Moreover, the industry, with its capital intensive manufacturing locations and large scale logistical operations, will substantially reap the benefits of implementation of the GST to its advantage. The elimination of the need of warehouses for inter-state sale of goods will bring down the administrative cost as well as the cost of the operations in the industry. Thus, the uniform GST rates of 18-20 per cent for the chemical industry is expected to have a strong positive impact on the industry.

The top company by market capitalisation, Asian Paints Limited has a market cap-to-revenue ratio of 7.1, depicting overvaluation. The company's revenues reduced by one per cent in FY2016-17, from a positive growth of over 9 per cent in the revenues in FY2015-16, due to demonetisation and stiff competition from China on the global front. However, the company's net income witnessed an increase from Rs.1726 crore in FY2015-16 to Rs.1939 crore in FY2016-17.

The second leading company in terms of market capitalisation, UPL Limited, recorded tremendous increase in revenue from Rs.13,413 crore in FY2015-16 to Rs.16,756 crore in FY2016-17. The company's market capitalisation-to-net sales ratio stood at a modest rate of 2.1. UPL Limited also secured the highest revenue, with nearly 25 per cent increase in revenue on a yearly basis. The sales of UPL Limited were majorly driven by an increase in volumes, consolidation across geographies and the company's increasing market share in the agrochemical market. The government's ‘Make in India' initiative has also largely contributed in establishing India as a chemical manufacturing hub.

Taking the set of top 72 companies by market capitalisation, the total revenues posted amounted to Rs.169,253 crore in FY2016-17, as against a revenue of Rs.168,276 crore in FY2016- 15, an increase of 0.58 per cent. The fiscal year 2016-15 had witnessed over 2 per cent reduction in the revenues from The overall profit before interest, tax and depreciation (PBIDT) rose to Rs.29,260 crore in FY2016-17, as against a PBIDT of Rs.25641 crore in FY2015-16. The PBIDT of the total set of 72 companies in the fiscal year 2014-15 stood at Rs.21,821 crore. The net income of the companies rose to Rs.16,470.43 crore in FY2016-17 from Rs.12,977 crore in FY2015-16. Akshar Chem (India) Limited, Nagarjuna Agrichem and Supreme Petrochem witnessed an increase of over 200 per cent in their net incomes in FY2016-17.

The overall profit before interest, tax and depreciation (PBIDT) rose to Rs.29,260 crore in FY2016-17, as against a PBIDT of Rs.25641 crore in FY2015-16. The PBIDT of the total set of 72 companies in the fiscal year 2014-15 stood at Rs.21,821 crore. The net income of the companies rose to Rs.16,470.43 crore in FY2016-17 from Rs.12,977 crore in FY2015-16. Akshar Chem (India) Limited, Nagarjuna Agrichem and Supreme Petrochem witnessed an increase of over 200 per cent in their net incomes in FY2016-17.

However, the recent wave of digitisation poses a great threat to the otherwise traditional chemical industry that majorly operates on obsolete business models. One of the main challenges to the industry is to adapt to the needs of the evolving markets. With the shift in the global demand to the emerging markets, the companies are required to alter operations in accordance with the changing streams of revenue from supply to royalty, contract manufacturing and technology transfers. Thus, the chemical manufacturing companies are also required to alter their business models to focus on selling existing products in emerging markets and specialised products in traditional markets.

The increased emphasis on environment friendly technology in the light of acute environmental issues, along with the implementation of high benchmark manufacturing norms by the government due to concerns on the deteriorating environment, demands the companies to spend more on research and development on the manufacturing processes of the chemical products.

The markets are witnessing a dilution in the companies' market shares with new players entering the markets, introducing products to cater to specific needs of the customers, thereby spurring competitiveness in the market. The chemical industry's road ahead will be driven by automation coupled with information technology on account of the cut throat competition.

The recent wave of digitisation poses a great threat to the otherwise traditional chemical industry that majorly operates on obsolete business models. One of the main challenges to the industry is to adapt to the needs of the evolving markets. With the shift in the global demand to the emerging markets, the companies are required to alter operations in accordance with the changing streams of revenue from supply to royalty, contract manufacturing and technology transfers. Thus, the chemical manufacturing companies are also required to alter their business models to focus on selling existing products in emerging markets and specialised products in traditional markets.

CONSTRUCTION 

The construction industry, which consists of building, infrastructure and industrial segments, is a key sector to propel India's growth. Out of the total demand for construction industry, 50 per cent comes from infrastructure sector (a third largest market in Asia) and the rest comes from industrial activities, residential and commercial development. Roads and highways are one of the most significant part of any country's infrastructure sector and these are also used as an indicator to measure any country's economic prosperity. India roads and highways market grew at a significant pace over the past few years, owing to increasing focus of Government of India towards building better infrastructure of roads and highways network for public and freight transportation. According to the Ministry of Road Transport & Highways, a record 16,271 km of national highways have been awarded and 8231 km constructed during the financial year 2016-17. However, the government has missed its own target of 15000 km set for road construction during the same period. Delays in land acquisition, environmental concerns and regulatory delays in clearances have acted as hurdles in the way of the ministry to meet its target. To overcome from the challenges of delays due to land acquisition the government has made some progress in addressing issues in the sector, such as streamlining the land acquisition process in some states.

Indian economy was hit by demonetisation last year, resulting in slowdown in the economy. The demonetisation drive aimed at curbing black money in the economy led to severe cash crunch in the country due to which the real estate sector was seriously affected as major transactions in this sector were cash driven.

However, this year India saw listing of its first InvIT fund of IRB Infrastructure, which helps to unlock liquidity in infrastructure investing. Real estate investment trusts (REITs) and InvITs, which are created mainly to invest in incomegenerating real estate and infrastructure assets, can raise Rs.500 billion in the near future, as per recent report by CRISIL and ASSOCHAM. Moreover, to lift the construction sector, the government has allowed 100 per cent FDI in the sector.

To analyse the construction sector we have taken into consideration financial performances of 72 companies (a mixture of large-cap, mid-cap, and small-cap). As per the data, the construction sector has witnessed a muted revenue growth of 2 per cent YoY in FY17 to Rs.1,35,064 crore.

While analysing large cap companies' financial performance, we found that India's largest real estate company DLF overcame the demonetisation blues and posted 23 per cent YoY revenue growth in FY17 to Rs.32,050 crore. Also, India's leading infrastructure company IRB Infrastructure Developers posted 14 per cent YoY revenue growth despite temporary suspension in toll collection post demonetisation. On the other hand, Godrej Properties and Oberoi Realty posted 37 per cent and 20 per cent YoY decline, respectively, in their revenues in FY17.

In terms of large cap company' bottomline, Indiabulls Real Estate and NBCC (India) reported 17 and 14 per cent YoY net profit growth, respectively, in FY17. However, DLF and Oberoi Realty disappointed investors by reporting 39 and 11 per cent YoY dip in net profits, respectively, during same period.

Moreover, in the mid-cap and small-cap segments, Pune-based real estate firm Kolte-Patil Developers outshined on the revenue front, posting 145 per cent YoY growth in FY17 followed by Marathon Nextgen Realty and Man Infraconstruction which posted 95 and 90 per cent YoY revenue growth, respectively, in FY17.

Looking at the companies' bottomlines, Kridhan Infra, MEP Infrastructure Developers and Man Infraconstruction posted 387, 314 and 300 per cent YoY jump in their net profits, respectively, during FY17. But companies such as NCC and Poddar Housing and Development failed to gain the confidence of investors, posting 92 per cent and 80 per cent YoY decline, respectively, in their net profits.

The housing supply in India during 2017 is expected to rationalise because of cautious sentiments of developers, largely due to the demonetisation drive and the implementation of RERA. Housing sales are expected to remain sluggish in the first half of 2017. However, going forward, favourable government policies and lower interest rates in the economy are likely to drive growth in the real estate sector.

Moreover, government's various reforms (such as REITs, GST and RERA) are likely to improve the overall investment sentiment and create more transparency in the real estate sector, which will help the sector to bounce back in the coming days. Also, the government's impetus on infrastructure development with an investment of Rs.3,96,135 crore (announced in the Union budget 2016-17) bodes well for the sector.

Impact of RERA From of May 1, 2017, the new law Real Estate Regulation Act (RERA) came into effect which is likely to bring in more transparency in the real estate sector.

Due to implementation of RERA, developers are likely to take cautious steps on new launches, as they need to make some changes in their business structure, operations and marketing strategy to comply with RERA norms. Ongoing projects must be registered with the respective state RERA authority within 90 days of the new law coming into effect. Thus, developers are bracing up to get all the required documentation and approval in place for the registration, reworking sale agreement, maintaining clear records of their projects, sales, setting up separate escrow account for each project, making provision for penalties, payments, etc. This will confine the revenue of the developers at the beginning of the project and, therefore, it will make developers to concentrate in fewer projects at any one given time.

The RERA will safeguard the interests of home buyer through rapid redressal system for their grievances and also strong consumer protection will be available to home buyers as they can now approach the Appellate Tribunal in case of any grievance. This will stimulate the interest of individual buyers to go for under construction project.

RERA has set in motion a more organised and transparent real estate sector, which would refurbish the image and perception of the Indian markets. This is likely to build confidence amongst end-user buyers and lift the sales in the coming years. Growing housing sales and transparent financial management through separate accounts for each project will also boost sentiments of institutional investors.

