September 2022

From Chief Ratings Officer’s Desk

The NSO's forecasts for Q1 FY2023 GDP and gross value added (GVA) are similar to ICRA's estimates of 13.0% and 12.6%, respectively. We had expected that the prolonged Russia-Ukraine conflict and soaring commodity prices would cut producers' margins and moderate value addition in the economy during the period, despite the low base related to Covid 2.0. While base normalisation will moderate the pace of growth in the subsequent quarters, we have maintained our 7.2% growth projections for FY2023. Government initiatives to contain inflation are favourable for consumer demand, and the recent drop in global commodity prices from mid-June 2022 augurs well for corporate profitability, household spending, and investment demand in the balance of this fiscal. Moreover, we foresee a back-ended improvement in private and Government capex in the second half of the year, which should support the underlying growth momentum.

Domestic steel companies have a rocky path ahead as the external climate becomes tougher in key global consumer markets like China, the US, the EU, Japan, and South Korea. Steel demand in these regions is unlikely to revive soon. For now, India is the only bright spot in the pack with its crude steel production growing by a healthy rate of 8.9% in April-July of the current fiscal. Due to increased Central and state government capex spending in the current fiscal, domestic steel demand is predicted to expand at a healthy rate of 7–8% in FY2023, making India one of the fastest-growing steel markets internationally this year.

The battery manufacturing industry is a key part of the electric vehicle (EV) ecosystem and receives much attention. The EV segment's prospects improved in FY2022, thanks to Government subsidies, increased awareness, and more product launches. EV adoption across vehicle categories is predicted to rise dramatically over the next decade, with the battery remaining the most important and expensive component. In addition to EVs, stationary battery demand (grid storage, telecom towers, etc.) is expected to develop rapidly. Given the demand from diverse applications and development potential (after 2030), ICRA predicts cell production investments to exceed $9 billion.

Lastly, we look at the organised dairy sector revenue, which is predicted to expand in FY2023 due to institutional demand, consumer preference for branded packaged dairy products, rising urban income, and rising per capita consumption of value-added dairy products (VADPs). The revival of leisure travel, the expansion of the restaurant industry, and an increase in social events helped demand recover in FY2022, adding to double-digit volume growth. ICRA predicts some moderation in operating margins in H1 FY2023, but the credit metrics will be stable in FY2023.

The issue concludes with the regular features: monthly rating updates, upcoming ICRA events, and news features related to the company.

I hope you will find this newsletter useful and interesting.

Best Regards

K. Ravichandran
Chief Ratings Officer, ICRA Ltd.

Rahul Agarwal

Rahul Agarwal

Senior Economist, ICRA

Business Activity Monitor for July 2022

ICRA Research Updates
September 2022
Cement Sector: Significant decline in operating margins of cement players by 900 bps YoY in Q1 FY2023; high input prices to weigh on margins in FY2023
Aviation Sector: Demand recovery continues in FY2023; however, earnings to remain constrained due to cost pressures
Brokerage Industry: Moderation in Q1 FY2023, following record performance in FY2022
ICRA in News
September 2022
Business Standard | 9th September, 2022

Broking industry growth moderating after strong FY22: ICRA

The Hindu | 9th September, 2022

Aluminum firms’ margins may shrink in Q2: ICRA

Hindu Business Line | 8th September, 2022

The Indian aviation industry likely to post a loss of Rs. 15,000-17,0000 cr in FY23, says ICRA report

ET EnergyWorld | 8th September, 2022

E-mobility to power India’s journey to faster clean energy adoption

Upcoming Events
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Aditi Nayar

Aditi Nayar

Chief Economist, ICRA

Underlying growth momentum to pick up in H2 FY2023

The NSO’s initial year-on-year (YoY) growth prints for the GDP and the gross value added (GVA) for Q1 FY2023, of 13.5% and 12.7%, respectively, came in below consensus. However, they were close to our own estimates of 13.0% and 12.6%, respectively. We had anticipated that the soaring commodity prices, a fallout of the unexpectedly protracted Russia-Ukraine conflict, would whittle away at producers’ margins, thereby moderating the value addition in the economy in that period. Notwithstanding the geopolitical headwinds, the real GDP and GVA did expand by double-digits in the quarter ending June 2022, benefitting from the low base related to the second wave of Covid 19 in India in Q1 FY2022, and an uneven revival in consumption.

Jayanta Roy

Jayanta Roy

Senior Vice President & Group Head, Corporate Ratings, ICRA

External headwinds in major global consumption hubs to impact steel prices for the remainder of FY2023

Domestic steel companies face a bumpier road ahead as the external environment is becoming increasingly challenging in key global consumption markets. The steel demand in China, which accounted for 52% of the global steel demand in CY2021, is treading on a downward slope, as the economy braces for the combined impact of the property bubble, strict zero covid lockdowns, and a severe ongoing heatwave. In addition, a combination of adverse factors like unprecedented inflation due to disruptions in energy/food supply chains following the Russia-Ukraine war, and steep policy rate hikes by Central Bankers to counter the same are likely to stifle economic activities in the other key steel consumption hubs of USA, European Union, Japan, and South Korea, which cumulatively accounted for another 20% of global steel demand in CY2021. According to ICRA’s latest report on the steel sector, steel demand recovery in these regions is therefore likely to remain elusive in the near term.

Shamsher Dewan

Shamsher Dewan

Senior Vice President and Group Head, Corporate Ratings, ICRA

Rising electric vehicle penetration to drive significant investment in battery cell manufacturing

The battery manufacturing segment remains a critical cog in the overall EV ecosystem development and is garnering a lot of attention. Spurred by Government support in the form of subsidies, enhanced awareness and increasing product launches, the electric vehicle (EV) segment saw a significant upturn in prospects in FY2022. EV penetration across automotive segments is expected to grow exponentially over the next decade; with battery remaining the most critical and costly component of an EV. In addition to the robust demand from EV vehicle, the annual battery demand for stationary applications (grid storage, telecom towers etc.) is also likely to grow at a rapid pace and be substantial. Given the incremental demand from various applications and future growth prospects (post 2030), ICRA estimates investments in cell manufacturing to exceed USD 9 billion.

Sheetal Sharad

Sheetal Sharad

Vice President and Sector Head, Corporate Ratings, ICRA

Indian dairy industry to grow at a healthy pace in FY2023; recent retail price hikes to partially cushion input cost pressures in H1 FY2023

The organised dairy industry is expected to experience a healthy revenue growth in FY2023 aided by healthy demand from institutional segments, consumers' growing preference for branded packaged dairy products, rising urban income, and rising per capita consumption of value-added dairy products (VADPs). As per ICRA analysis, the demand for liquid milk from the institutional segment—both the hotels, restaurants and catering (HoReCa) and the B2B segments—increased significantly post the second wave of Covid-19, in line with expectations. The resurgence of leisure travel, the expansion of the restaurant industry and the increase in the number of social gatherings - collectively aided the demand recovery in FY2022, contributing to a double-digit volume growth in FY2022.

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