Connect with us

Daily News

Coronavirus Could Put India Inc In A Spot If Outbreak Prolongs: Crisil

NEW DELHI : India’s auto components, pharma, and agro chemicals industry can survive coronavirus headwinds to some extent in the near term, but businesses will face significant pressures as inventories run down, Crisil said in a report on Thursday.

“…Overall, that would eventually result in more sectors being negatively impacted, outweighing the positives. Credit profiles of firms in select sectors could also get impacted if the supply disruption continues beyond March,” it said.

The fourth quarter of fiscal 2020 will show a mixed impact of the virus. “But if it persists, Indian industry is heading for serious disruptions,” it added.

On a brighter note, sectors that are highly dependent on imports from China, such as ceramics and plastics, are expected to aid Indian domestic manufacturers.

“India’s steel, paper, leather and textile readymade garments segments have a window of opportunity to expand exports, as China accounted for a sizeable pie in global trade but is now staring at a crisis due to coronavirus,” Crisil said.

Sectors such as aluminium, electronics, and pharma bulk drugs in India will be unable to meet the void created by China as “they either are running at peak utilisation or face capability issues”.

“The fact is, other countries including India do not potentially have the scale or size to take material advantage of the opportunities available due to disruption in Chinese supplies. It could take significant resources and time to set up additional capacities, by which time China itself might re-commence production,” Crisil said.

Fall in imports from China is expected to benefit secondary aluminium manufacturers, mostly small and medium enterprises (SMEs) operating at less than optimal utilisation.

In the auto component industry, importers had stocked up inventories in anticipation of the Chinese New Year. Hence, the virus outbreak is expected to cause limited disruption in the fourth quarter of fiscal 2020. Indian original equipment manufacturers (OEMs) tend to have import inventories for 30-60 days.

But lack of even a single critical component such as printed circuit boards can hurt an OEM’s ability to manufacture vehicles. The current slowdown and adequate stock of Bharat Stage (BS)-IV vehicles serves as a relief for domestic OEMs though production of BS-VI vehicles, to be sold effective 1 April, could get disrupted if the lock down in China persists, Crisil said.

A lion’s share of auto component and tyres imports cater to the aftermarket segment and availability of these components in the aftermarket will be impacted. But this would be offset by lower domestic demand, it added.

For the auto components industry, drive transmission, steering, electricals, interiors, engine components, and alloy wheels are major imports from China.

India’s agriculture sector will see a negligible impact as most of the raw material, such as pesticide, for the crop year 2019-20 had taken place by November-December. India imports 50% of its raw material (technical) pesticides requirement from China. “In case of fertilisers, while ~10% urea is imported from China, it is produced in the Middle East and traded by China. Therefore, we do not see a significant impact of n-CoV and shutting down of chemical plants, in the fourth quarter of this fiscal,” Crisil said.

However, if the outbreak is not contained beyond that, imports for the next season will be impacted. In case of crops such as soybean, India depends on China by way of export of soy meal. But since a large part of the commodity has been harvested and already sold, the virus outbreak is not expected to impact farmers much. Some downward pressure on margins of soy millers might be seen in the near term, though, due to lower soy meal exports.

Petrochemicals may miss the exports bus with utilisation high and prices under pressure. With slowdown in Chinese demand, India’s exports will get impacted and players will have to look for other export destinations, which is a monitorable,” it said.

Petchem prices and margins, which were subdued due to global oversupply and demand slowdown, will see further pressure.

Consumer durables industry will feel the heat in March as inventory for the sector is typically around two months. This will lead to negative impact by end of fourth quarter this fiscal, and a possible increase in product prices.

India’s pharma bulk drugs industry is a net importer of Chinese raw material. It has an inventory for 2-3 months in view of the holiday period in China. But, a few pharma players have seen price escalation in some imported bulk drugs and intermediates off late such as paracetamol, it added.

Indian steel industry is facing weak domestic demand and has enough capacities to meet any import shortfall. “In fact, imports from China declined in April-December 2019 by ~16%, following weak domestic demand growth of 3.5% in India during this period and ramp up of domestic capacities.”

For solar projects, disruption in supply of panels for projects commissioned in India in next 4-6 months could lead to project completion delays and possible invocation of force majeure clauses to avoid penalties by solar developers.

The epidemic will have a knock-on effect in the world economy and disrupt global supply chains if not contained quickly. China is the world’s second largest economy and a major trade partner for many countries, including India.

Export-import trade between India and China, including Hong Kong, was $115 billion in calendar 2019.

The death toll from the coronavirus outbreak in China has climbed to 2,118, while the overall confirmed cases increased to 74,576, Chinese officials said on Thursday.-Livemint

error: Content is protected !!