All projects which are less than 8 apartments or where the area of land is up to 500 square metres will not come under the scope of RERA. Developers of such projects need not make disclosures and they are also not mandated to comply with any of the RERA laws. Thus, small project developers will continue to be fragmented. Home buyers in such small projects will have to be very cautious while buying flats in such projects. Apart from RERA, the government's decision to give infrastructure status to affordable housing will help the sector to grow even faster. Hence, this would encourage private players to participate more in future. The affordable housing segment can serve as a revenue stream amid slower sales in other categories, especially luxury housing, due to demonetisation. Granting infrastructure status to affordable housing is significant as it will provide cheaper sources of finance to developers and also open up additional means for developers to raise funds. The segment will now be given priority lending status.

Even though demonetisation had an adverse impact on construction activity in the past few months as majority of the construction workers' wages were paid in cash, the Fitch group company said that it believes that robust growth will return in 2017 as work resumes on the large pipeline of infrastructure,residential and non-residential projects in the country. For a country populous like India, improvement in infrastructure has become a necessity. Over the next decade, an estimated $1.5 trillion is needed to create infrastructure, and for servicing and revamping existing infrastructure. Hence, the players in infrastructure sector are expected to benefit from the huge potential that still lies untapped.

With various initiatives such as ‘Housing for All' and ‘Smart Cities,' the government has been working on reducing the bottlenecks that delay growth in the infrastructure sector. The latest budgetary outlay for infrastructure spending has been increased to Rs.3.96 lakh crore for various projects, including housing, railways, ports and irrigation.

Some of the key announcements in the Union Budget 2017-18 for construction and infrastructure: 1) Total outlay of Rs.396,135 crore dedicated for infrastructure in FY17-18.

2) The outlay on roads increased from Rs.57,976 crore in budget 2016-17 to Rs.64,900 crore in budget 2017-18. In all, 2,000 km of coastal connectivity roads have been identified for construction and development.

3) The expenditure of railways stands at Rs.131,000 crore, which includes Rs.55,000 crore to be provided by the government.

4) For transportation sector as a whole, including rail, roads and shipping, Rs.241,387 crore has been proposed.

5) Addition of Rs.20,000 crore to corpus of Long-Term Irrigation Fund set up at NABARD. This will take the total corpus of the Fund to Rs.40,000 crore.

6) Higher investment in affordable housing. Increase in the allocation for Pradhan Mantri Awaas Yojana – Gramin from Rs.15,000 crore in 2016-17 to Rs.23,000 crore in 2017-18.

Besides, infrastructure companies have been deleveraging their balance sheets and are now looking healthier, allowing them to take on new projects.

Under ‘Make in India', the government has made favourable amendments in foreign investment laws to promote participation of international companies to invest and participate in India's infrastructure projects. Moreover, Government of India has come up with several programmes which are aimed at improving logistics, stimulating investment in manufacturing and building affordable housing, which will trigger growth in the construction industry over the next few years.

Furthermore, implementation of hybrid annuity model in public private partnership (PPP) projects in roads and highways sector in the country is further expected to witness rising participation of project developers in the bidding process, which is expected to drive India roads and highways market, going forward.

Over the past few years, highways contributed lion's share in India's roads and highways sector due to major investments in this segment. Upgradation of state and national highways with length over 1000 km into expressways is expected to drive huge investments in expressways development. Moreover, north India dominated the roads and highways market in 2015 and is further expected to continue its dominance through 2025, owing to growing urbanisation and increasing investment in improving the road and highways infrastructure.

Looking at overall situation, increased transparency through government policies such as RERA, REIT and InvIT, easing FDI norms, demonetisation, GST, lower lending rates, and huge investment by government for building strong infrastructure lends confidence to invest in the sector for the long term.

CONSUMER DURABLE 

India's consumer durable industry, which was valued at USD 9.7 billion in FY15, is currently valued at USD 12.5 billion This sector is expected to grow to $20.6 billion by 2020 and become the fifth largest in the world by 2025. Around two-third of the total revenue is derived from urban population and the rest is derived from the rural population.

The demand in urban markets is likely to increase for nonessential products such as LED TVs, laptops, split ACs and beauty & wellness products. In rural markets, durables like refrigerators as well as consumer electronic goods are likely to witness growing demand in the coming years as the government plans to invest significantly in rural electrification. Advancement in technology and intense competition are driving price cuts across the sector for products such as computers, mobile phones, refrigerators and TVs. With the government's initiative of "Make in India", many domestic and Chinese manufactures are investing in India to set up their manufacturing plants which would make their products more affordable.

We have analysed financials of 11 companies from the sector. According to our analysis, the revenue of the industry grew 7.84 per cent to Rs.46880 crore in FY17 from Rs.43473 crore in FY16 on YoY basis, whereas there was a decline of 3.30% in FY16 from Rs.44958 crore in FY15. The EBITDA of the industry declined by 18.89% to Rs.4625.48 crore in FY17 from Rs.5697.65 crore in FY16 on a YoY basis.

Following the EBITDA, the industry's PAT for the year posted a degrowth by 116.76% amounting to a loss of Rs.230.72 crore from a profit of Rs.1376.75 crore in FY16 YoY basis, whereas the decline was only about 4.14% in FY16 from Rs.1463.14 crore in FY15. Such substantial fall in PAT was mainly due to negative numbers posted by Videocon for the 15-month period ended March 2017.

The 11 companies we have shortlisted, including top 3 companies as per their market capitalisation, are: Titan Company with Rs.42143 crore market capitalisation, followed by Whirlpool India at Rs.14902 crore and Symphony at Rs.9155 crore. The revenue of Titan grew by 15.04% to Rs.13049 crore in FY17 from Rs.11342 crore in FY16 on a YoY basis. The company contributed 27.83% of total revenue among the 11 companies in FY17. The EBITDA and PAT for the company grew at 15.98% and 1.14% to Rs.1155 crore and Rs.697 crore, respectively, in FY16 from Rs.996 crore and Rs.689 crore. The currency crunch in November 2016 on account of demonetisation did impact the sector to some extent. However, the demonetisation effect has petered out, so the sector is now expected to grow on account of the liquidity issue been addressed by the government.

Under the GST, majority of the items from the consumer durable sector are likely to be taxed at 28 per cent, whereas some of the items – belonging to the lower price bands – might be taxed at 18 per cent, considering their mass nature. Consumer durable manufacturers expect sales of TVs, refrigerators and ACs to be impacted in July-August 2017 as prices would go up 4-5 per cent under the GST regime. The industry might face some difficulties in the initial months, but it would recover later. In the short run, there would be some resistance or postponement, but in the long run, given that it is a very structured tax system, it would propel growth. The GST tax rates have been fixed at 28 per cent for TV, refrigerators and air-conditioners. Home appliances is a very low-penetrated category, so bringing it down to 18 per cent would have propelled growth of the industry. There is an expected weakness in revenues in the first quarter due to destocking of channel inventory but that can revive from 2QFY18.

The biggest benefit that the GST will bring in is reduction in complications related to taxation. The sector is considered inventory-heavy and inter-state transportation of goods led to complications in taxation.Though the consumer durable industry is one of the fastest growing industries presently, general inflation in the form of rising cost of inputs is likely to maintain the pressure on the manufacturers. Implementation of the 7th Pay Commission recommendations will further give a much-needed boost to demand in the consumer durables sector, which witnessed sluggish sales in the last couple of years. With rise in disposable incomes and scaling up of e-commerce, the consumer durable industry is expected to get a boost in FY17-18.

Non-metro markets such as Vishakhapatnam, Bhopal, Vadodara, Chandigarh, among others, have grown rapidly in regard to consumption, becoming the main target markets, posing a huge potential transforming themselves into new business centres as compared to metro cities.

ELECTRICAL EQUIPMENT 

The electrical and electronics industry is highly fragmented and consists of electronic components, computer and office equipments, telecommunications and industrial electricals. The industry has observed high growth because of customers' preference in electronic goods and services. The electronics and electrical industry posted a growth of 4.25 per cent in FY17 on a YoY basis due to rise in exports, mainly in power transformer and high voltage switchgear products.

With the implementation of the GST, the prices of electrical machinery will remain unaffected, but the manufacturers may benefit due to availability of input tax credit. The household electronics appliances would be taxed under the 28 per cent slab, causing a 2-3 per cent increase in tax burden for the end-users. The customers are likely to pay more for consumer durable electronics, but there may be little or no change in electrical machinery prices.

Analysing the sector with top 19 companies in terms of market cap, we observed that the total sales in FY17 stood at Rs.46,106.37 crore, a growth of 1.42 per cent YoY. The greatest contributors to the total sales were ABB India and Havells India, both of which contributed ~32 per cent. Ujaas Energy Ltd and HBL Power System Ltd have witnessed sales growth of ~71 per cent and ~19 per cent, respectively, during FY17. Some of the small-caps such as TD Power Systems Ltd and Genus Power Infrastructures Ltd posted negative sales growth of 24 per cent and 23 per cent, respectively.

Some of the small caps have posted a significant increase in their net sales with companies such as Elpro International Ltd posting a turnaround in profits, with Rs.4 crore profit in FY17, as against loss of Rs.4 crore in the previous year. Bharat Bijlee Ltd has posted a rise of ~173 per cent in its net profits. The industry witnessed an overall decrease in profits by ~19 per cent in FY17. The large-cap Havells India Ltd registered a decline in net income by ~59 per cent due to higher tax expenses incurred by the company, posting a bottomline of Rs.494 crore in FY17.

The industry has witnessed rising customer base and increase in penetration of consumer durables that drive growth for the sector. Digitisation of cable television would increase the broadband connections in the country. The investments in the sector are expected to increase, with states like Gujarat planning to become a manufacturing hub for electronic products, which would further boost up the sector in India.

