Kansai Nerolac Paints Ltd (KNPL) today reported strong growth on several fronts during the Oct-Dec quarter despite a challenging economic environment, including slow demand from rural areas.
Net revenue for the quarter rose 5.7% year-on-year to Rs 1,814.9 crores. EBIDTA jumped 27.3% to Rs 239.9 crores while profit after tax surged 40.4% to Rs 157.6 crores.
For the nine months period, net revenue was up 4.7% at Rs 5,731.6 crores while EBIDTA grew 31.5% to Rs 843.7 crores.
The growth was driven by good demand conditions in both decorative and industrial paint segments. Decorative paints volume registered double-digit growth, helped by the festive season. Industrial paints also saw robust demand during the quarter.
Raw material prices were stable despite volatility in crude oil prices globally. This allowed the company to improve gross margins compared to last year.
“The quarter saw good demand for Industrial coatings,” said Managing Director Anuj Jain. “Decorative demand was also good as it registered double digit volume growth, driven by the festive season.
“Going forward with the election round the corner, rural demand is expected to pick up which should support overall volume demand in the near term. Given the evolving geo-political situation, raw material prices may experience volatility,” he added.
KNPL continued to make progress in key focus areas like increasing feet-on-street, digital marketing initiatives, new product launches and expanding distribution reach. With the upcoming elections, demand from rural markets is expected to rise further.
The Indian paint industry witnessed steady growth in 2023, estimated to be around 15-20%, buoyed by increased infrastructure and construction activity. The industry size crossed Rs 70,000 crores, with decorative paints accounting for 75% market share.
After facing margin pressures in 2021 and 2022 due to high input costs, players saw recovery in profitability from Q2 2023 as commodity prices stabilized. With crude oil prices easing, key raw material costs like titanium dioxide, monomers and packaging materials saw sequential correction resulting in gross margin expansion.
Demand from Tier 2, 3 cities and rural housing drove volume growth for leading decorative paint brands like Asian Paints, Berger Paints and Nerolac. Players pushed distribution enhancement to tap small town demand. Brands also launched new products with anti-bacterial, premium exterior paints and launched integrated painting solutions to drive premiumization.
Industrial paint demand witnessed an uptick across auto, infrastructure and ancillary sectors. Increased capital expenditure across coal, cement, steel and energy industries sparked higher industrial paint consumption. However, the slowdown in Indian automotive industry posed some headwinds.
Increased infrastructure spending and growth in real estate is expected to drive long term paint demand, Kansai Nerolac Paints said.
Leading forged products supplier Ramkrishna Forgings Limited has announced that it has won a significant $13.16 million (Rs 109.2 crore) contract from a major North American axle manufacturer.
The 4-year contract entails supplying rear axle components and services for the off-highway sector. Ramkrishna Forgings emerged as the preferred supplier after a competitive bidding process thanks to its expertise in precision forging and manufacturing.
This contract marks an important milestone for Ramkrishna Forgings as it looks to strengthen its presence in the crucial North American market for automotive components. The company already has a manufacturing facility in Detroit, USA along with warehouses across the region.
Commenting on the development, Mr. Lalit Kumar Khetan, CFO of Ramkrishna Forgings said, “We are proud to be selected for such a substantial contract, which is a testament to our commitment to product quality and reliability. This partnership will further cement our credentials as a key player in North America’s automotive supply chain.”
He further added that the company is fully equipped to meet the expectations of growth and innovation in this partnership.
Founded in 1981 and headquartered in Kolkata, Ramkrishna Forgings Limited manufactures closed die steel forgings for critical applications in the automotive, railways, construction and engineering sectors. Its clients include leading OEMs such as Tata Motors, Ashok Leyland and Volvo. The company has a global exports footprint spanning North America, Europe and Asia.
Som Distilleries & Breweries Ltd is gearing up for major expansion of its business, riding the consumption boom in beer in India with its Woodpecker and Hunter brands.
In keeping with its ambitious targets, the company reported robust 67% year-on-year volume growth in its beer portfolio during the third quarter of FY2024. Total beer sales stood at 44.5 lakh cases, compared to 26.6 lakh cases in Q3 FY2023.
The stellar volume performance was led by the company’s mainstream brands – Hunter, Black Fort and Power Cool. These flagship labels registered 68%, 59% and 57% volume growth respectively over Q3 of last year.
On a 9-month basis, total beer volume was 150.7 lakh cases, higher by 54% compared to the same period last fiscal. Here again, Double Diamond brand Hunter expanded by 21% in terms of volume along with Black Fort and Power Cool which saw 72% and 49% growth respectively.
The strong uptake indicates rising preference for Som’s products across key markets like Madhya Pradesh, Uttar Pradesh, Delhi, Karnataka and Kerala. This has prompted the company to expand its production capacity by 60 lakh cases annually in Karnataka and augment capabilities in Bhopal as well to meet the robust demand scenario.
Target 10%
The Bhopal-based company has set a target to grow its pan-India market share from 5.5-6% currently to 10% over the next 2-3 years.
It is adding new capacity in Karnataka and Bhopal and also entering high potential markets like Tamil Nadu where it has received regulatory approval to supply its beer brands.
Additionally, Som Distilleries aims to drive volume growth through its mainstream brands such as Hunter, Black Fort and Power Cool which registered strong 68%, 59% and 57% volume growth respectively in Q3 FY2024. The company’s premium beer offering, Woodpecker, is also expected to become a flagship millionaire brand within the next few years.
Som Distilleries & Breweries is aiming to establish its premium beer offering – Woodpecker – as a millionaire brand within the next 2-3 years.
Woodpecker is currently sold across 6 states in India including Karnataka, Goa, Maharashtra, Madhya Pradesh, Chhattisgarh and Jharkhand. However, Som Distilleries is now working on driving distribution and visibility of the craft beer label more aggressively nationally.
As per industry terminology, a millionaire brand refers to one that sells over 1 million cases annually. The company believes that on the back of increased brand-building efforts and leveraging food & beverage tie-ups, Woodpecker has the potential to achieve this milestone by FY2026-27.
Apart from modern trade, the company aims to widen Woodpecker’s reach by tapping wine shops, premium retail channels and the hospitality sector. Backed by a balanced bitterness and citrus taste profile, Woodpecker is expected to find appeal amongst millennial and urbane consumers willing to upgrade within the beer category.
If Woodpecker reaches its targeted sales trajectory within the next three fiscal years, it will join Som’s flagship mainstream brands Hunter, Black Fort and Power Cool in the millionaire league – signifying the brand’s successful premiumisation by the company.
Geographical Expansion
The company will also try to expand its geographical footprint.
It has received regulatory approval for supply of its beer brands into Tamil Nadu and will commence seeding operations by end of FY2024.
Som Distilleries aims to establish presence of labels like Hunter, Black Fort and Power Cool across on-trade outlets as well as retail channels over the next 6-12 months in the state.
