February 2020

Research Pulse

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Macroeconomic dashboard

Sector Unit 2016-17 2017-18 2018-19 2019-20 2020-21 F

GDP % (Growth) 8.2 7.2 6.1 5.0 6.0

CPI inflation % (Average) 4.5 3.6 3.4 4.5 4.0

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10-year G-sec % (March) 6.8 7.6 7.5 6.5 6.8

Exchange rate Re / US$ (March) 65.9 65.0 69.5 71.0 72.0

Note:
Revised upwards Revised downwards
F: Forecast.
FY19 and FY20 GDP numbers are government's revised estimates
Corporate India outlook

Sector Unit 2018-19 2019-20 2020-21 F

Overall revenue growth (% change) 11 3-4 8-9

Slowdown in revenue growth in FY20 is largely because of a moderation in sales volume in key consumption sectors such as automotive, softening of

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commodity prices affecting the metals sector, and a lack of fillip to export-linked sectors from the currency. Revenue to increase in FY21 on account of
improvement in consumption basket led by improvement in rural income.

Overall EBITDA growth (% change) 9 4-5 10-11

EBITDA profit is expected to outpace revenue growth in FY20, riding on improving profitability in consumer discretionary sectors such of airlines and
telecom, which saw sharp contractions last year. Softening metal and coal prices will support margin expansion in these sectors. Margins of the
construction and steel sectors, though, are expected to shrink.
Note:
Revised upwards Revised downwards

F: Forecast.
Based on assessment of 800+ listed companies (across 50+ sectors) (non-oil/non BFSI).
Sectoral dashboards: Consumption
Automobiles
Sector Parameter 2018-19 2019-20 F 2020-21 F

Commercial vehicles Revenue growth (% change) 16.1 (44)-(42) 25-27

EBIDTA margin (%) 8.8 3.8 5.4

Volume growth (% change) 14.2 (32)-(34) 5-7

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Weakening freight demand caused due to the moderation in economic growth amid overcapacity resulting from the revised axle norm has hampered
fleet utilization of transporters (inhibiting fleet additions) and lowered transporter profitability hurting fleet replacement. Wholesale offtake has also been
impacted due to inventory liquidation at dealers’ end and softening private consumption. Poor finance availability with lower loan-to-value being provided
to transporters has also hindered sales.

Cars and Uvs Revenue growth (% change) 10.5 (8)-(10) 6-8

EBIDTA margin (%) 11.7 8.5-9.5 9.5-10.5

Volume growth (% change) 3.6 (11)-(13) 3-5

CRISIL Research expects demand for passenger vehicles, which grew at a low ~2.7% in 2018-19, to decline significantly in fiscal 2020 under the
pressure of subdued retail sentiment on account of increase in total cost of acquisition, liquidity constraints, regulatory driven price hikes, deferment of
purchases on expectation of GST rate cut and increase in registration fees. In fiscal 2021, the industry is expected to witness some revival aided by new
launches as well as low base of fiscal 2020.
Note:
Revised upwards Revised downwards
F: Forecast.
Sectoral dashboards: Consumption
Others
Sector Parameter 2018-19 2019-20 2020-21 F

Two wheelers Revenue growth (% change) 11 (9)-(7) 9-10

EBIDTA margin (%) 14.8 13.4-13.6 14.4-14.6

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Volume growth (% change) 6 (15)-(17) 0-2

Two-wheeler domestic sales is expected to decline in fiscal 2020 by 15-17% on year due to weak consumer sentiment, subdued rural demand, and
increase in cost of ownership. Exports are expected to rise in the same period, led by improving demand in Asian and African markets. Utilisation is
expected to decline due to muted demand and as a result, margins are expected to decline. In fiscal 2021 two wheeler industry to grow marginally by 0-
2% in fiscal 2021 on a low base, because of 8-15% (depending on the models) increase in prices of two wheelers due to transition from BS IV to BS VI
emission norms, which will increase the cost of ownership by 9% on year.