The growth in electrical sector lies in increase in generation capacity, power transmission and number of sub-stations. The future of electrical and electronics industry is expected to brighten post global demand and upsurge in investments. With focus shifting to Asian markets, we expect the growth in FY17 would be better.

ENGINEERING

The Indian engineering sector has witnessed a remarkable growth over the last few years driven by increased investments in infrastructure and industrial production. The engineering sector, being closely associated with the manufacturing and infrastructure sectors, is of strategic importance to India's economy.

Recently, India's engineering exports to Japan and South Korea have increased with shipments to these two countries rising by 16 and 60 per cent, respectively. Sri Lanka, Nepal and Bangladesh have also emerged as the major destinations for India's engineering exports.

India exports transport equipment, capital goods, other machinery/equipments and light engineering products such as castings, forgings and fasteners to various countries of the world. Generally, it exports its engineering goods mostly to the US and Europe, which accounts for over 60 per cent of the total exports. Engineering exports from India stood at USD 57.5 billion for the 11-month period ended February 2017.

India's exports rose for the sixth straight month in February, indicating a recovery for the global economy. It was probably the best month in the recent past, with exports growing 17.48 per cent to $24.49 billion as against $20.84 billion in February 2016.

A substantial rise in exports was observed in case of iron and steel, electrical machinery, automobiles, medical and scientific equipments, railway and transport equipments.

Imports rose 21.76 per cent to $33.39 billion (from $27.41 billion), mainly due to gold imports that jumped 147.62 per cent to $3.48 billion from $1.40 billion in February 2016.

The sector has attracted immense interest from foreign players as it enjoys a comparative advantage in terms of manufacturing costs, technology and innovation. This, coupled with favourable regulatory policies and growth in the manufacturing sector, has enabled several foreign players to invest in India.

The Indian engineering sector is divided into two major segments - heavy engineering and light engineering.

The Indian boiler industry has the capability to manufacture boilers with super critical parameters up to 1000 MW unit size and the industry's market size is expected to reach USD11.7 billion in FY22 .

The industry manufactures various turbines in the range of 800– 7000 MW per annum and generators ranging from 0.5 KVA to (ones even higher than) 25,000 KVA. The total production of turbines and generators is estimated to reach USD13.4 billion by FY22. Foreign players like Siemens is also in the race to supply to the Indian market.

The transformers market in India was valued at USD 1.78 billion in FY16 and is expected to reach USD11.1 billion in FY22 . A whole range of power & distribution transformers, including special type of transformers required for furnaces, electric tracts and rectifiers are manufactured in India, and revenues are expected to grow at CAGR of 14 per cent till 2018.

We selected top 1000 companies according to their market capitalisation. Out of these, about 67 companies belong to the engineering sector. Further, we have analysed that the sector posted muted numbers for the year FY17. The topline of the sector improved by 3.68% to Rs.145,949 crore for the period as compared to the previous year, whereas the sector had shown a degrowth by 8% to Rs.140775 crore in FY16 on a yearly basis.

The EBITDA of the engineering sector improved by 15.59% to Rs.16,647 crore in FY17 as compared to the previous financial year. Previously, the industry's EBITDA had declined by 10.40% to Rs.14,402 crore in FY16 on a yearly basis.

The aggregate bottomline of the engineering sector stood at Rs.8,838 crore in FY17, as against Rs.5,608 crore in FY16. The industry's net loss in FY15 was Rs.2,900 crore.

The industry major, Bharat Heavy Electricals Ltd‘s (BHEL) revenue improved by 4.15% in FY17, whereas, there was a decline in the topline by 13% in FY16 on a yearly basis. The company posted an EBITDA of Rs.1097 crore in FY17, while there was a negative EBITDA of Rs.470 crore in FY16. It reported a net profit of Rs.455 crore during the year, as compared to a net loss of Rs.896 crore previous year.

In the recent past, there have been many major investments and developments in the Indian engineering and design sector: Engineers India Ltd and Gazprom PJSC, the respective domestic companies of India and Russia in the engineering and oil and gas sectors, will prepare a blueprint for laying a gas pipeline between India and Russia, which is expected to help India diversify its energy mix and increase trade with Russia.

American plane maker Boeing Corporation has launched the Boeing India Engineering & Technology Center in Bengaluru. The centre will employ hundreds of locals who will work to support Boeing, including its information technology and data analytics, engineering, research and technology, and tests. Reliance Defence and Engineering Ltd said it has signed an agreement with the US Navy for undertaking service, maintenance and repair of Seventh Fleet of the US Navy at the Reliance Shipyard at Pipavav in Gujarat.

India's Texmaco Rail & Engineering has signed a memorandum of understanding (MoU) with Russia's Rosoboronexport (ROE) for modernisation of armoured vehicles operated by the Indian Army Volvo Penta, a marine and industrial power system manufacturer, plans to produce five and eight litre industrial engines at the VE Powertrain (VEPT) plant in Pithampura near Indore from 2017.

Toshiba Transmission and Distribution Systems (India) Pvt Ltd has bagged Rs.226 crore (US$ 33.9 million) contract from Kenya Power and Lighting Company for around 8,000 distribution transformers.

Leading aircraft maker Airbus announced it has begun sourcing components for almost all its jets from India and it aims to take its cumulative sourcing from India to US$ 2 billion by 2020 Larsen & Toubro bagged construction orders worth Rs.1,099 crore (US$ 164.85 million) which included jobs from power transmission and distribution sector worth Rs.517 crore (US$ 77.55 million) and a rural electrification project under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) scheme at Gorakhpur in Uttar Pradesh.

Investments to increase capacity have led to rising demand for power generation and transmission equipments. The generation capacity has increased by 14,209 MW in FY17 from 20,037 MW in FY16

Government Initiatives : The sector has been delicensed and enjoys 100 per cent FDI. With an aim to boost the manufacturing sector, the government has relaxed the excise duties on factory gate tax, capital goods, consumer durables and vehicles.

The Government of India is planning to merge six engineering consulting public sector units (PSUs) to create a mega consultancy firm that can take up projects across sectors and compete with the likes of Bechtel of the US and domestic majors like Larsen & Toubro (L&T). Steps have also been taken to encourage companies to perform and grow better. For instance, EIL was recently conferred the Navaratna status after it fulfilled the criteria set by the Department of Public Enterprises, Ministry of Heavy Industries and Public Enterprises, Government of India. The Navaratna status would give the state-owned firm more financial and operational autonomy. Government of India has also taken initiatives to provide a level playing field to domestic and foreign private players bidding for the government contracts in defence sector. The government has withdrawn excise and customs duty exemptions granted to goods manufactured and supplied to the defence ministry by state-owned defence firms. These steps will also encourage participation of foreign original equipment manufacturers (OEMs) such as Boeing, Airbus, Lockheed Martin, BAE Systems, etc., in the sector

To download the above companies data in table please click here

ENTERTAINMENT

The entertainment sector comprises of various segments, including print media, music, film, advertising, television and has grown tremendously over the last few years. The industry is expected to grow at 13.98 per cent during the period FY14-18. India possess one of the largest markets in the broadcasting segment, with approximately 800 satellite TV channels, 242 FM channels and more than 100 ratio community networks.

The GST will have a mixed impact on the industry, depending on the state in which the company is located, but owners may gain because of input tax credit. The government has supported the industry, allowing greater funding by increasing FDI limit from 74 per cent to 100 per cent in the cable and DTH platforms. The government has approved Model Shops and Establishment Act, allowing various workplaces to remain open round-the-clock which would boost revenues for the sector.

Taking the top 24 companies in terms of market cap in the entertainment sector, we observe that the net sales of the companies have declined by ~2 per cent to Rs29462 crore. Some of the small-cap companies performed well in FY17, reporting a surge in topline by ~95 per cent and ~53 per cent for companies such as Media Matrix Worldwide Ltd and Prime Focus Ltd. The sales for TV18 Broadcast Ltd and Hathway Cable & Datacom Ltd showed degrowth in sales with ~61 per cent and ~35 per cent decline, respectively, in FY17.

The bottomline for Zee Entertainment Enterprises Ltd and Prime Focus Ltd rose significantly in FY17, posting a surge of ~116 per cent and ~229 per cent to Rs2220 crore and Rs140 crore, respectively. The performance of some mid-cap companies such as Dish TV India Ltd and Zee Media Corporation Ltd showed degrowth in PAT of ~84 per cent and ~132 per cent to Rs109 crore and loss of Rs16 crore, respectively, in FY17. We observed an overall growth of ~26 per cent in the aggregate bottomline of companies due to Zee Entertainment Enterprises Ltd almost doubling its PAT from Rs1027 crore to Rs2220 crore during the year.

India has a very low advertising expense ratio, which is less than one per cent of the GDP as compared with with other developed economies, and hence we expect high growth in the segment. The digital advertising has become a significant part of the industry with increasing internet subscribers. Rising income levels backed by strong economy growth are the pillars for the sector. We also expect an increase in revenues generated from subscription and other value-added services in the industry.

FERTILIZERS


Fertilizers are the important plant nutrients essential for obtaining optimal yield and quality of the cultivated crop. Fertilizers can be both organic and inorganic. Since agriculture sector is one of the most significant sectors of our Indian economy, it goes without saying that the fertilizer industry is one on which the success of agricultural sector is largely dependent. Fertilizers are the critical inputs for boosting agriculture production.

India is the third largest producer as well as consumer of fertilizers in the world, after China and the US. Large market is available for the suppliers to sell their finished fertilizers as well as raw materials. There are lots of opportunities to invest in the Indian fertilizer sector.