While Tamil Nadu as a market is still dominated by strong beer brands, Som sees potential to gain share on the back of rising popularity of mild beer. Its mainstream portfolio is well-placed to tap youth-centric consumption in urban centres along with tier-2 regions. Som Distilleries will also leverage local events and activations to drive trials for its products.
Earlier, the company had successfully entered states like Uttar Pradesh, Delhi, Jharkhand and Rajasthan where its brands have found good traction. Similarly, by entering Tamil Nadu it aims to strengthen market share in the southern flank and reduce seasonal risk associated with summer-centric demand in the northern plains.
Capacity Expansion
On the capacity front, Som’s additional capacity in Karnataka will allow it to cater to the new market without hampering supply to existing regions. The move aligns with its aim to achieve 10% national market share in the Indian beer industry within the next 2-3 years.
The company is adding 60 lakh cases of annual capacity in Karnataka, where its brands have gained significant traction. Additionally, it is also expanding capabilities at its Bhopal, Madhya Pradesh plant by installing new packaging lines.
The total investment for the capacity enhancement is estimated to be around Rs 60-65 crores. The additional output is expected to come onstream before the peak summer season, allowing Som Distilleries to capitalize on seasonally strong demand.
The move comes on the back of a 67% volume growth delivered in Q3FY24, with total beer sales volume at 44.5 lakh cases. Mainstream labels Hunter, Black Fort and Power Cool registered 68%, 59% and 57% volume growth respectively during the quarter.
With the new capacity, Som Distilleries aims to drive growth in existing strongholds like Karnataka and Kerala while also entering new markets such as Tamil Nadu. Easing of supply pressures can allow it to service these geographies optimally.
Along with increased production firepower, Som Distilleries is targeting to expand its pan-India market share from 5.5-6% currently to 10% over the next 2-3 years. Its capacity growth efforts align with the ambitious volume expansion plans.
In addition, the company has entered into a contract manufacturing arrangement for Indian Made Foreign Liquor (IMFL) in the state of Jammu & Kashmir.
As per the deal, Som will manufacture IMFL brands owned by third parties at its production facilities on a contract basis. The company is already present in the IMFL category through its own brands which contribute nearly 10% to overall revenues currently.
The strategic intent behind contract manufacturing is to optimize the capacity utilization of Som’s IMFL bottling lines when its own brand volumes are lower. Additionally, entering such partnerships helps lower the working capital requirement as well.
From a geographical perspective, the focus on J&K allows Som Distilleries to save on transportation and logistics costs which can be significant for breakage-prone glass bottled IMFL. This can aid in improving margins and deepening presence in the northern state.
While IMFL contract manufacturing is still at a nascent stage, the segment holds strong growth potential for players like Som Distilleries. With pan-India supply chain infrastructure and long-standing regulatory rapport across states, Som is well-positioned to capitalize on this opportunity.
Profitability
The beverages segment has been hit in recent months by rising raw material costs.
Som Distilleries & Breweries, however, remains confident of maintaining a healthy 12-13% EBITDA margin going forward, despite higher glass bottle packaging costs weighing on profitability.
The company’s management highlighted that gross margins have dropped from earlier peak levels due to greater share of new glass bottles in total packaging. As Som registers strong volume growth across regions, dependence on fresh bottles supplied by manufacturers increases.
However, with current gross margin position stabilizing around 35% levels, the company sees scope for operating margins to sustain at 12-13% level. This indicates that despite input cost pressure, Som Distilleries has been able to drive cost efficiency in other operating areas.
Moreover, as the overall sales mix shifts more towards premium offerings, it will offset some of the impact of higher packaging material costs. Brands which deliver better realizations will aid in protecting operating margins.
Som Distilleries also highlighted that with significant capacity expansion coming on-stream, fixed costs are expected to become optimal. Better capacity utilization across locations can result in operating leverage benefits.
The company’s strong volume outlook and cost optimization efforts across key expense buckets will help Som Distilleries report industry-leading EBITDA margins, despite short term fluctuation in commodity prices.
Som Distilleries and Breweries Limited, a leading manufacturer of beer and spirits in India, announced impressive 51% year-over-year volume growth in the state of Karnataka for the current financial year so far.
Som Distilleries, established in 1993 and headquartered in New Delhi, produces popular beer brands like Hunter, Black Fort, and Power Cool. The company has a strong presence across North and Central India. However, Karnataka has emerged as a key growth market for Som in recent years.
Bangalore, the technology hub of India with a large young working population, is the driving force behind the rising beer consumption in Karnataka. The city, along with the overall state, accounts for over 10% of the total Indian alcoholic beverages market. Several major breweries have invested heavily in expanding their operations in the state.
The significant 51% volume growth reported by Som Distilleries demonstrates the success of its initiatives in Karnataka.
Industry experts suggest that rising urbanization, disposable incomes, and evolving lifestyle choices among consumers will further boost alcoholic beverage consumption in the state. Leading beer and spirits brands aim to capitalize on this demand by enhancing production capacities, distribution reach, and brand building in the region.
VA Tech WABAG, a leading Indian water technology company, has announced that it has secured an order worth $33.5 million (Rs 270 crore) for designing and building an industrial wastewater treatment plant at the Ras Tanura Refinery in Saudi Arabia.
The order has been awarded by SEPCO III Electric Power Construction Corporation to provide engineering and procurement services for the 20 million liter per day (MLD) treatment plant. WABAG will be the process and technology contractor for this project.
The industrial wastewater treatment plant is being developed by Miahona, a public-private partnership company focused on water and wastewater projects in Saudi Arabia. The plant will treat effluents from various refinery units before partial reuse within the refinery complex, which is owned and operated by Saudi Aramco.
As per the order, WABAG will be responsible for the end-to-end design, engineering, procurement, supply, installation, and commissioning of the treatment plant over a 20 month timeframe. The treatment process will involve biological treatment, filtration and reverse osmosis technologies.
Commenting on the order win, Sivakumar V, WABAG’s Regional Head for Sales and Marketing in the Middle East, said that this order demonstrates WABAG’s advanced capabilities and leadership in oil and gas wastewater management.
He added that the order would help WABAG strengthen its presence in Saudi Arabia and the wider Middle East region. WABAG has already executed over 1,400 municipal and industrial water and wastewater treatment plants across 25 countries worldwide.
RailTel Corporation of India Ltd has announced that it has received a work order worth Rs 124.90 crore for the implementation of unified communication infrastructure across the Western Railway zone.
The project includes setting up IPMPLS LAN infrastructure, VOIP telephone exchanges, IP-based signaling and control communication systems. It also involves the replacement of existing UTN communication network of Western Railways.
The sizeable order has to be executed over a period of 18 months, starting from February 4, 2024 to August 3, 2025. Western Railways is a zone of the Indian Railways, which owns a majority 72.84% stake in RailTel. Hence, the order falls under related party transactions, although it has been awarded at arm’s length basis.
