September 2021

From Dy. CRO’s Desk

India’s real GDP has expanded by a record-high 20.1% in year-on-year (YoY) terms in Q1 FY2022 on the low base. However, the impact of the second wave was a considerable 9.2% compression in the Indian real GDP, relative to the pre-Covid level. Both private consumption and investment trailed their pre-Covid levels in Q1 FY2022. Investment plans were put on hold by the private sector amidst the second wave, even though Government capex put up a healthier performance, especially in the case of the Government of India (GoI). However, as per an ICRA study, the combined fiscal deficit of 19 states nearly doubled to Rs. 1.1 trillion in Q1 FY2022 from the pre-Covid level of Rs. 0.6 trillion in Q1 FY2020, in contrast to the compression in the GoI’s fiscal deficit. This is because the states’ combined revenue receipts in that quarter were only 2.0% higher than the pre-Covid level of Rs. 4.3 trillion.

We also examine the robust performance of the Indian home textile exporters due to the pandemic-induced lifestyle changes. The demand momentum is expected to sustain during Q2-Q4 FY2022. ICRA’s sample set of companies comprising four large, listed players, accounting for ~35-40% share in India’s home textile exports, are projected to clock a robust double-digit growth of ~20-25% in FY2022. The larger exporters have a robust order backlog and may benefit from operating leverage. Further, clarity on the Rebate of State and Central Levies and Taxes (RoSCTL) scheme on exports of apparels would enable players to effectively price their products without worrying about the retrospective changes.

The auto component industry has recovered smartly, driven by strong exports as well as domestic demand. The decline of ICRA’s sample companies was restricted to 19% compared to earlier estimates of 30-35%, and they witnessed a strong revenue growth of 140% YoY, albeit on a low base of Q1 FY2021. The industry is expected to witness 20-23% revenue growth during FY2022, supported by recovery in the domestic automobile industry and robust exports. The pass-through of increase in commodity prices will also add to the revenue growth. Though the overall key financial parameters are likely to remain healthy, semi-conductor shortage and increased commodity prices remain the key near-term challenges.

Lastly, we examine the outlook for the renewable energy (RE) sector, which, despite concerns, is expected to remain stable. The segment continues to have policy support from the GoI and a strong project pipeline. Besides, superior tariff competitiveness offered by wind and solar power projects - both in the utility and the open access segments, is likely to favour growth. The investment prospects in the RE sector thus are expected to remain strong, given the policy impetus with a target to reach 450 GW by FY2030.

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
Executive Vice President & Deputy Chief Rating Officer, ICRA Ltd.

Prashant Vashisht

Vice President & Co Head, Corporate Ratings, ICRA

Views on Specialty Chemicals Sector

Girishkumar Kadam

Senior Vice President & Co-Group Head, ICRA

Views on Renewable Energy Sector

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Aditi Nayar

Chief Economist, ICRA

Gauging recovery through the Pre-Covid lens

The distorted base of last year's restrictive nationwide lockdown obscured the challenges wrought by the second wave of Covid-19 in India in Q1 FY2022. Accordingly, India’s real GDP has expanded by a record-high 20.1% in year-on-year (YoY) terms in Q1 FY2022 on the low base. However, the impact of the second wave was a considerable 9.2% compression in the Indian real GDP, relative to the pre-Covid level. Both private consumption and investment trailed their pre-Covid levels in Q1 FY2022 by 12% and 17%, respectively. While farm demand remained resilient after a series of healthy harvests, the loss of employment and incomes in swathes of the non-farm rural and urban economy as well as higher medical and fuel expenses, contributed to the overall squeeze in private consumption.

Pavethra Ponniah

Senior Vice President & Co-Group Head, Corporate Sector Ratings, ICRA

Indian home textile exporters sew a success story on pandemic-induced lifestyle changes; to clock 20-25% growth with healthy margins in FY2022

Riding high on pandemic-induced lifestyle changes stemming from heightened consciousness about hygiene and increased prevalence of stay-at-home options, Indian home textile exporters are set to register robust performance during FY2022. These factors have driven a sharp surge in demand for home improvement products over the past one year, and the demand momentum is expected to sustain during Q2-Q4 FY2022, continuing on the trend of the past three quarters. ICRA’s sample set of companies (comprising four large, listed players, accounting for ~35-40% share in India’s home textile exports) are projected to clock a robust double-digit growth of ~20-25% in FY2022.

Girishkumar Kadam

Senior Vice President & Co-Group Head, ICRA

Renewable energy sector outlook supported by strong project pipeline, superior tariff competitiveness and continued policy support

ICRA’s outlook for the renewable energy (RE) sector is stable supported by the continued policy support from the Government of India, strong project pipeline and superior tariff competitiveness offered by wind and solar power projects - both in the utility and the open access segments. Further, tariff competitiveness offered by the solar and wind power projects in utility auction route continued to remain superior, with tariffs remaining below Rs. 3.0 per unit, despite the upward pressure arising from the imposition of customs duty on imported cells and modules, w.e.f. April 2022.

Ashish Modani

Vice President & Sector Head - Corporate Ratings, ICRA

Despite Covid 2.0 setback, auto component industry registers smart recovery in June quarter, 20-23% revenue growth likely in FY2022

The domestic auto component industry has witnessed smart recovery during the quarter ended June 2021 driven by strong exports and revival of domestic demand in June 2021. ICRA’s sample of 50 auto component suppliers witnessed a strong revenue growth of 140% Y-o-Y, albeit on a low base of Q1 FY2021.Despite the Covid 2.0 restrictions, the overall decline in Q1 FY2022 was restricted to 19% on QoQ basis, in contrast to ICRA’s earlier estimate of QoQ decline of 30-35%. The revenue decline for aftermarket-dependent components like tyres and batteries was capped at 13%, as against a steeper 19% decline for the broader sample. Most domestic automobile sub-segments, especially passenger-vehicle (PV) and tractors continue to witness strong demand and are almost at pre-covid levels.

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