The Government of India has been consistently pursuing policies in order to increase the availability and the consumption of fertilizers in the country. One of the important features of the fertilizer policy of Government of India is the fertilizer subsidy, which is given with the objective of providing adequate fertilizers to farmers at affordable prices so as to induce consumption. The fertilizer subsidy has been transferred to the farmers in the form of subsidised maximum retail prices (MRPs) of a basket of fertilizer products.

The fertilizers that are covered under the subsidy scheme are urea, di-ammonium phosphate (DAP), muriate of potash (MOP), mono ammonium phosphate (MAP), triple super phosphate (TSP), ammonium sulphate (AS), single super phosphate (SSP) and other complex fertilizers..

We have selected top 1000 companies according to their market capitalisation. For the purpose of sectoral analysis, ten leading companies from the fertilizer sector were studied. The overall revenue of the sector declined 21.86 per cent during FY 2016-17, whereas for FY2015-16 the revenue of the sector increased 8.87 per cent. The sales stood at Rs52,830 crore for FY2016-17 and for FY2015-16 sales for the industry were at Rs64,380 crore. The growth in net income for the sector was 42.55 per cent at Rs1,537 crore for FY 2016-17, while the net income for FY2015-16 decreased 26.23 per cent at Rs883 crore as against Rs1,115 crore of FY15. The EBITDA for FY2015-16 grew 2 per cent YoY industry-wise and stood at Rs4,609 crore for the industry; whereas the EBITDA dipped by 10 per cent YoY in FY2016-17 at Rs4,186 crore.

The industry major, Coromandel International's revenue declined by 15 per cent to Rs10,086 crore in FY17, as against Rs11,587 crore in FY16, while its topline increased 1.93 per cent in FY16. The company's EBITDA rose 14.79 per cent at Rs983 crore in FY17, whereas its EBITDA declined 8.69 per cent in FY16. It reported a net profit of Rs477 crore, up by 24.31 per cent in FY17, while in FY16, its net profit decreased 11.30 per cent at Rs361 crore, as against Rs402 crore in FY15.

Over the last five years, the international prices of fertilizer inputs and finished fertilizers have seen a sharp increase, which was due to the increase in Indian imports and the demandsupply position of fertilizers in the international market.

Despite efforts being made in developing the technological base in the fertilizer sector in India, the country still imports the basic process for ammonia, urea and phosphoric acid plants, Not only this, the country is also dependent on imports for critical mechanical and electrical equipments and also for microprocessor-based instrumentation.

The fertilizer industry is one of the industries which is highly regulated and almost half of its turnover comes from the budget of the Indian government. Therefore, it is imperative for the government to take initiatives for arranging funds and also focus on providing a mechanism for boosting R&D activity in the sector. This could entail establishing a coordination group in the Department of Fertilizer (DOF) in order to encourage and coordinate the R&D activities nationwide related to fertilizer production. The responsibilities of this group should include invitation and assessment of R&D proposals, arrangement of funds, monitoring of the progress of the R&D projects and, finally, commercialization of the successful R&D results. The possibility of establishing a fertilizer R&D institute needs to be explored to encourage and strengthen R&D activities.

FINANCE

India's diversified financial sector is undergoing rapid expansion in terms of strong growth of existing financial services firms as well as new entities entering the market. The banking regulator has allowed new entities such as payments banks to be created recently, thereby adding to the types of entities operating in the sector.

The sector comprises of insurance companies, non-banking financial companies, co-operatives, pension funds, mutual funds and other smaller financial entities. The Government of India has introduced several reforms to liberalise, regulate and enhance the sector. The government and Reserve Bank of India (RBI) have taken various measures to facilitate easy access to finance for micro, small and medium enterprises (MSMEs).

These measures include launching Credit Guarantee Fund Scheme for micro and small enterprises, issuing guideline to banks regarding collateral requirements and setting up a Micro Units Development and Refinance Agency (MUDRA). With a combined push by both government and private sector, India is undoubtedly one of the world's most vibrant capital markets.

The asset management industry in India is among the fastest growing in the world. As of FY16, 42 asset management companies were operating in the country. In September 2016, the assets under management (AUMs) of the mutual fund industry stood at USD 244.42 billion, showing a 12 per cent growth over the last quarter. In 2016, the country registered a record inflow of funds into mutual funds at USD 29.74 billion, and in systematic investment plans, investments crossed USD 594.97 million.

In FY09, SEBI removed the entry load to bring about more transparency in commissions, encouraging longer-term investments. In its effort to encourage investments from smaller cities, SEBI allowed AMCs to hike expense ratio up to 0.3 per cent on the condition of generating more than 30 per cent inflow from these cities. During December 2016, mutual fund equity schemes attracted a net inflow of USD 1.50 billion.

Steadily rising turnover in financial markets has also led to rapid expansion of the brokerage segment. Between FY96 and FY16, the annual turnover value in NSE witnessed growth at a CAGR of 19 per cent, reaching a value of USD 647 billion in FY16. The number of companies listed on the NSE also rose from 135 in 1995 to 1,811 in June 2016 . The brokerage market has become more competitive with the entry of new players and increasing efforts of existing players to gain market share.

Advisory asset management and tax planning is one of the services in highest demand among wealth management services by HNWIs, followed by financial planning. High net worth households are expected to grow at a CAGR of about 21.5 per cent till 2019. By the end of 2025, global HNWI wealth is estimated to grow to over USD 100 trillion.

The NPAs in banking system have soared to approx. Rs6.3 lakh crore, paving opportunities for asset reconstruction companies (ARCs). Banks are expected to unload their stressed assets on to ARCs as recently there is an encouraging trend of high value assets being turned over to the latter.

The life insurance market has grown from USD 10 billion in FY02 to USD 56.05 billion in FY16. Over FY02—16, life insurance premiums witnessed growth at a CAGR of 13.1 per cent. Business of life insurance companies from first year premium stood at USD 15.38 billion for the year period ended 30th November, 2016.

The life insurance sector witnessed launch of innovative products such as Unit Linked Insurance Plans (ULIPs). Most general insurance public sector companies are planning to expand beyond the Indian markets, especially in South-East Asia and the Middle East. The government has further announced its intention to divest USD 1.63 billion worth of stake in PSU general insurance companies to achieve the steep disinvestment target of USD 10.78 billion next fiscal year.

NBFCs are also rapidly gaining prominence as intermediaries in the retail finance space. NBFCs finance more than 80 per cent of equipment leasing and hire purchase activities in India. As of March 31, 2015, there were 11,842 NBFCs registered with the RBI, of which 220 were deposit-accepting (NBFCsD) and 11,622 were non-deposit accepting (NBFCs-ND).

New distribution channels such as bancassurance, online distribution and NBFCs have widened the reach and reduced operational costs. The NBFCs have served the unbanked customers by pioneering into retail asset-backed lending, lending against securities and microfinance, and aspire to emerge as a one-stop shop for all financial services. The sector has witnessed moderate consolidation activities in recent years, a trend expected to continue in the near future.

New banking licence-related guidelines issued by RBI in early 2013 place NBFCs ahead in competition for licences, owing largely to their rural network. The guidelines on NBFCs with regard to capital requirements, provisioning norms and enhanced disclosure requirements are expected to benefit the sector in the long run. As of June 2017, the financial services industry is expecting credit growth rate of 15-20% for NBFCs in the next 8-10 years.

While analysing the sector, 77 companies according to the market capitalisation were considered. The companies together posted a strong topline for the year 2016-17. The sector sales as compared to the previous year 2016 have increased by 21.15%, whereas the growth last year was just 12.36% on an yearly basis.Housing Development Finance Corporation alone posted 14.7% growth in FY17. Its revenue for the period increased from Rs53,257 crore in FY16 to Rs61,088 crore in FY17. The net profit also improved by 8.44% from FY16.

With regard to REIT, it is expected to be net positive for the sector in the long run as it would improve quality of developers. The affordable housing space can be perceived as a large opportunity in developer financing. Further, this segment is likely to grow over 30 per cent over the medium term and will be the key growth driver for the mortgage finance market. With the government focus on housing and with the incentives provided, the supply in the affordable space would increase ahead. Overall, we expect gross NPAs for housing finance companies (HFCs) to remain range-bound between 0.9-1.3 per cent over the medium term.

Further, topline revenue of Bajaj Finserv improved by 159% to Rs24,522 crore from Rs9,447 crore in the previous fiscal. The PBIT and PAT improved by 29% and 21.39%, respectively, for FY17.

SEBI has relaxed norms for registered foreign portfolio investors (FPIs) in India, allowing them to operate through the International Financial Services Centre (IFSC) without undergoing any additional documentation or prior approval process. Also, it plans to allow investors to make mutual funds transactions worth up to Rs50,000 (US$ 750) a month through digital wallets, as part of its efforts to digitise the distribution processes for all financial products. It also plans to allow immediate credit to customer's bank accounts on liquid mutual funds redemption to attract retail customers as well as boost inflows.

The Government of India has relaxed norms for small merchants with a turnover of up to Rs2 crore (US$ 300,000), allowing them to pay 6 per cent of deemed profit in tax instead of 8 per cent of total turnover or gross receipts received through banking channels or digital means for FY 2016-17, in a bid to encourage cashless transactions in the country.

The Prime Minister of India has launched the Micro Unit Development and Refinance Agency (MUDRA) to fund and promote micro-finance institutions (MFIs), which would in turn provide loans to small and vulnerable sections of the business community. The lending target has been fixed at Rs244,000 crore (US$ 36.46 billion) for 2017-18.