With this project, RailTel – the state-owned telecom infrastructure provider – aims to modernize the communication systems of Western Railway by leveraging latest technologies like Internet Protocol and Multi-Protocol Label Switching (IPMPLS). T
his would not only enhance the network capacity but also make communication flexible and seamless across the railway zone.
Over the last few quarters, RailTel has been receiving steady order inflows from the Indian Railways and its various zones, given its specialized expertise in building modern railway telecom infrastructure. The company offers a complete range of ICT services like MPLS-VPN, telepresence, leased line, tower co-location, data center services etc.
Leading omni-channel retailer Shoppers Stop registered a steady 4% growth in total sales for the third quarter of FY24, despite demand headwinds impacting India’s retail sector. The growth was driven by non-apparel categories like beauty and watches/fragrances, which offset continued weakness in apparel sales.
Shoppers Stop’s beauty business achieved record quarterly sales of INR 262 crores, growing 10% over last year. “Our engagement with the customers were at all-time high with 266,000 makeovers and 138 master classes,” said Biju Kassim, CEO for beauty at Shoppers Stop.
However, sales from Shoppers Stop’s owned brands or private labels declined by 6% during the quarter. “The challenges in private brands continued for the second quarter too, particularly in women’s western wear and parts of menswear,” acknowledged Kavindra Mishra, CEO of Shoppers Stop.
The company is taking corrective actions like optimizing vendors, streamlining options and getting positioning right to revive private label growth, as per management.
Mishra highlighted that sectors like premium beauty, watches, fragrances showed potential for further growth. He also pointed to green shoots of recovery during the recently concluded festive season. Shoppers Stop saw 8% like-for-like sales growth during the Diwali sale period.
The company remains overall optimistic about its long-term growth plans, mainly relying on new store openings. It has a target to open 56 stores this fiscal, including 24 Intune value retail format stores. There are also plans to launch premium international apparel brands to tap changing consumer preferences.
OMNI-CHANNEL SLOWDOWN
Meanwhile, the company pointed out that the rapid shift of its sales from offline to online channels is plateauing. The shift had gone a major boost during the COVID era, as consumer got more comfortable with the idea of buying goods without first touching and feeling them.
However, this has been more so in categories where the products don’t have to match the customer’s exact specifications, compared to others such as clothing and footwear where the product has to fit the customer exactly. As such, items such as beauty products have done better in online retail compared to clothes.
For now, the trend anyway seems to be slowing down, the company said, indicating that the rampant offline-to-online switch in consumer purchases seen during the last few years in the retail industry may be moderating now.
“Our sales share was largely flat in Omni, though the overall trend seems to be that Omni’s channel is slowing down,” said Kavindra Mishra, Executive Director and CEO of Shoppers Stop, during the company’s Q3 FY24 earnings conference call.
Shoppers Stop has invested significantly into building its omnichannel retail capabilities in the last few years, allowing customers to browse and purchase products seamlessly via online channels like website and mobile apps in addition to its physical stores.
However, the pace of increase in the share of the overall business contributed by online sales channels appears to have slowed down lately for the company.
“Our investments in Omni will continue. We are reasonably confident similarly to beauty; Omni will be the leading channel in the next few years and we are fully prepared for that,” Mishra added, underlining that Shoppers Stop remains committed to its omnichannel strategy despite the temporary blip.
HOPING FOR THE BEST
Meanwhile, Shoppers Stop is hopeful that consumer demand will start picking up again from the next financial year after a prolonged slowdown over the last few quarters.
“We are definitely seeing a shift in the consumer spend, people spending more for the travel or experiences rather than only buying for the product. That’s a reality that we see at the industry level,” acknowledged Kavindra Mishra, Executive Director and CEO, during Shoppers Stop’s latest quarterly earnings call.
However, Mishra indicated that FY25 could see the start of a turnaround after nearly five quarters of demand sluggishness in the retail sector.
Shoppers Stop is betting on the continued outperformance of premium discretionary products to drive growth when overall retail demand revives.
“The premium portfolio in Q3 grew by 6% like-for-like. And we will keep on doubling down and making an account of differentiation as a departmental store, which I think is something which is very, very unique to Shoppers and our customers,” highlighted Mishra.
The company’s strategy to tap the premium segment also involves plans to launch leading international apparel brands in its stores on an exclusive basis.
For the recently concluded Q3 FY24, Shoppers Stop reported a modest 4% overall growth in sales compared to last year, aided by non-apparel categories. But the like-for-like growth for the quarter was marginally negative at -1% dampened by apparel weakness.
The festive Diwali sale period in November had seen some green shoots, with Shoppers Stop registering 8% like-for-like growth briefly. The management remains hopeful the nascent recovery will catch momentum starting next fiscal year.
BUDGET CHAIN RAMP UP
Meanwhile, the company said it was happy with performance of Intune, the chain launched to cater to more price conscious shoppers.
The venture, launched in 2022, continues to achieve the goals set as per the management. The format registered another successful quarter of operations in Q3 FY24, it said.
“We had positive EBITDA at the store level. Though we are away in the initial stages, there will be a learning as we go ahead,” updated Kavindra Mishra, CEO, Shoppers Stop, indicating Intune stores have turned profitable within 8 months of launch.
The company also continues to be on track to meet its rapid store rollout targets for Intune. It opened 4 new stores during the Oct-Dec 2023 quarter, taking the total count to 11.
Shoppers Stop plans to end FY24 with 24 Intune stores by launching another 14 stores in Q4. The management’s confidence in the format is evident from its goal to open 100+ stores over next fiscal.
Intune is positioned distinctly as a family and kids-focused value retail brand, with average ticket prices targeted at INR 450. The quick acceptance of this positioning among shoppers is visible from the 65% full price sell through achieved in the very first selling season, as per the management.
“We analysed the customer behaviour based on the shopping basket, which are the best performing categories, merchandise points, frequency of purchase,” highlighted Mishra. The data-backed approach has helped quickly fine-tune the product assortment and store experience of Intune to drive better outcomes.
While competition in value retail is heating up, Shoppers Stop is betting on Intune’s unique brand identity and customer focus to differentiate itself. Leveraging the learning from Intune’s initial success, the company aims to rapidly scale up the new format over the next 2-3 years.
Mumbai-based JSW Infrastructure Limited announced robust third quarter results for the period ending December 31st, 2023, driven by healthy cargo volume growth, operating leverage, and strategic expansion.
Cargo volumes handled grew 17% year-over-year to 28.1 million metric tonnes in Q3 FY2024. Higher utilization rates at Paradip Iron Ore Terminal, Paradip Coal Terminal, and Mangalore Coal Terminal contributed to volume growth. The Mangalore Container Terminal saw cargo volume expand 33% versus last year, with third-party volume rising 47%.