Retailing Revenue growth (% change) 21 16-17 17-19

EBIDTA margin (%) 8.8 8.8-9.3 8.8-9.3

Slowdown in consumption will impact organised retail growth in fiscal 2021. We expect growth mainly during second half of the fiscal. Growth in the
organised retail industry is expected to remain healthy in the medium to long term. A buoyant growth trajectory will be aided by new store roll-outs,
increase in penetration in tier II and III cities, and a rise in consumer spending.
Note:
Revised upwards Revised downwards
F: Forecast.
Sectoral dashboards: Commodities
Metals
Sector Parameter 2018-19 2019-20 2020-21 F

Aluminium (LME+Premium) Revenue growth (% change) 18 (5)-(3) 3-5

EBIDTA margin (%) 10.2 3.5-4.5 6.5-7.5

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Price ($/tonne)* 2,149 1,750-1,850 1700-1900

Aluminium prices are expected to remain under pressure in near term due to fall in demand on the back of Corona Virus outbreak in China. Domestic
revenue and margins are expected to improve led by improved demand scenario as well as pickup in production on low base of fiscal 20.

Finished steel (HRC) Revenue growth (% change) 26.9 (4)-(2) 4-6

EBIDTA margin (%) 22.1 17-18 19-20

Price ($/tonne)* 493 460-490 480-500

Industry revenue is expected to moderate on account slowdown in automobile production and weak demand from construction segment. With demand
from China slowing down and oversupply situation, pricing and, thereby, profitability are expected to be under pressure in fiscal 2020.

Note:
Revised upwards Revised downwards
F: Forecast.
* Price ($/tonne) indicated for calendar year.
Sectoral dashboards: Commodities
Other commodities
Sector Parameter 2018-19 2019-20 F 2020-21 F

Crude oil* Brent price ($/barrel) 63.9 60-65 58-63

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CRISIL Research expects crude oil prices to decline by 4-8% on-year and range $60 to $65 per barrel in 2020. In 2019, oil prices declined by 10%. The prices
have declined due to demand concerns on account of slowing GDP growth and US-China trade wars. To restrict crude price fall, the Organization of the Petroleum
Exporting Countries (OPEC) members and allies have put additional production cuts of 0.5 mbpd, taking overall production cut volume to 1.7 mbpd. Going
forward, we expect demand concerns to continue overweighing supply disruptions (such as US sanctions on Iran & Venezuela as well as production cuts from
OPEC), keeping prices under pressure.

Cement Revenue growth (% change) 14.3 5-6 4-5

EBIDTA margin (%) 17.1 20.3-20.8 19-19.5

Retail price (Rs/bag) 331.3 354-358 346-350

Demand growth is expected to recover in the next fiscal on a low base of current year. Infra spending of central government as well as improved rural
demand on the back of healthy rabi output is expected to lead overall demand growth to 5-6% in FY21. However, rising capacity additions is expected to lead
to marginal decline in prices which is expected to lead to ~100 bps decline in profitability.
Note:
Revised upwards Revised downwards
F: Forecast. * Indicates Calendar Year 2018, 2019 & 2020.
Sectoral dashboard: Infrastructure
Infrastructure
Sector Parameter 2018-19 2019-20 2020-21 F
Power** Capacity additions (GW) 5.9 7-8 9-10

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Conventional power generation capacities are expected to decline as compared to the past 5 years due to ongoing financial stress in the sector. Other
reasons include, over-supply situation, weak financials of discoms, lack of incremental PPAs due to slower than expected demand growth, etc. Central
and state sector to lead additions while private sector additions are expected to be negligible.

Roads & highways NHAI awarding (km) 2,222 4,300-4,600 3,900-4,200

The National Highways Authority of India (NHAI) awarding was low in fiscal 2019 as the authority focused on clearing backlogs arising from high awarding
in fiscal 2018. In fiscal 2021, awarding is expected to moderate due to funding constraints.