The Government of India's ‘Jan Dhan' initiative for financial inclusion is gaining momentum. Under Pradhan Mantri Jan Dhan Yojna (PMJDY), 217 million accounts have been opened and 174.6 million RuPay debit cards have been issued.

Government of India aims to extend insurance, pension and credit facilities to those excluded from these benefits under the Pradhan Mantri Jan Dhan Yojana (PMJDY). The Union Cabinet has also approved the Pradhan Mantri Suraksha Bima Yojana which will provide affordable personal accident and life cover to a vast population.
Overall, we see a positive momentum in Finance sector.

HOTELS 

The hospitality sector in India is dependent on the tourism sector since it increases occupancy rates along with room rents. The industry has grown at a CAGR of 10.1 per cent and accounts for 9.6 per cent of the GDP. The sector earns ~88 per cent of its revenues from local spending and ~12 per cent from foreign visitors.

The GST is likely to have a mixed impact on the hotel industry by imposing higher tax rate on luxury segment and lowering taxes on other segments. The government has also approved 150 countries under the gamut of ‘Visa on Arrival' to attract tourists to India. The government in its Union Budget 2017 allocated fresh funds for Swadesh Darshan Scheme and towards promotion and publicity for the sector.

Analysing the sector with Top 14 companies on the basis of their market cap, we observed that the sales in the sector increased ~34 per cent in FY17 on a YoY basis. The biggest contributor to this increase is Cox & Kings, with an upsurge of more than ~200 per cent in its topline, posting sales of Rs7223 crore in FY17 from Rs2382 crore in FY16. Some of the mid-caps such as Mahindra Holidays & Resorts India and Wonderla Holidays outperformed the sector with an increase in their topline by ~44 per cent and ~24 per cent, respectively.

Companies like Cox & Kings and Mahindra Holidays & Resorts India posted a significant rise in their profits, with an increase of ~172 per cent and ~50 per cent, respectively, in FY17. The performance of some small-caps was muted in FY17 such as Sayaji Hotels Ltd, which posted poor results with a negative PAT of Rs4 crore in FY17 from Rs10 crore in FY16. On the other hand, Oriental Hotels showed a significant rise in PAT to Rs5 in FY17, from a negative PAT of Rs1 in FY16.

As for the long term prospects, the industry is yet to achieve its potential as there is a gap between supply and demand. The dearth in budget and mid-market segment hotels in the country indicate a high growth potential. We are witnessing a lot of investments coming into the sector from global players as well.

The online booking segment has picked up pace and is likely to grow significantly in the coming years. The tourism base in the country is still on the lower side and we expect government initiatives such as Make in India, Clean India and Smart Cities to support industry on a long term basis.

The GST is likely to have a mixed impact on the hotel industry by imposing higher tax rate on luxury segment and lowering taxes on other segments. The government has also approved 150 countries under the gamut of ‘Visa on Arrival' to attract tourists to India. The government in its Union Budget 2017 allocated fresh funds for Swadesh Darshan Scheme and towards promotion and publicity for the sector.

INFORMATION TECHNOLOGY

India is the world's largest sourcing destination for the information technology (IT) industry, accounting for approximately 67 per cent of the US$ 124-130 billion market. India's cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US, continues to be the unique selling proposition (USP) in the global sourcing market. However, India is also gaining prominence in terms of intellectual capital with several global IT firms setting up their innovation centres in India.

The IT-BPM sector in India expanded at a CAGR of 13.7 per cent over 2010—16, which is 3—4 times higher than the global IT-BPM growth and is estimated to expand at a CAGR of 9.1 per cent to USD350 billion by 2025. The sector ranks fourth in India's total FDI share and accounts for approximately 37 per cent of total private equity and venture capital investments in the country. The computer software and hardware sector in India attracted cumulative foreign direct investment (FDI) inflows worth US$ 22.83 billion between April 2000 and December 2016, according to data released by the Department of Industrial Policy and Promotion (DIPP).

The US has traditionally been the biggest importer of Indian IT exports; over 62 per cent of Indian IT-BPM exports were absorbed by the US during FY16. But now, Indian software exporters in particular are facing headwinds in business environment and stricter work permit regime in the US which dominates the Indian IT industry. Moreover, newer technologies in artificial intelligence (AI), robotic process automation and cloud computing, which help complete the job with less manpower are posing a threat to the existing potential.

Considering the financials, despite all the setbacks, the sector was able to improve its revenues by 13.14% for FY17. The set of 55 companies under study saw an increase in their EBITDA by 4.28% for the period amounting to Rs97,540 crore. The topline posted a growth of 9.8 per cent over FY16, while EBITDA declined by 502 bps as compared to 9.3% in FY16. The bottomline improved by 8.44% in FY17 as compared to a 9.9% growth in the previous fiscal.

The top five companies, namely, TCS, Infosys, Wipro, HCL and Tech Mahindra constitute nearly 87 per cent of the total pool by market capitalisation. These companies together fetched revenues accounting for 73 per cent of the total revenues of the sector, while accumulating 89 per cent of the net profits. Indian nationals account for nearly two out of three H1B visa holders in the US. But majority of them are from companies such as IBM and Facebook. Indian firms such as TCS, Infosys, Wipro and HCL Technologies have been reducing dependency on H1B visas, accounting for less than 20 per cent of the nearly 80,000 visas issued annually.

The companies are trying to become less dependent on the H1B visas for junior staff and complement it with local hiring and use of virtual technology. There will, however, be initial challenges as they may find skill gaps among junior talent in the US. Automation is typically having a competitive advantage because of reduction in costs, improved performance and wider applicability. Thus, IT sector faces a serious challenge from automation as the nature of most jobs is mundane. Besides, human discretion and intelligence can be easily replaced by automation. Also, the low cost uniqueness of the sector is fading in India with the rise of Nigeria and Philippines as competitors in the segment. Disruptive technologies, such as cloud computing, social media and data analytics are offering new avenues of growth across verticals for IT companies. The SMAC (social, mobility, analytics, cloud) market is expected to grow to USD225 billion by 2020. During times of stress, most of the companies are not able to post good set of numbers, thereby losing confidence of investors. However, major IT companies have taken the route of buyback of shares to reward investors. Infosys, Tata Consultancy Services, HCL Technologies, Wipro and Cognizant (not listed in India) have all made buybacks or are considering buyback in FY2016-17.

Further, the IT industry is expected to grow 8-9 per cent in FY18. Some Indian companies have suggested weak ramp-up or deal wins in BFSI in the near term as the positive sentiment around reforms in the US is slowly evaporating.

To download the above companies data in table please click here

METALS & MINING

India is the third largest producer of steel and is expected to increase the production to 300 MTPA by 2025 from 83 MTPA in 2017. The demand for steel is derived from other dependent sectors such as automobiles, consumer durables and infrastructure. The strong growth in steel production has put pressure on iron supply, which is a major raw material for steel production. Despite strong growth in domestic steel production, India is still a net importer of steel,which shows the demand potential of the sector. The GDP contribution by the sector is 10-11 percent, in which 2-3 per cent is being contributed by the mining segment.

The coal production in the country has grown at a CAGR of 1.28 per cent. India is the third largest producer of coal, followed by China and US contributing ~7.4 per cent globally. In the years to come, we would witness a boost in coal production with government planning to replace the country's captive mining policy in coal and iron ore with an open bidding.

The aluminum production in India has grown at a CAGR of 6.2 per cent. The demand of aluminum was 3.3 MT in FY16 which is expected to reach 5.3 MT by 2020 with growth in sectors such as electricity, transportation, building and construction.

The Indian government has brought in Mining Surveillance System (MSS) which would bring more transparency into the system and has also introduced a transparent auctioning system. The steel industry is likely to get benefited from the GST implementation because of the lower tax rates on the raw materials, leading to low input cost for the industry and also expect its logistics cost to go down because of reduced time on moment of goods under the GST.

PACKAGING 

It was yet another rewarding fiscal for the packaging industry, this time driven by innovations and sustainability. Packaging is an ageless industry. As long as there are products to sell, there will be packaging to cover them. Due to various economic (micro and macro) factors across the globe, there are ups and downs in the industry, but the fact is packaging will always remain in demand.

Indian packaging industry is expected to see prominent growth in the upcoming years. The Indian packaging market is estimated to grow at a CAGR of 9.2% to reach 359,42 crore units in 2021. It constitutes 5% of global packaging industry. Major part of exports is constituted by flattened cans, printed sheets and components, plastic film laminates, craft paper and packaging machinery, whereas the industry as a whole imports tinplate, coating and lining compounds, etc.

The growth of packaging industry will be highly affected by demographic changes like rising urbanisation and growing proportion of end-consumers from the middle class of the economy.

Packaging industry demand is very much influenced by logistics industry. We see that with emphasis on integrated logistics supply, the logistics company are looking at multi modal transport model. Due to this, there is increasing need for new packaging formats, such as different sizes, materials, and strength.

The growing organised retail sector has been a key driver for growth of the food and beverage industry, which sequentially drives the growth of Indian packaging industry. Moreover, innovations in packaging industry such as development of light-weight packaging and better barrier properties add to the growth of packaging industry.

Flexible packaging industry is expected to grow at a healthy CAGR of 9% over the next five years. This growth will be largely driven by its flexibility and low cost to match multiple sizes and shapes as compared to rigid plastics. At the same time, the increasing demand from household care and cosmetics industries for flexible packaging will drive revenues for flexible packaging industry.