Higher volumes translated into a 21% increase in consolidated revenue to Rs. 1,018 crore. Thanks to operating leverage and cost control efforts, EBITDA jumped 33% to Rs. 558 crore while EBITDA margin held firm at 54.8%. On the bottom line, net profit after tax more than doubled to Rs. 254 crore.
The company maintained a robust balance sheet to fund future growth, ending Q3 with a net debt to EBITDA ratio of just 0.31x and cash & cash equivalents of Rs. 3,764 crore.
During the quarter, JSW Infrastructure received key approvals to expand cargo handling capacity. Environmental clearance was granted to boost capacity at the Ennore Coal Terminal by 1.6 million metric tonnes per annum. The company also won a bid to develop a 30 million tonne per annum greenfield port at Keni, Karnataka entailing Rs. 4,119 crore in capital expenditure.
Expanding its footprint, JSW Infrastructure acquired a majority stake in PNP Maritime Services which operates a 5 million tonne per annum port in Maharashtra. The acquisition of a 5 million tonne per year liquid storage terminal in Fujairah, UAE was also completed. With new projects and M&A, JSW Infrastructure grew its cargo handling capacity to 170 million metric tonnes per annum.
The strong results showcase JSW Infrastructure firing on all cylinders – handling higher cargo volumes, boosting capacity, making strategic acquisitions, and delivering significantly higher profitability. With operating leverage benefits and a robust balance sheet, the company seems well-positioned to continue its growth trajectory. The expansion of both port infrastructure and cargo mix enables JSW Infrastructure to capitalize on India’s growing EXIM trade.
Animal healthcare company Hester Biosciences’ quarterly revenues and profits declined on a year-on-year basis due to a sharp fall in its revenue from animal healthcare.
Hester’s total standalone revenues for Q3 FY24 decreased by 7% to Rs 655.05 crore compared to Rs 707.73 crore in the year-ago period, mainly due to an 18% decline in revenues from its animal healthcare division to Rs 301.50 crore.
The decline was primarily attributed to lower sales of goat pox vaccines following moderation in demand after initial surge to protect cattle from lumpy skin disease outbreak. Discontinuation of two animal health products – CurX Injection and iSumovet – in view regulatory changes also impacted division’s sales.
In contrast, Hester’s poultry healthcare division posted healthy 8% revenue growth in the quarter at Rs 348.82 crore, aided by pick up in poultry vaccine industry and strong 34% growth in health products. The petcare division revenues declined 22% due to overall slowdown in pet adoption rates post-COVID, but remains a focus area for future.
For the nine month period, Hester reported 10% revenue growth at Rs 2,122.83 crore compared to Rs 1,933.04 crore last year, as both animal and poultry healthcare divisions improved sales over the period.
On the profitability front, Hester’s gross margins declined to 67% in Q3 FY24 from 70% last year due lower contribution from high margin goat pox vaccines. This resulted in 36% Y-o-Y decline in EBITDA to Rs 115.68 crore and 40% lower net profit of Rs 64.75 crore compared to Rs 107.29 crore in Q3 FY23. For the nine months, EBITDA was down 13% while net profit declined 24%.
On the consolidated basis, including subsidiaries in Nepal and Tanzania, Hester’s total revenues declined 11% Y-o-Y to Rs 669.83 crore in Q3 FY24 and grew 13% to Rs 2,252.91 crore in 9M FY24. The company reported consolidated net loss of Rs 40.20 crore in Q3 due to continued struggles at African arm, compared to net profit of Rs 121.58 crore last year.
In the earnings release, Hester outlined several steps being taken to improve performance going forward. These include push for health products across divisions, upgrading key vaccines leveraging recovery in poultry industry, strategic expansion in pet care segment, boosting exports from Tanzania subsidiary and enhancing domestic business in Nepal unit.
The company stated that indicators point towards upward trajectory in sales and profits over next few quarters, as it focuses on deriving balanced revenues across divisions to minimize impact from segment specific downturns. However, African subsidiary is expected to face near term struggles before witnessing revenuw growth from Tanzanian market and exports.
Hester Biosciences is one of leading animal healthcare companies in India engaged in manufacturing vaccines and health products for poultry, cattle and pets. Its key vaccines include world’s largest PPR vaccine portfolio and second largest poultry vaccine supplier in domestic market.
The company’s growth outlook remains positive, but near term prospects appear muted due to sectorial issues and subsidiary troubles.
As India gears up for the presentation of its interim Budget for 2024, expectations are running high among various stakeholders. The interim Budget, often seen as a precursor to the full budget, sets the tone for the government’s financial strategy and policy direction for the upcoming fiscal year.
Taxation: A Key Focus
A central aspect of the Budget expectations revolves around the income tax regime. In the previous fiscal year, the government revised the basic exemption limit and restructured the tax slabs under the new income tax regime. Taxpayers are eagerly anticipating further relief, possibly through increased exemptions or more favorable slab rates. This comes against the backdrop of the government’s efforts to simplify the tax structure and enhance compliance.
Logistics and Green Energy: High on the Agenda
The logistics sector, critical to India’s economic growth, is hopeful for a boost in the Budget. Key expectations include prioritization of capital expenditure in major infrastructure projects and financial incentives to spur growth. Similarly, the green energy sector, pivotal in India’s commitment to environmental sustainability, is looking forward to measures that facilitate easier access to financing for renewable energy initiatives. This is especially significant as India aims to achieve a substantial portion of its energy mix from non-fossil fuel sources by 2030.
Real Estate and Homebuyers: Seeking Support
The real estate sector, which has a ripple effect on numerous industries, is also in focus. Homebuyers are seeking an increase in the limit of deductions for home loan interest and relaxation of TDS rules for property purchases. Such measures could invigorate the housing market and provide a fillip to the overall economy.
Agriculture: The Lifeline of the Economy
Agriculture, a sector that supports a large segment of the Indian population, is expected to receive substantial attention in the Budget. With recent challenges such as unseasonal rains affecting crop yields, there is a strong case for enhanced financial support and relief measures for farmers. This could involve direct financial assistance, crop insurance schemes, and initiatives to increase the marketability and profitability of agricultural produce.
Defense: Strengthening National Security
Defense spending is another area of interest, particularly given the geopolitical dynamics in the region. There is an expectation of increased allocation to modernize and strengthen the armed forces, which could include procurement of advanced weaponry, technology upgrades, and improved infrastructure for defense forces.
Market Reactions and Corporate Sector
The interim Budget is also closely watched by the stock markets and corporate sector for cues on policy directions. Fiscal discipline, investment in infrastructure, and business-friendly policies can boost investor sentiment and drive economic growth. Companies are looking for measures that ease regulatory burdens, provide tax incentives, and encourage research and development, especially in high-growth sectors like technology and manufacturing.