Note:

Revised upwards Revised downwards

F: Forecast; ** Capacity additions are from conventional sources and does not include renewables.
Sectoral dashboard: Services
Services
Sector Parameter 2018-19 2019-20 2020-21 F
Hotels Revenue growth (% change) 7.6 2-3 7-8
EBIDTA margin (%) 25 25-26 25-26
Avg room rates (Rs) 7,550 7,650-7,750 7,800-7,900

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With demand growth surpassing supply growth, CRISIL Research expects revenue per available room for premium hotels to increase at a CAGR of 3-4%
in fiscal 2020, with varying trend across destinations. In fiscal 2021 there would be some pressure on RevPAR due to incremental premium supply
additions. In the medium term, despite supply additions in the premium segment, shifting focus of hoteliers on tapping the MICE (meetings, incentives,
conferences and events) demand, is expected to fuel the industry’s performance.

Telecom
Revenue growth (% change) -6 9-10 15-16

EBIDTA margin (%) 26.9 29-30 36-37

Wireless subscriber additions (mn) (21.6) 8 -2
*Revenue growth is based on gross revenue numbers

Competitive pricing has led to the deterioration in telecom companies’ realisations, leading to de-growth in fiscal 2019. However, increase in average
revenue per user, owing to price tariff hikes and data volume growth, is expected to recover growth in fiscal 2020.
Note:
Revised upwards Revised downwards
F: Forecast.
Capital markets review: Equity indices
Equity indices
14-Feb-20 1M% Chg 3M% Chg 1Yr% Chg

India broad indices

S&P BSE sensex 41,257.74 -1.66 2.41 15.00

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Nifty 50 12,113.45 -2.01 2.03 12.72

Global indices

DJIA (USA) 29,398.08 1.58 5.82 15.56

Nasdaq (USA) 9,731.18 5.19 14.77 31.03

FTSE 100 (UK) 7,409.13 -2.80 1.60 2.95

Nikkei 225 (Japan) 23,687.59 -1.41 2.36 12.05

Hang Seng (Hong Kong) 27,815.60 -3.70 5.67 -2.17

Capital markets review: Debt indicators
Debt Indicators
14-Feb-20 1M ago 3M ago 1Yr ago

Indicators

Call rate 4.95% 5.15% 5.05% 6.40%

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91 D T-bill rate 5.05% 5.09% 5.05% 6.36%

3-mth CP rate 5.65% 5.86% 5.50% 7.55%

6-mth CP rate 6.15% 6.30% 6.55% 8.20%

3-mth CD rate 5.30% 5.42% 5.13% 7.14%

6-mth CD rate 5.58% 5.75% 5.60% 7.40%

10-yr Gilt 6.37% 6.67% 6.52% 7.52%

10-yr AAA Corp bond 0.65% 0.86% 0.97% 0.91%

Revenue remains stable in Q3FY20
Muted growth in Q3 FY20 • Aggregate revenue (excluding BFSI and oil
20.0% 21.5% companies) of listed players remained stable
(marginal growth of 0.2% on-year) for the
15.0%
21.0% third quarter of fiscal 2020 on account of
sluggish private consumption as well as
20.5%
10.0%
decline in revenues of industrial and
20.0%
construction linked sectors.

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5.0% • It should be noted that the set’s revenue had
19.5%
declined by 1.5% in previous quarter
0.0%
19.0% (Q2FY20).
• Set’s aggregate EBITDA margin was 20.5%
-5.0% 18.5%
in Q3FY20 - indicating an improvement of 40
Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3 FY20
bps on-year. This is on account of expansion
of margins in sectors such as cement (due to
Revenue Growth (y-o-y %) (LHS) EBITDA margin (%) (RHS)
improved realisation) and airline services and
retailing (on account of change in accounting
standards). However, at an overall level (for
Note: Analysis is across 266 companies comprising ~54% of the National Stock Exchange’s market cap
the set), EBITDA continues to be under
*excluding financial services and oil companies
Source: Companies, CRISIL Research
pressure on account of lower utilizations in
automobiles sector and lower domestic
realization in steel.
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Last updated: April 2016

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