Going ahead, rigid metal packaging is likely to grow at CAGR of 11.5% over a period of five years, driven by the rise in packaged and canned food sales and increasing popularity of metal cans within the carbonated drinks and beer industries. Rigid metal packaging plays a dynamic role in exports and global trade with its mechanical strength and reusability. Also, glass packaging will witness growth in upcoming years driven by its exceptional features (designs, colours and shapes) and its corrosion protection properties, which makes it the first choice for various foods and beverages industries.

We have considered 10 major players as per market capitalisation for industry research. Among those, Huhtamaki PPL is one of the key players that has dominated the industry. As the company is engaged in flexible packaging majorly, it witnessed substantial YoY growth in its sales and EBITDA, growing at 89% and 99%, respectively. After Huhtamaki PPL, companies dealing in composite cylinders performed comparably well in packaging. The key drivers for these companies is the demand for composite cylinders in foreign markets and its safe and light-weight packaging material. Both of these companies have shown YoY sales growth of 13%.

Packaging industry as a whole performed well in FY17 and, at the aggregate level, the industry has shown sales growth of 12% YoY and EBITDA growth of 36% YoY.

PERSONAL CARE

The sector, which is driven by rising income, rapid urbanization and celebrity promotions, accounts for 22% of the country's fast-moving consumer goods (FMCG). The market size of India's beauty, cosmetic and grooming market is expected to reach USD20 billion by 2025 from the current USD6.5 billion on the back of rise in disposable income of middle class and growing aspirations of people to live a good life and look good.

On a global comparison, the per capita spend in India stands at USD 7 (about Rs.450) on BPC, which is significantly lower than that in developed nations. However, the global market for personal care is expected to witness substantial growth over the coming years owing to the growing disposable income of consumers, thus enabling them to spend on luxury personal care products. While the personal care products segment for women is a prominent category, the introduction of the men's product line for grooming has bolstered the growth of the market extensively. Moreover, the development of improvised and innovative products in the women's line such as cosmeceutical and multifunctional products is expected to trigger the sale of personal care products in the coming years.

In emerging economies, factors such as growing purchasing power of consumers, abundance of international brands and rapid urbanization is likely to help growth of the market in the near future. The runaway success of Baba Ramdev'sPatanjali brand has had a halo effect on the entire Ayurvedic consumer products segment, helping it outpace the overall consumer products industry in growth, according to the latest data. Companies that lacked Ayurvedic or natural offerings within their portfolio have now joined the bandwagon as they have realised that the opportunity is huge and consumers are moving in that direction. The natural segment in India's personal care market is estimated to be worth Rs.18,500 crore, about 41 percent of the total personal care market.

We have taken into consideration a set of 13 companies with highest market capitalisation to analyse the growth of the industry. HUL, Dabur India and Godrej Consumer Products form nearly 66.86 per cent of the market cap of the sector. Considering the topline revenues, the sector has witnessed a degrowth of 3.68% in FY17, whereas there was a growth of 7.21% in the corresponding period in FY16. The revenues for the period stand at Rs.79,999 crore as compared to Rs.83,056 crore in FY16. Almost all stocks have witnessed a drop in the revenues during the period, except few players like Procter and Gamble, Gillette India and Kaya Ltd. However, the total net profit of the industry came in at an improved 9.02% which was 4,63% in the previous year. The major reasons for such decline were subdued consumer markets, volatile commodity costs, climate extremities, demonetisation and hyper competitive environment even from the non-listed entities. One of the major reason for HUL to post slow volume growth in India was severe slowdown in rural demand.

The natural, herbal and Ayurvedic trends continued to stay strong in India during 2016. The major players in the beauty and personal care market launched products on the natural platform to tap into this growing trend. This trend was seen across various beauty and personal care product categories during the year and is expected to continue over the coming years. With the implementation of GST, the products will see a rise in taxation rate from 8-9 percent to 12 percent. Toothpastes and hair oils will attract 18% GST rate, while shampoos and hair creams, chocolates, instant coffee will be taxed at 28% tax rate. Ahead of GST implementation, traders are thinning their inventories. At present, credit on closing stock for the channel is likely to be just 40% of CGST, which may impact the margins for the traders in this segment. Despite potential disruption on account of GST implementation, we believe the earnings outlook for rural-focused consumer companies is likely to be positive from Q2FY18.

PETROLEUM

Oil and gas is one such sector that holds an enormous amount of potential and can have huge impact on the country's economy. The oil and gas industry operates under two segments, namely, upstream segment and downstream segment. The upstream segment comprises of exploration and development activities and state-owned oil companies such as ONGC undertake most of this work.

ONGC has gained 60% market share of this segment in India. The downstream segment comprises of crude oil refinery activities. It provides thousands of products to end-user customers across the globe. India has 19 refineries in the public sector and 3 in the private sector. India is the world's fourth largest energy consumer and has large coal, crude oil and natural gas reserves.

A major fall in price of crude oil was witnessed since end of 2014 due to oversupply of crude in the global market. In 2016, the prices went below $30 per barrel, but currently it has shown some recovery and is now currently trading at $46 per barrel. India imports 75% of its oil requirement and we can see that if the oil prices remain low, India's current account deficit would decrease and fuel subsidies would fall.

However, due to they introduction of GST, this sector might undergo some changes which could be adverse for the companies. Specifically, in the upstream segment, its tax rate would increase from 15% to 18%, leading to rise in operating and capital expenditure. The oil and gas companies would not get any credit on sale of finished products as the input GST against excise duty and VAT levied on fuels would not be set-off.

As per IBEF's survey, India's oil demand is expected to grow at a CAGR of 3.6% to 458 million tonnes of oil equivalent (MTOE) by 2040 and gas production is likely to touch 90 billion cubic metrics (BCM) by 2040. While demand for natural gas will grow at a CAGR of 4.6% to touch 149 MTOE.

This sector comprises of 16 companies which we have considered for analysis. The production level of crude oil has gone down by 2.53% in 2016-17 as against 2015-16. The natural gas production dipped by 1.09% in 2016-17 as against 2015-16. ONGC, Indian Oil Corporation (IOC) and Bharat Petroleum Corporation Ltd (BPCL) are the companies with highest market capitalisation within the sector.

The revenues of ONGC, IOC and BPCL have grown marginally in the range of 7-8% but their net profits have shown substantial growth of 52%, 82% and 19%, respectively. Some of the outperforming companies in this sector were Alphageo (India) Ltd and Deep Industries. Both have shown tremendous growth of 241% and 68%, respectively, in revenues, Their net profits recorded growth of 335% and 81%, respectively.

Return on net worth is an important parameter to analyse how well the companies have utilised their capital and have given returns to the shareholders. Hindustan Oil Exploration, MRPL and Alphageo (India) Ltd have given highest returns, recording growth of 285%, 189% and 145%, respectively, in 2016-17 as compared with 2015-16.

PHARMA 

The Indian pharma sector is all set to heal investors as it is eyeing for a robust future ahead, even as the Indian technology and healthcare sectors have reported strong growth in recent years. However, the proposed departure of the UK from the EU poses challenge to technology earnings.

Globally, the pharma industry is at a juncture where it faces many challenges. However, the new trends in technology will help the industry to overcome these challenges. The advancement in scientific and technological spheres, along with changes in socio-demographic factors within the economy are expected to aid demand for medicines. This potential demand will sequentially revive the pharma sector in the coming years.

The pharmaceutical sector is the third largest sector in terms of volume and thirteenth largest sector in terms of value in India.

According to IBEF, Indian pharmaceutical sector accounts for about 10 per cent of the global pharmaceutical industry in volume terms. These volumes are largely driven by generic drugs. Indian pharma sector dominates the generic drug segment globally. It is the largest provider of generic drugs with highest export share of 20% among global exports of generic drugs.

The Indian pharma sector has been steadily growing at a CAGR of >~15% over FY11-16. This strong growth shows that the healthcare standards across the country are improving and it reflects the positive outlook for the industry in coming years. The industry is expected to reach USD 55 million by 2020, out of which USD 30 million will be from exports .

Indian pharma market has been always seen as an opportunity by foreign pharma giants. The series of acquisitions over the years, as well as the new product launches with India-centric pricing, reflects the keen interest of foreign pharma companies in the Indian pharma markets. This is majorly due to the strategic advantage of lower production costs and increased FDI norms.

Also, exports have contributed significantly in the growth of the Indian pharma sector. India exports to more than 200 countries in the world, with the US being a major market. India accounts for 20% of total generic exports across the globe in terms of value. Additionally, initiatives taken by the US government to cover large proportion of population under public health care are also expected to push growth in generic markets. Besides that, Indian pharma companies have successfully established their presence in other emerging markets like Russia, Brazil, South Africa.These markets also provide various growth opportunities for the Indian pharma sector.

Growing urbanisation along with sedantary lifestyles are leading to rapid epidemiological transition. Owing to this, Indian population is facing various lifestyle-related diseases such as obesity, diabetes, cancer, etc. This change in patient demographics and increased income levels of the people will increase the demand for affordable yet quality medical treatment in the Indian pharma markets.

Indian pharma industry is witnessing newer trends such as medical technology and health insurance, which is giving further boost to the industry.

India's GDP is growing at 8% nearly every decade and income levels are rising slowly and steadily. With the increased income levels, 73 million households will migrate to lower middle and upper middle class of the society. In addition to increased income levels, growing awareness about health insurance is driving the growth of health insurance coverage. Also, the government is focusing on providing health insurance coverage to the below poverty line (BPL) population. It is expected to provide coverage to 3.8 crore BPL households approximately. These factors are expected to increase affordability for medicines for the ‘bottom of the pyramid' populace.