Social Welfare and Education
The government is also expected to focus on social welfare schemes and education. With a significant portion of India’s population still grappling with poverty and lack of access to basic amenities, there is a need for enhanced spending on health, education, and social security programs. The Budget could introduce new schemes or strengthen existing ones aimed at improving living standards and providing better opportunities for the underprivileged sections of society.
Reserve Bank of India (RBI) increased the limits for certain types of transactions made through the popular Unified Payments Interface (UPI) platform and e-mandates that allow recurring online payments.
Specifically, the central bank said it will increase the per-transaction limit for payments made to educational institutions and hospitals using the UPI platform from the existing Rs 1 lakh to Rs 5 lakh.
The higher limit is expected to facilitate larger value payments for education and healthcare purposes via seamless UPI transactions.
“This will help the consumers to make UPI payments of higher amounts for education and healthcare purposes,” RBI Governor Shaktikanta Das said in his monetary policy statement.
Similarly, under the e-mandate framework meant for recurring online transactions, the additional factor of authentication (AFA) threshold is being increased from Rs 15,000 to Rs 1 lakh per transaction for select categories.
These categories include recurring payments for mutual fund subscriptions, insurance premium renewals, and credit card bill payments. Customers already provide a one-time AFA while setting up the e-mandate, beyond which they don’t need to authenticate every payment.
By enhancing this limit from Rs 15,000 to Rs 1 lakh for specific categories, the process is expected to become more convenient even for higher value recurring transactions.
Experts said the move will accelerate adoption of e-mandates that save customers the trouble of manually making repeat payments every month for expenses like SIP investments, insurance premiums and credit card bills.
The RBI governor said that e-mandates for recurring transactions have become quite popular among customers, with many preferring this automated route. The increased limits are likely to further push many customers to opt for e-mandates and clock higher volumes.
Digital payments ecosystem players welcomed the move saying it could emerge as a game-changer for segments like mutual funds and insurance.
Experts said by proactively addressing potential limits in popular payment systems, the central bank is ensuring that growth in digital payments remains strong.
The increased limits for UPI and e-mandates announced today are expected to provide the necessary fillip.
Tata Motors announced its November 2023 auto sales numbers, reporting total sales of 74,172 vehicles, a 1% decline from 75,478 units sold in November 2022. However, electric vehicle (EV) sales continued to grow, with 4,761 EVs sold in November, up 7% year-over-year.
In the commercial vehicles segment, Tata sold 28,029 units in November 2023, compared to 29,053 units in the same month last year, representing a 4% dip. The company reported strong medium and heavy commercial vehicle (MHCV) sales, which rose to 12,895 units, a 2% increase over last year. However, cargo vehicle and small commercial vehicle (SCV) sales dropped by 9% to 11,811 units.
In passenger vehicles, Tata Motors sold a total of 46,143 units in November 2023, again a marginal 1% decline versus the 46,425 vehicles sold in November 2022. However, the company seems positive about EV growth, with EVs now accounting for over 10% of total monthly passenger vehicle sales.
Earlier in the day, Mahindra & Mahindra Ltd. (M&M) reported robust SUV sales growth in November 2023, driven by healthy festive season demand amid supply constraints for select parts.
M&M sold 39,981 SUVs in the domestic market in November, a 32% increase over 30,238 units sold in November 2022. This took total SUV sales including exports to 40,764 units. The company’s total auto sales across passenger and commercial vehicles stood at 70,576 units, up 21% year-on-year.
Similarly, Bajaj Auto Ltd. registered a healthy 31% year-on-year increase in overall vehicular sales for November 2023, the country’s leading two and three-wheeler manufacturer stated today.
According to the regulatory report submitted by the Pune-based company, Bajaj Auto clocked total sales of 4,03,003 units in November 2023, against 3,06,719 units in November 2022. The robust growth comes on the back of strong home market demand during the festive season as well as firm commercial vehicle momentum.
Indian automaker Mahindra & Mahindra Ltd. (M&M) reported robust SUV sales growth in November 2023, driven by healthy festive season demand amid supply constraints for select parts.
M&M sold 39,981 SUVs in the domestic market in November, a 32% increase over 30,238 units sold in November 2022. This took total SUV sales including exports to 40,764 units. The company’s total auto sales across passenger and commercial vehicles stood at 70,576 units, up 21% year-on-year.
“We continue our growth trend, backed by strong demand for our SUV portfolio. In November, we sold a total of 39,981 units, a growth of 32%,” said Veejay Nakra, President of M&M’s Automotive Division. “While we saw a healthy festive season, we faced supply challenges on select parts during the month,” he added.
M&M’s passenger vehicle sales, comprising utility vehicles and cars & vans, stood at 39,981 units in November 2023, a 32% increase over last year. In the year-to-date period of April-November 2023, passenger vehicle sales have grown 29% to 298,603 units.
The company’s portfolio of popular SUVs including the Scorpio, XUV700, Thar, Bolero and XUV300 drove the sales growth in the utility vehicle segment. Long waiting periods of up to 1 year on models like XUV700 and Thar also point to the strong demand.
On the commercial vehicles front, domestic sales grew 7% in November to 22,211 units, excluding 3-wheelers. This included light commercial vehicles sales growth of 54% for the under 2-tonne segment and 7% growth for the 2-3.5 tonne segment.
Total exports fell 42% to 1,816 units during the month.
Mahindra Tractor Sales
In the farm equipment segment, Mahindra sold 31,069 tractors in the domestic market in November 2023, a 6% increase over 29,180 units in November 2022. Total tractor sales including exports grew 5% to 32,074 units during the month.
Commenting on the farm equipment sales performance, Hemant Sikka, President – Farm Equipment Sector, M&M Ltd. said, “We have sold 31,069 tractors in the domestic market during November 2023, a growth of 6% over last year. The festive season saw high demand pull in the domestic market.”
“Terms of trade continue to be favourable for farmers; while rural spending by Government and progress in Rabi sowing are the factors to watch out for,” he added on the outlook for tractor demand.
On a cumulative basis, Mahindra’s tractor sales in April-November 2023 period are down 1% at 279,129 units in the domestic market and down 2% at 287,604 units including exports.
The month of November marked a reversal in trend for Mahindra tractor sales after seven consecutive months of decline or flat sales as industry demand had moderated due to delayed rainfall and high base effect. The sales growth in November was aided by festive season demand, better farm income prospects and higher Rabi crop sowing.
Bajaj Auto Ltd. registered a healthy 31% year-on-year increase in overall vehicular sales for November 2023, one of the country’s leading two and three-wheeler manufacturers stated today. The performance was led by the whopping 77% jump in domestic sales.
According to the regulatory report submitted by the Pune-based company, Bajaj Auto clocked total sales of 4,03,003 units in November 2023, against 3,06,719 units in November 2022. The robust growth comes on the back of strong home market demand during the festive season as well as firm commercial vehicle momentum.
