May 2022


From Chief Ratings Officer’s Desk


We have recently launched the ‘ICRA Business Activity Monitor,’ which is an index of high-frequency economic indicators, to capture the pulse of the economy. The monitor stood at a healthy 115.7 in April 2022, surpassing the performance recorded in FY2022, barring March. It also exceeded the pre-Covid levels of April 2019 by a considerable 15.8%, thereby suggesting robust economic activity, geopolitical tensions notwithstanding. However, some constituents have displayed uneven recovery and are trailing. Also, the YoY growth in indicators is due to a low base related to the onset of the second wave of Covid-19 in India. The positive factor is that this is likely to strengthen further in May 2022.

We also examine the outlook on toll roads which have been revised to ‘Positive’ from ‘Stable’, for FY2023. The change is supported by the expected healthy increase in toll collections in FY2023, a healthy toll rate increase on the back of high inflation and improved economic activity. The latter is a function of traffic volumes which in turn is correlated with gross value added (GVA) of construction, mining and manufacturing (CMM) as around 65% of the freight traffic is dependent on these sectors. Going forward, an increase in toll collection is likely to far outweigh the expected increase in O&M costs due to the high WPI and is likely to result in better coverage metrics.

The general insurance industry’s Gross Direct Premium Income (GDPI) is expected to grow by 10-12% in FY2023, led by higher growth in the health and commercial business segments with increasing awareness of medical insurance and an uptick in economic activity. Subsequent to the waning of Covid-19 infections, the industry’s GDPI growth recovered by an estimated 11% in FY2022 (compared to a 4% growth in FY2021). There are, however, downside risks to growth. In so far as the well-established insurers are concerned, they have solvency ratios comfortably above the regulatory minimum with better profitability, risk management and asset-liability management.

With demand for newsprint (NP) and printing writing papers (PWP) dwindling, given the rising impact of digitisation, the paper industry is witnessing a paradigm shift from the demand perspective. At the same time, the packaging paper (PP) segment is witnessing a rise, with growing demand for packaging. ICRA expects the healthy demand for packaging papers to drive industry growth in the medium term. On the earnings front, rising input prices, may constrain margins in the near term. The long-term demand potential for the industry remains intact.

Lastly, we examine the capital goods sector where the Government’s investments towards infrastructure creation, coupled with conducive policies to achieve self-reliance in manufacturing, strengthening technical competence and decarbonisation are driving growth. This apart healthy demand prospects in several end-user segments supported by the recovery in consumer demand are also resulting in capex traction.

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.

Anil Gupta

Vice President & Co-Group Head - Financial Sector Ratings, ICRA

Views on What impacts the interest rate on floating rate loans?

Rahul Agrawal

Senior Economist, ICRA

Views ICRA Business Activity Monitor

ICRA Research Updates
May 2022
 
 
Wholesale Price Index: WPI inflation recorded a higher-than-expected increase to a 30.5-year high of 15.1% in April 2022, led by higher fuel prices
Aviation Industry: Domestic air travel in April 2022 only ~5% lower than pre-Covid levels; international passenger traffic surpassed pre-Covid levels
Fertiliser Industry: Subsidy revision alleviates stress on fertiliser industry’s profitability
Comments on RBI’s Off Cycle Monetary Policy Meeting: MPC completes inflation pivot with hike in policy repo rate by 40 bps in off-cycle meeting; RBI raises CRR by 50 bps to withdraw liquidity
Rating
Updates
 
 
Rating
Methodologies
 
 
ICRA in News
May 2022
 
 
Mint | 26 May, 2022

Lenders stare at Rs. 19,000 cr NPAs

Mint | 25 May, 2022

India to launch national green hydrogen mission in 2 months

The Economic Times | 24 May, 2022

Indian data centers to see 5-fold capacity growth with up to Rs 1.20 lakh cr investment

Upcoming Events
 
Watch this space for upcoming events
 

Aditi Nayar

Chief Economist, ICRA

ICRA Business Activity Monitor stood at second highest level in 13 months in April 2022

The ICRA Business Activity Monitor - an index of high frequency economic indicators - stood at a healthy 115.7 in April 2022, surpassing the performance recorded in all the months of FY2022, barring March. This is a composite indicator that comprises auto production (two-wheelers and PVs), vehicle registrations, output of Coal India Limited, power generation, rail freight traffic, non-oil merchandise exports, cargo handled at major ports, consumption of petrol and diesel, finished steel consumption, generation of GST e-way bills, domestic airline passenger traffic, aggregate deposits and non-food credit of scheduled commercial banks.

Vinay Kumar G

Assistant Vice President and Sector Head, ICRA

ICRA revises toll roads sector FY2023 outlook to ‘Positive’ from ‘Stable’, supported by strong growth expected in toll collections primarily driven by high WPI led toll rate increase

ICRA has revised the outlook on toll roads sector to ‘Positive’ from ‘Stable’, for FY2023. The change in outlook primarily factors in the expected healthy increase in toll collections in FY2023, supported by healthy toll rate increase on the back of high inflation and improved economic activity. The latter are a function of traffic volumes which in turn is correlated with gross value added (GVA) of construction, mining and manufacturing (CMM) as around 65% of the freight traffic is dependent on these sectors. The growth in CMM is estimated to be 6-8% for FY2023 and is expected to result in 5-6% growth in overall traffic volumes.

Sahil Udani

Assistant Vice President & Sector Head – Financial Sector Ratings, ICRA

Profitability of general insurance sector to improve in FY2023 with continuing growth momentum and better underwriting performance

ICRA expects the general insurance industry’s GDPI to grow by 10-12% in FY2023, led by higher growth in the health and commercial business segments with increasing awareness of medical insurance and uptick in economic activity. Already the resumption of economic activity after the waning of Covid-19 infections, has led to the industry’s gross direct premium income (GDPI growth recovering by an estimated 11% in FY2022 (compared to a 4% growth in FY2021). The GDPI of PSU insurers is expected to grow moderately at 4-6%, while private insurers are expected to capture market share by growing at a higher rate of 13-15% in FY2023. However, economic uncertainty due to structural challenges in the automobile industry and rising commodity prices amid the geopolitical crisis pose downside risk to FY2023 growth.

Suprio Banerjee

Vice President & Sector Head – Corporate Ratings, ICRA

Indian paper industry at inflection point; capex cycle turns towards packaging paper segment

The paper industry is witnessing a paradigm shift from the demand perspective, with demand for newsprint papers (NP) and printing writing papers (PWP) dwindling, given the rising impact of digitisation. At the same time, the packaging paper (PP)segment is witnessing a rise, with growing demand for packaging from e-commerce, food and food products, FMCG and the pharmaceutical sector. ICRA expects the healthy demand for packaging papers to drive growth for paper manufacturing companies in the medium term.

Anupama Arora

Vice President & Sector Head – Corporate Ratings, ICRA

Growing order books of capital goods players point to traction in private capex in FY2023

Government’s investments towards infrastructure creation coupled with policies to achieve self-reliance in manufacturing (through production-linked incentive (PLI) schemes), strengthening technical competence and decarbonization are driving growth in the capital goods sector. This apart healthy demand prospects in several end user segments supported by recovery in consumer demand (including pent-up demand) are also resulting in capex traction. Some of the key industries showing healthy capex include energy (power generation, predominantly renewable and storage, transmission, oil & gas, green hydrogen), digitalization (including data centres), core industries (cement, metals) and corporate sectors (automotive/ mobility, pharma, chemicals, textiles, among others).

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