The consumer healthcare segment will also see a substantial growth in the upcoming years. This segment is broadly divided into two sub-segments, that is, Rx-to-OTC and pure play OTC. The Rx-to-OTC segment constitutes brands such as Crocin and Volini. These brands have been primarily built through the prescription route, but over time, these brands were moved to self-medication. The second is pure play OTC brands, which are non-Rx brands sold directly to consumers. Eno and Pudin Hara are among these products. We expect the market for consumer healthcare product to grow at 15% to become USD 16 bn by 2020.

Going ahead, the vaccine segment is also one of the potential segments which can see increased penetration levels in upcoming years. Indian vaccine market is currently underpenetrated at 2%. Currently, its size is about USD 250 mn where the private segment accounts for two-third share. The deaths caused by diseases that can be prevented by vaccination will drive growth of the vaccine market. We expect it to reach USD 1.7 bn by 2020 .

After this, development in medical technology is an another aspect which is supporting the growth of Indian pharma industries. The medical technology sector is expected to grow at a CAGR of ~15%. This growth will be driven by major improvement in medical equipments segment. Medical equipments segment forms the largest share of the medical technology, accounting for 55% of the total market size. This segment includes imaging equipments like MRI, CT scanners as well as equipment used for therapies like cath-lab, gamma knife, etc. After medical equipments, medical technology is contributed majorly by medical implants segment, which constitutes 25% of the market share. These include cardiac implants such as stents, pacemakers, heart valves, orthopaedic implants for knee, hip, spine, etc., eye implants such as intra-ocular lenses, ear implants such as cochlear implants, dental implants, etc.

Many medical technology companies (Indian and foreign) are launching advanced products in the Indian market. Advancement in the medical technology is vital for the Indian healthcare system for cost reduction, improvising access and enhancing quality.

Also GOI steps towards increasing pharma investment are substantial . It is planning to reduce FDI norms for pharma sector along with that it is allowing foreign investors to invest upto 100% in Indian pharma companies.

Due to this, the sector has attracted investments, according to data released by the Department of Industrial Policy and Promotion (DIPP). From April 2000 to December 2015 the drugs and pharmaceuticals sector attracted cumulative FDI inflows worth USD 13.45 billion. This is expected to grow in the coming five years. The sector has seen some notable initiatives taken by the Government of India. For instance, the Indian government has initiated steps to reduce the approval time for setting up a plant. At the same time, it is also issuing NOC for export licence in two weeks, as compared to 12 weeks earlier. The government is offering zero duty TUF loans to pharma companies under the EPCG (Export Promotion Capital Goods) scheme. The government is aiming to rope in the private sector in research and development mainly for segments such as vaccines, drugs, etc. Also, FDI investment in greenfield projects is easier than brownfield, which will boost investments in greenfield projects. Currently, investments in healthcare infrastructure is to the tune of USD 152 million. Some projects such as Green Field Super Specialty Hospital (Mohali), Nephrology Dialysis unit at Base Hospital (Uttarakhand ), Indira Gandhi Government Medical College Complex (Maharashtra), Green Field Super Specialty Hospital (Bathinda), Nephrology and Dialysis unit at Coronation Hospital (Uttarakhand) are on the route to commence operations.

Additionally, the government is exempting excise duty and customs duty fully for HIV/AIDS drugs and kits provided under NACP (National Aids Control Programme).

Indian pharma industry continues to face some unique problems such as rising drug discovery cost, increasing government pressures, harsh pricing control measures and changing sales and marketing models. Also, Brexit will impact pharma sector adversely as many of the companies have exposure in European countries and the UK markets. Major companies including Aurobindo, Wockhardt, Sun Pharma, Glenmark, Dr Reddy's and Lupin have operations in the UK, and would be adversely affected due to Brexit. The impact will be short term due to weakening of the pound in Europe.This currency fluctuations will impact profitability of many Indian pharma companies.

Collaboration with the foreign players will be the key for Indian pharma companies to sustain in a competitive environment with immense pricing pressure. Indian companies are participating in big M&A activities so as to manufacture the products locally. Some of the major collaborations and M&A activities by Indian pharma companies include Glaxosmithkline's local alliance for the H1B vaccine with Bio-mangunihos in Brazil, Sun Pharma's integration with Ranbaxy to derive opportunities through alliances and partnerships and Cipla's association with Serum Institute of India to sell vaccines in South Africa. Also major players of the pharma industry are increasing their R&D efforts to increase sustainability in a competitive market.

For example, Sun Pharma is planning to develop technically complex active pharmaceutical ingredients (APIs) such as steroids, sex hormones, carbohydrates, etc. Dr Reddy's acquired OctoPlus N.V, a Netherlands-based company to increase its technology base for the formulation of complex injectables. Lupin operationalised a new research and development centre for inhalation products in the US.

Some of the players in the sector are entering emerging markets with the aim of grabbing new opportunities.

We have analysed about 62 major players on the basis of market capitalisation from pharmaceutical sector. The pharmaceutical industry has seen a growth of 9 per cent in FY17 as compared to the previous fiscal. The industry's EBITDA increased by 7 per cent and net profit increased by 11 per cent as compared to previous financial year.

The industry major Sun Pharmaceutical Industries' sales increased by 11 per cent to Rs.32,202 crore on a YoY basis. The company's EBITDA also rose by 13 per cent YoY to Rs.10,089 crore. Its net income increased by 66 per cent to Rs.7,846 crore in FY17 on a yearly basis. Lupin's revenue increased 22 per cent YoY and net profit rose 13 per cent to Rs.2,557 crore in FY17 as compared to previous financial year.

Indian pharma companies have observed a substantial correction owing to pricing pressure on account of intense competition. Also, the uncertain regulatory framework has put the industry in doldrums. The implementation of GST from July 1 is likely to result in channel disruption and some temporary difficulties till mid-FY18. Going ahead, rupee appreciation will add further pressure on businesses in the coming year. Considering this, we expect the earnings for Indian pharma companies to be under pressure.

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PLASTICS 

Ever since 1957, plastic is one of the fastest growing industries in India. The production of plastic begins with the production of polystyrene. The chronology of plastic production is summarised as follows: polystyrene (1957), LDPE (1959), PVC (1961), HDPE (1968), polypropylene(1978). The enormous potential of Indian plastic industry has motivated many Indian entrepreneurs to acquire technical expertise, achieve superior quality standards and build capacities in different segments of the flourishing plastic industry. The substantial developments in the plastic machinery sector, along with the developments in the petrochemicals sector, support the plastic processing industry by facilitating the processors to develop capacities to cater to both domestic as well as overseas exports.

Products from the plastics industry are exported to over 150 countries around the globe. Indian plastic industry's top ten trading partners are USA, UAE, Italy, UK, Belgium, Germany, Singapore, Saudi Arabia, China and Hong Kong. The major plastic products that Indian plastic industry exports are raw materials, plastic-moulded extruded goods, polyester films, moulded/soft luggage items, writing instruments, plastic woven sacks and bags, polyvinyl chloride (PVC), leather cloth and sheeting, packaging, consumer goods, sanitary fittings, electrical accessories, laboratory/medical surgical ware, tarpaulins, laminates, fishnets, travelware, and others.

PLEXCONCIL is an export promotion body representing the exporting community of the Indian plastic industry, sponsored by the Ministry of Commerce & Industry, Department of Commerce and the Government of India. The council was established to support the exporters by participating in international trade fairs, exploring new markets, organising buyer- seller meets both in India and overseas, and engaging in various other promotion and need-based activities.

Indian plastic industry has the inherent capability to sustain its fast growth. However, in the coming few years, it was expected that the competition in the industry will increase considerably, so in order to survive the intense competition, both polymer manufacturers and processors need to adopt new methods and approaches to reduce the costs, improve market and customer service and management of performance. Plastic plays a significant role in key sectors of the economy, including agriculture, water management, automobiles, transportation, construction, telecommunications and electronics, besides defence and aerospace, computers and power transmissions.

Petrochemical industry is identified as a ‘high priority' sector by the Indian government as plastics play an important role in providing the basic necessities for everyday use, while conserving scarce natural resources. It is supported by a large number of polymer producers and plastic process machinery and mould manufacturers in the country.

For the purpose of sectoral analysis, 16 leading companies in the plastic sector were studied. The overall revenue of the sector declined 0.37 per cent during FY 2015-16, whereas for FY2016- 17 revenue of the sector increased 12 per cent. The sales stood at Rs.14,576 crore for FY2015-16 and for FY2016-17 the industry sales were at Rs.16,397 crore. The growth in net income for the sector was 15 per cent at Rs.852 crore for FY 2015-16 and the net income growth was 34 per cent at Rs.1,138 crore for FY2016-17. The industry's EBITDA for FY2015-16 grew 7 per cent YOY and stood at Rs.1,916 crore, whereas the EBITDA was Rs.2,189 crore in FY2016-17, a growth of 14 per cent YOY.

POWER

Power sector has been crucial in the infrastructural development as well as industrialisation of the economy. Electricity is a major constituent for the economic growth of the country. There has been a surge in demand for power in India, which is due to increase in capacity utilisation of industries, growing industrialisation, rising urbanisation and burgeoning population. Currently, India has the fifth largest installed capacity in the power sector globally. Government initiatives such as ‘Power for All' and plans to add 88.5 GW of capacity by 2017 and 93 GW by 2022 would fuel the demand for power transmission and distribution equipments.

Sustained economic growth continues to drive electricity demand in India. The Government of India's focus on providing ‘Power for all' has accelerated capacity additions in the country. At the same time, the competitive intensity is increasing at both the market and supply sides (fuel, logistics, finances, and manpower). The total installed capacity of power stations in India stood at 315,426.32 mega watt (MW) as on February 28, 2017.