Segmenting the figures, Bajaj Auto registered domestic sales of 2,57,744 vehicles – comprising two-wheelers and commercial vehicles – exhibiting a powerful 69% on-year spike. This was propelled by a 77% domestic two-wheeler sales surge along with 34% growth in the commercial vehicle division.
This indicates that there has been some revival in the two-wheeler market, after nearly a year of disappointment.
Rakesh Sharma, Executive Director, Bajaj Auto said, “Healthy festive uptake along with government infrastructure push and timely monsoon boosting rural prosperity have revived two-wheeler demand. Our new Pulsar and Dominar series have received excellent feedback too. The commercial vehicle segment growth outperformed on increased activity in road logistics, agriculture and construction sectors.”
However, exports for the month declined by 6% to 1,45,259 units impacted largely by the global economic slowdown coupled with recessionary woes in key export geographies for Bajaj Auto in regions like Latin America and Africa. But robust domestic demand helped offset the export contraction in November.
Analyzing the cumulative April-November 2023 period paints a slightly different picture. While overall sales grew 6% year-on-year to 29,55,551 units, exports dropped 19% to 10,89,077 units owing to global headwinds and order delays. This export decline particularly affected the two-wheeler vertical as foreign shipments fell 18%. But once again, the domestic market propped up numbers with 29% order growth during the 1st eight months of FY 2024.
“On the outlook, India’s projected 6% plus GDP growth forecast for 2023-24 and strong two-wheeler demand from semi-urban and rural regions indicates continued sales momentum in the near future. Infra spends and higher agriculture output will also boost commercial vehicles order book,” Mr.Sharma further added.
Bajaj Auto is India’s largest exporter of two and three wheelers. The company holds ubiquitous brand presence across Africa, Latin America and Middle East markets. Analysts expect export contraction to moderate once global economic turbulence eases.
As Indian IT services company Persistent Systems embarks on an ambitious growth strategy, it has brought on four new seasoned executives to strengthen its leadership team.
Persistent has just added several industry veterans. Ayon Banerjee joined as Chief Strategy and Growth Officer from Boston Consulting Group, where he advised IT services companies on accelerating growth through M&A, partnerships, and other means. As such, Ayon will drive corporate strategy and inorganic growth initiatives intended to spur Persistent’s continued expansion.
As Chief Operating Officer, Dhanashree Bhat brings over two decades of operational experience from Tech Mahindra. She will establish even greater delivery rigor to support Persistent’s global clients.
Rajiv Sodhi, after 16 years helping lead Microsoft’s India growth, will now head hyperscaler partnerships.
Finally, Wells Fargo’s Sumit Arora becomes Senior VP tasked with launching a new consulting practice for modernization advisory services that should become a key growth area
Persistent recently crossed $1 billion in annual revenue, on the back of an impressive 268% growth rate since 2020 that makes it India’s fastest growing IT services brand. Under relatively new CEO Sandeep Kalra, the company — which focuses on embedded software — has outlined plans for rapid growth through expansion in key geographies, scaling partnerships, and boosting capabilities in high-potential areas.
From its beginnings in Pune in 1990, Persistent has diversified into areas like cloud, analytics, IoT and 5G to drive differentiation.
Infrastructure project awarding continued its strong growth momentum in October 2023, registering a 65% year-on-year expansion to Rs 569 billion, while tendering activity witnessed a 11% decline to Rs 1.1 trillion, as per the latest monthly update report published by leading brokerage Antique Stock Broking Ltd.
The total value of infrastructure projects awarded in October 2023 stood at Rs 569 billion, a significant 65% rise compared to project awards of Rs 344 billion in October 2022.
Looking at the April-October cumulative period this fiscal, infrastructure projects valued at a massive Rs 6 trillion have been awarded across India, clocking a 66% spike over last year.
However, when it comes to new tenders, the pace has slowed down, as is to be expected in the run up to an election.
The total worth of infrastructure project tenders issued in October declined 11% year-on-year to Rs 1.1 trillion.
For the year so far, April-October, overall infrastructure tendering activity across the country has remained flat at Rs 7.3 trillion.
According to analysis by Antique Research, the continued robust momentum in infrastructure project awarding without a matching acceleration in tender volumes poses risks of awarding growth moderating in FY2025.
Reviewing the sector-wise awarding activity in October, the coal mining sector took the lead with project awards amounting to Rs 173 billion followed by roadways which saw project awards of Rs 139 billion.
Looking at the April-October 2023 period, road projects spanning 2,595 km have been awarded, significantly lower compared to road project awards covering 5,007 km awarded during April-October last fiscal.
Coming to tendering activity, the share of state governments in issuing fresh infrastructure tenders has expanded to 85% in October 2023, rising from 79% contribution seen last year.
Among key infrastructure sectors, roads tendering declined to Rs 398 billion in October versus Rs 458 billion in the same month last year. Similarly, tenders issued in water supply sector also dropped to Rs 123 billion in October, compared to Rs 208 billion in October 2022.
On the flip side, railway tendering continued its growth trajectory in October 2023, amounting to Rs 90 billion aided by higher budgetary allocations this year, against Rs 70 billion tenders floated last year.
Overall, tendering from core infra segments continues to dominate, contributing 85% to total tendering activity in October.
According to Antique Research, even though state elections have temporarily dampened fresh infrastructure project announcements, the long-term infrastructure investment cycle in India remains structurally intact. The research team believes infrastructure tendering and awarding activity will continue to accelerate over the coming quarters, it said.
Alexander Gerding, Managing Director of industrial chemicals manufacturer BASF India, struck an optimistic tone about the company’s long-term growth prospects in the country, despite the challenging global environment.
Speaking during the Q2 FY2023 earnings conference call, Gerding highlighted several positive factors that make him confident about BASF India’s future.
“I always say it’s not a matter of if, it’s really a matter of when – when is the right moment, the right time, the right investment and the right partner. I’m confident about that,” he asserted.
Reasons for Optimism
Gerding cited both domestic and global factors that lend confidence for future growth.
On the macroeconomic front, he called out resilience shown by Indian economy with 2023 GDP growth projected around 6% and inflation showing signs of peaking. “If you compare that to most of the large countries, I think India’s growth is very solid,” Gerding emphasized.
The purchasing managers’ index hovering around 50 indicates continued economic expansion per the BASF India MD. Higher consumer confidence levels, especially during the festive season, also bode well.
Sectoral Trends
Gerding highlighted healthy automotive demand during the festivals. Strong construction activity, recovery in rural demand for fast moving consumer goods after a sluggish phase also make him hopeful.
While noting continuing margin pressures in the global chemical industry, he said demand is starting to pick up in China. This could ease some pricing pressures in months ahead.
BASF Performance
The MD commended his India team for posting 16% volume growth in Q2 2023 over same quarter last year. He also said prudent cost and working capital management have helped navigate the tough environment.