The overall industry has registered a growth of 3 per cent in FY17 Y-o-Y. Among the 27 companies analysed, NTPC Ltd. is the giant of this industry on the basis of its topline of Rs.83,048 crore in FY17, followed by Tata Power Company Ltd., Reliance Infrastructure Ltd., Power Grid Corporation and Adani Power Ltd., whose toplines are Rs.28,100 crore, Rs.27,036 crore, Rs.26,288 crore and Rs.23,203 crore, respectively. The topline of NTPC Ltd. has grown by 4 per cent, Tata Power by -24 per cent, Reliance Infrastructure by 47 per cent, Power Grid by 21 per cent and Adani Power by -9 per cent in FY17. The PAT of the above companies has grown by 5 per cent for NTPC Ltd., 9 per cent for Tata Power Company, -28 per cent for Reliance Infrastructure and 24 per cent for Power Grid Corporation in FY17.

The Ministry of Power has set a target of 1,229.4 billion units (BU) of electricity to be generated in the financial year 2017-18, which is 50 BUs higher than the target for 2016-17. The annual growth rate in renewable energy generation has been estimated to be 27 per cent and 18 per cent for conventional energy. The government has added 8.5 GW of conventional generation capacity during the April 2016-January 2017 period. Under the 12th Five Year Plan, the government has added 93.5 GW of power generation capacity, thereby surpassing its target of 88.5 GW during the period. The Central government has removed interstate supply charges to encourage the use of solar energy, and this notification will remain in effect till end of 2019. The government has set itself a goal of 100,000 MW of installed solar power capacity by 2022, but has currently reached only 12,504 MW (end-April).

The Indian power sector has an investment potential of Rs.15 trillion (US$ 225 billion) in the next 4–5 years, thereby providing immense opportunities in power generation, distribution, transmission, and equipment. The government's immediate goal is to generate two trillion units (kilowatt hours) of energy by 2019. This means doubling the current production capacity to provide 24x7 electricity for residential, industrial, commercial and agriculture use. The Government of India is taking number of steps and initiatives such as 10-year tax exemption for solar energy projects, etc., in order to achieve India's ambitious renewable energy target of adding 175 GW of renewable energy, including addition of 100 GW of solar power, by the year 2022. The government has also sought to restart the stalled hydro power projects and increase the wind energy production target to 60 GW by 2022 from the current 20 GW.

SERVICE

India's services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction. The sector has attracted highest amount of FDI equity inflows in the period April 2000-December 2016, amounting to about US$ 58.345 billion, which is about 17.99 per cent of the total foreign inflows.

Foreign Investments in the services sector increased 77.6% to $7.55 billion in the current fiscal. The Indian telecommunication services market is expected to grow by 10.3 per cent year-on-year to reach US$ 103.9 billion by 2020. The Indian digital classifieds industry is expected to grow three-fold to reach US$ 1.2 billion by 2020, driven by growth in horizontal classifieds like online services, real estate and automobiles.

As per World Trade Organization (WTO) data, India's commercial services exports increased from US$ 51.9 billion in 2005 to US$ 155.3 billion in 2015, taking its share in global services exports to 3.3 per cent in 2015 from 3.1 per cent in 2014. In terms of growth in tourism sector, during January to December 2016, foreign tourist arrivals (FTAs) were 8.9 million, a growth of 10.7 per cent and foreign exchange earnings (FEE) were at US$ 23.1 billion, a growth of 9.8 per cent.

Prime Minister Narendra Modi has stated that India's priority will be to work towards trade facilitation agreement (TFA) for services, which is expected to help in the smooth movement of professionals. Hit hard by demonetisation, the services sector slipped into contraction in November 2016. The drop in services activity was quite significant since the share of the unorganised sector in services is large and there is high dependence on cash transactions. However, in contrast to the drop in the services segment, demand increased for payment gateways providers, cyber security services, maintenance service for ATMs, etc.

The government has come up with a four-tier GST rate structure for the sector — 5 per cent, 12 per cent, 18 per cent and 28 per cent. The bulk of the services will, however, be taxed at 18 per cent, while the sector is currently being taxed at 15 per cent. So, the GST regime is likely to increase tax incidence for this sector. The main challenge for the sector in the GST era is multiple registration. There is also the technological challenge of helping small enterprises in the services sector to electronically file their returns. This would require technical support through tax return helpers. They will also have to be assisted in the area of maintaining documentary discipline.

We analysed about 58 companies from the sector comprising service verticals such as logistics, EPC, trading, infrastructure. The overall revenue of the sector declined by 5.70 per cent to Rs.382,123 crore in FY17, whereas there was an improvement in the overall revenue by 0.18% in FY16. Following the above, EBITDA too declined 17.98% to Rs.74,942 crore from Rs.91,366 crore in the previous period which was a 27% increase as compared to FY15. The sector's bottomline narrowed down from Rs.14,995 crore in FY16 to Rs.7,361 crore in FY16, an almost 51% decline.

Road Ahead The Indian facilities management market is expected to grow at 17 per cent CAGR between 2015 and 2020 and surpass the $19 billion mark supported by booming real estate, retail, and hospitality sectors.

The performances of trade, hotels and restaurants, and transport, storage and communication sectors are expected to improve in FY17. The finance, insurance, real estate, and business services sectors are also expected to continue their good run in FY17.

GST will extend all over India, including Jammu & Kashmir, and allow the Central government to collect the service taxes on rendered services in the state of Jammu and Kashmir, which will eventually increase the government's revenue. Further, post-GST, restaurant bills and expenditure on staying at hotels would go up. Similarly, air travel will also become costlier. Sectors such as commercial vehicles, telecom, print media, cigarettes and jewellery would also be adversely impacted.

TEXTILES
Indian textile industry enjoys a structural advantage with high cotton production, declining power costs, stable currency and growing exports. The textile industry can be categorised into two segments, namely, organised sector, which consists of handloom, handicrafts and sericulture, and the unorganised sector consisting of spinning, apparel and garments.

The sector contributes about 4 per cent to the GDP and employs 40 million workers directly. The industry is expected to grow at a CAGR of 8.7 per cent during the period 2009-23E. The advantage that India posses is low labour cost per hour as compared to other countries such as US, China, Hong Kong and Taiwan. The following is the segmentation of exports: cotton fibre ~9%, cotton yarn, fabrics and made-ups ~23%, man-made textiles ~14%, garments ~39%, handlooms & handicrafts ~11% and others ~4%.

Cotton fibre, yarn and fabric would be taxed at 5 per cent after the GST implementation. These were tax-free earlier, although some states had levied VAT on cotton yarn and fabric. Silk and jute will be tax-free under the GST, but man-made or synthetic fibre yarn will be under 18 per cent tax slab. The 5 per cent tax on cotton yarn would benefit the sector in the long run due to smooth flow of goods and by making the business more transparent. The exports currently face delays in duty drawbacks, which will lose its significance post-GST as the refunds would be provided in the form of input tax credits, thus boosting exports. The government in its Union Budget FY17 allocated Rs.6227 crore to the sector, an increase of 36 per cent as compared to Rs.4595 crore in the previous year.

Analysing the sector with top 49 companies on the basis of market cap, we observe that the net sales for the sector declined by ~3 per cent YoY with an overall sales of Rs.108,847 crore in FY17. The topline of companies such as Forbes & Company and Trident increased by ~57% and ~29%, respectively, on a YoY basis. The sales for Atlas Jewellery India and Jaybharat Textiles & Real Estate declined by ~60% and ~44%, respectively, in FY17.

India has the advantage of being cost competitive due to the availability of low cost labour. The FDI inflows into the sector have grown at a CAGR of 16.7 per cent with global players such as Hugo Boss, Diesel and Kanz having started their operations in India. The technical textile industry is one of the most promising segments which is expected to grow at a CAGR of 16 per cent. The segment offers various products under thermal protection and blood-absorbing materials, seat-belts and adhesive tapes.

Forbes & Company reported EBITDA of Rs.52 crore in FY17, an increase of 190% YoY due to higher sales generated this year. VIP Clothing reported EBITDA of Rs.18 crore in FY17 from ‘no profit, no loss' in FY16. The large cap Aditya Birla Nuvo had a muted FY17, posting a decline of 37% in sales and 45% in EBITDA. Indo Rama Synthetics posted EBITDA loss of Rs.5 crore because of higher expenses incurred by the company. The net income for the sector was very volatile, with some companies posting tremendous rise in income, while others posting declines. Zodiac Clothing posted profit of Rs.6 crore in FY17, as against a loss of Rs.5 crore in FY16 due to low depreciation and tax expenses. Gloster posted a significant rise of 83% in PAT, posting a profit of Rs.47 crore in FY17 as compared to Rs.26 crore in FY16 because of higher EBDITA coupled with a zero depreciation cost. Nahar Industrial Enterprises profit rose by 70% in FY17, posting a PAT of Rs.69 crore as against Rs.39 crore in FY17.

The Government of India has taken certain initiatives to boost the sector, which include integrated skill development to employ skilled labour and ‘Make in India' initiative, which would encourage foreign investors and entrepreneurs to invest in the sector. The gap between demand and supply of cotton is likely to reduce and we expect companies to have a better credit profile, lower inventories and a drop in borrowing costs.

The textile industry is likely to flourish due to the increase in disposable incomes and a high demand in retail sector.

Urbanisation coupled with changing trends in fashion is likely to keep the industry rolling. The industry looks promising with strong domestic consumption and rising exports. The government has also promised to double the exports and has signed bilateral agreements with countries like Africa and Australia.

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