BASF India’s agri solutions business has clocked over 100 crore profits in first half of FY23, a 50% increase year-on-year. The MD revealed how sharp focus on differentiated products and inventory planning helped drive these results.
Focus Areas
True to BASF’s image as an innovation powerhouse, Gerding stressed that investments in R&D and bringing new products will continue at full steam. Staying close to customers and developing solutions tailored for India is also a priority.
While large investments remain cautious due to global overcapacity currently, incremental expansions are continuing in India. The MD expressed intent to keep increasing localization levels progressively.
Partnerships and people development are other key areas, as per Gerding. BASF India has had success already on initiatives like unearthing new female talent for chemical industry in association with academic institutes.
Gerding summed up that he sees all macro and micro trends in India heading the right direction. Leveraging global expertise while staying locally focused will help drive sustainable results.
While acknowledging that current headwinds do slow down progress, the MD conveyed conviction on India’s robustness.
Investments
The company said it continues to make “selective investments” to expand production capacity in India despite a difficult global chemical industry environment. The company management emphasized its strategic long-term commitment to the country, while adopting a prudent approach in the current uncertain times.
The management pointed out that existing capacities are running at 80-85% utilization levels, which demand further investment and expansion. Meanwhile, it has expanded capacities across businesses like dispersions, polyamides and coatings over the past year.
However, Gerding cautioned about significant new investments in the prevailing climate of uncertainty. With soft demand and overcapacity pressuring the global chemical industry, BASF is tightening capital allocation across its global operations.
BASF India CFO Narendranath J Baliga explained how every new investment proposal faces detailed scrutiny on technical and financial viability. Only proposals with watertight business cases are getting approval.
The management declined to share specifics of new capital expenditure plans in India. They positioned past investments as part of an ongoing strategy to expand production levels progressively based on local demand.
Asset Utilization
Baliga highlighted the strong volume growth in Q2 FY2023 as validation of the company’s asset sweating efforts. With global capacity utilization levels below par, the India operations provide a growth outlet within the overall BASF ecosystem.
BASF India posted 16% volume growth in the Indian market during the latest quarter. Baliga indicated that staying close to customers and maximizing capacity usage have taken priority over chasing prices in a hyper-competitive market.
The agri solutions segment provided an example of how strategic investments matched by local execution excellence can bear results even in difficult conditions.
From setting up additional formulation units to boosting digital infrastructure for demand sensitization, BASF kept enhancing capabilities in agriculture. Combined with astute inventory management and customer connect, this segment grew profits by over 50% year-on-year.
Pharmaceutical company Wockhardt recently announced its financial results for the second quarter and first half of fiscal year 2023, ending September 30th, 2023. The results show strong revenue growth of 11% in Q2 and first half of FY2023, driven by Wockhardt’s international businesses in the UK, emerging markets, and Ireland.
Q2 FY2023 Revenue Up 11% YoY
In Q2 FY2023, Wockhardt reported total revenues of INR 762 crore, an 11% increase compared to INR 686 crore in Q2 FY2022. For the first half of FY2023, revenues were INR 1,420 crore, up 11% from INR 1,282 crore in H1 FY2022. This growth was led by robust performance across Wockhardt’s global businesses.
EBITDA More Than Doubles
Along with strong top-line growth, Wockhardt saw significant expansion in profitability in Q2 and first half of FY2023. EBITDA in Q2 was INR 81 crore, a 62% jump versus INR 50 crore in Q2 FY2022. EBITDA margins improved to 10.7% in Q2 FY2023 from 7.3% in Q2 FY2022.
In the first half of FY2023, EBITDA stood at INR 113 crore, a massive 223% increase from INR 35 crore in H1 FY2022. EBITDA margins expanded to 8.0% in H1 FY2023 from 2.7% in H1 FY2022. The jump in profitability was driven by operating leverage from higher revenues.
UK Business Growth Accelerates
Wockhardt’s largest business, the UK, saw revenues grow 12% year-over-year to INR 254 crore in Q2 FY2023. This growth accelerated from 6% growth in Q1. For the first half, UK revenues were up 19% to INR 501 crore. The UK business contributed 33% of global revenues in Q2 and 35% in H1 FY2023. Two new product launches in the UK boosted growth.
Emerging Markets Business
The emerging markets business saw the fastest growth, with Q2 revenues up 30% year-over-year to INR 152 crore. For the first half, emerging markets revenues grew 22% to INR 285 crore. This business accounted for 20% of global revenues in both Q2 and H1 FY2023. Strong volume growth across emerging markets drove the performance.
Irish Business Grows
Wockhardt’s Irish business maintained its steady growth trajectory, with revenues rising 18% year-over-year in Q2 to INR 45 crore. For the first half, Irish revenues were up 20% to INR 90 crore. The Irish business contributed 6% of global revenues in Q2 and H1 FY2023. New product filings and launches boosted Irish growth.
India Business Stable, US Impacted
The India business saw revenues of INR 140 crore in Q2, contributing 18% to global revenues. For H1, India revenues were INR 295 crore, 21% of global revenues. The US business has been impacted by the previously announced shutdown of a manufacturing plant, with Q2 revenues at INR 47 crore (6% of global) and H1 revenues at INR 95 crore (7% of global).
Investments Continue
Wockhardt maintains a strong focus on drug discovery and R&D, which are key strategic priorities. In Q2, R&D expenses were INR 34 crore (4.4% of sales), while total R&D investments including capital expenditure were 8.8% of sales. For H1, R&D was 4.9% of sales and total R&D investments were 9.7% of sales.
Wockhardt currently has two key drug discovery programs – WCK 5222 for antibiotic-resistant infections and WCK 4873 for fungal infections. WCK 5222 is currently undergoing global clinical trials, while WCK 4873 is slated for DCGI approval and launch in 2024. The company also filed 11 new patents in Q2 FY2023, taking its total patents filed to 3,261.
Leading stainless steel manufacturer Jindal Stainless Limited (JSL) has received a credit rating upgrade from CRISIL Ratings. The company’s long-term bank facilities and debt programme rating has been revised upwards from CRISIL AA-/Positive to CRISIL AA/Stable. Meanwhile, the short-term bank facilities rating has been reaffirmed at CRISIL A1+.
This rating action factors in Jindal Stainless’ improved business risk profile, driven by its forward integration through capacity expansions and acquisitions. It also takes into account the company’s effective working capital management and robust demand outlook.
Founded in 1970, Jindal Stainless is India’s largest stainless steel producer with an annual turnover of INR 35,700 crore in FY23. The company has two manufacturing facilities in Odisha and Haryana, with a combined annual melt capacity of 3 million tonnes to be achieved in FY24. JSL is also expanding globally with a worldwide network spanning 15 countries and service centres in India and Spain.
Jindal Stainless holds a prominent position as the market leader in the domestic stainless steel industry. Its integrated operations have conferred cost competitiveness and operational efficiency advantages, making JSL one of the top five stainless steel players globally outside China.
The company serves a diverse range of industries with its wide stainless steel product portfolio including slabs, blooms, coils, plates, sheets, strips, blade steel and coin blanks. JSL has continually innovated high-quality stainless steel grades and pioneered application development in India.
According to CRISIL’s rating rationale, Jindal Stainless has streamlined its operations over the years. Its business risk profile has improved significantly backed by deleveraged balance sheet and strong customer relationships. JSL has achieved effective raw material integration, securing long-term nickel and chrome contracts.
The successful merger of Jindal Stainless (Hisar) Limited with JSL has resulted in synergies and savings. The acquisition of Jindal United Steel Limited (JUSL) has allowed JSL to venture into the pipes and tubes segment.
More recently, JSL acquired 49% stake in a nickel pig iron smelter facility in Indonesia. This investment in the raw material source will reduce nickel dependency on imports and enable greater cost efficiencies.
JSL has maintained financial discipline through the capital expenditure cycles. Despite expanding capacity organically and inorganically, the company has kept leverage ratios aligned with the industry’s top range. Prudent capital allocation and working capital management have led to credit profile improvement.
Attractive Indian stainless steel sector dynamics also support a positive outlook for Jindal Stainless. Rising incomes are driving consumption across sectors like process industries, clean energy, railways, metro rail and household goods. While per capita consumption is lower than global averages, stainless steel usage is bound to increase in India.
JSL is also increasing its share of value-added products, which provide better margins. Its extensive distribution network and strong brand equity give the company a competitive edge to tap growing stainless steel demand.
On the ESG front, Jindal Stainless aims to achieve carbon neutrality by 2050 in line with India’s net zero pledge. The company manufactures stainless steel through an electric arc furnace route that emits far lower greenhouse gases compared to blast oxygen furnace. JSL is committed to renewable energy usage, waste management and energy optimization to reduce its carbon footprint.
Bengaluru-based textile manufacturer Himatsingka Seide Limited announced its financial results for the second quarter of fiscal year 2024, ending September 30, 2023. The company reported strong year-over-year growth in revenue and profitability, driven by higher capacity utilization levels across its key divisions and softening prices of raw materials like cotton.
Himatsingka Seide’s consolidated net revenue for Q2 FY2024 stood at Rs 748 crores, a growth of 17% over Q2 FY2023. Earnings before interest, tax, depreciation and amortization (EBITDA) jumped nearly 200% year-over-year to Rs 156 crores. Profit after tax was Rs 29 crores, compared to a loss of 34 cr.
The company’s EBITDA margins improved significantly to 20.9% in Q2 FY2024, compared to 8.2% in Q2 FY2023. This robust growth in profitability was driven by higher capacity utilization, greater operating leverage and continuous reduction in energy costs.
According to Shrikant Himatsingka, Managing Director of Himatsingka Seide, capacity utilization levels during the second quarter were strong across the company’s key divisions, led by the spinning division at a whopping 99%, followed by the sheeting division and towel division at 67% each.
He also stated that the company continues to see a stable demand environment, driven by an expanding client base and growing presence across new markets.
Reduction in Raw Material Costs Boost Margins
The textile industry has witnessed softening prices of key raw materials like cotton over the past few quarters, which has provided a boost to profitability for manufacturers. Himatsingka Seide has been able to harness this favorable trend of lower input costs to improve its margins.
As per the management, prices of cotton remained stable during Q2 FY2024 compared to the previous quarter, thereby contributing to the better operating performance. The new cotton crop arrival is also on the horizon, which is expected to ensure stability in cotton prices over the coming months.
The company has also been focused on reducing its energy costs through a combination of alternative renewable energy usage and process optimization. The management indicated that these efforts are now bearing fruit, with marginalization of energy costs.
Strong Growth in Home Textiles
Himatsingka Seide operates three key divisions – spinning, sheeting and terry towels. The home textiles division, comprising sheeting and terry towels, recorded strong broad-based growth during the quarter.
The sheeting business manufactures and supplies bed linen, fashion bedding and utility bedding products. The terry towel business completed its first full year of commercial operations in FY2023. It caters to demand for bath towels, hand towels, bath rugs and kitchen textiles.
According to the management, the home textiles business continues to see healthy demand trends from expanding customer base across geographies like North America, Europe, UK and Asia Pacific. The launch of terry towel products has opened up new markets and helped diversify Himatsingka Seide’s revenue streams.
Analysts say that the home textiles market is projected to grow at a CAGR of 5% globally, providing strong tailwinds for players like Himatsingka Seide. Urbanization, growth of the hospitality industry and increasing disposable incomes are driving demand for these products.
China Plus One Strategy to Benefit Himatsingka Seide
With rising manufacturing costs in China and trade tensions between China and the West, global retailers are implementing a “China Plus One” strategy of diversifying their supplier base. This is expected to provide a boost to large Indian textile manufacturers like Himatsingka Seide, Arvind, Welspun and Trident.
In recent years, Himatsingka Seide has made significant investments in enhancing its scale, building global-size integrated facilities and improving cost competitiveness. The company is well positioned to capitalize on the China Plus One trend and gain market share across geographies. Its expertise across the entire value chain – from farm to retail – offers buyers the flexibility to consolidate their supplier base.
The management remains upbeat about the business outlook, given the strong demand environment, high capacity utilization levels and stable input prices. The company’s product offering across spinning, sheeting and terry towels makes it a leading integrated textile manufacturer. Its portfolio of own brands and long-standing relationships with global marquee retailers provide healthy revenue visibility.
Focus on Debt Reduction
Himatsingka Seide’s net debt level remained rangebound in Q2 FY2024 at Rs 2,579 crores, compared to Rs 2,512 crores at the end of Q1 FY2024. The company is focused on deleveraging its balance sheet and reducing debt remains a key capital allocation priority.
As per Himatsingka, the aim is to reduce net debt by Rs 100-200 crores annually going forward. This will be achieved through healthy cash flows from operations, while maintaining sufficient liquidity for working capital needs and organic growth.
Analysts say that meaningful deleveraging will be positive for the company’s valuation and lower the risk profile of the business. It will help bring down finance costs and support balance sheet expansion for supporting future growth opportunities.
Valuation and Outlook
Himatsingka Seide is currently trading at an EV/EBITDA valuation of 5.3 times FY2024 estimated EBITDA. With a strong quarter, the stock is up around 15% over the past month, significantly outperforming the Sensex.
Most brokerages have a positive view on the stock and highlight its reasonable valuation, considering the company’s strong track record, integrated operations and leadership position in the domestic home textiles market.
The company’s focus on sweating its assets, diversifying its end-market mix, deleveraging its balance sheet and the launch of its new Himêya brand for the domestic market will be key to its ongoing performance.
