Nation Current Affairs 21 Feb 2020 Durables, drugs, ele ...

Durables, drugs, electronics to take a hit

DECCAN CHRONICLE.
Published Feb 21, 2020, 1:20 am IST
Updated Feb 21, 2020, 1:20 am IST
Negatives of Covid-19 impact outweighs positives: Crisil.
However, though dependence is low in percentage terms, the consumer durables industry will be in trouble as neither it has the inventory nor the legroom to ramp up capacity in short time.
 However, though dependence is low in percentage terms, the consumer durables industry will be in trouble as neither it has the inventory nor the legroom to ramp up capacity in short time.

Hyderabad: Several sectors in the Indian industry could be affected by the lock down of industrial regions in China, if the Covid-19 epidemic was not contained quickly.

According to an analysis of Crisil, companies dealing with solar panels, bulk drugs, electronics, consumer durables would be worst hit.

 

In terms of shipments from China, imports of solar panels stand at 75 per cent, bulk drugs ingredients 69 per cent, electronics 67 per cent and consumer durables 45 per cent.

The epidemic has already killed over 2,110 in China alone and infected close to 75,000 there, as 60 million Chinese are suffering from Beijing-ordered shutdown across more than two dozen cities.

However, though dependence is low in percentage terms, the consumer durables industry will be in trouble as neither it has the inventory nor the legroom to ramp up capacity in short time.

“Inventory days for consumer durables are typically around two months. Hence, with the virus outbreak, the impact will begin to be visible in March-marked by inventory rundown, leading to negative impact by end of the current quarter, and a possible price hike. India imports 45 per cent completely built units of consumer durables from China. While consumer durables sector is worth Rs 76,300 crore, it imports from China is 45 per cent.

The country’s total merchandise imports were $484 billion in 2019 of which 18 per cent or $85 billion were from China, and India remains a net importer from China.

Since the country lacks capability to produce complex components electronics sector worth Rs 5.3 lakh crore will be hit of the Chinese shutdown lasts longer as domestic players do not have the capability to manufacture such semiconductors and components in the short term.

Of the Rs 5,30,000 crore market, exports are only 6 per cent, while imports are 31 per cent of which 67 per cent is from China.

On balance, the Crisil analysts said, “Covid-19 epidemic will prove to be a mixed bag across sectors in the fourth quarter of this fiscal. But if it persists, Indian industry is heading for serious disruptions. Sectors such as auto components, pharma bulk drugs, and agro chemicals can survive the Covid-19 headwinds to some extent in the near term, given inventory stocks of two months.

However, as inventories run down, industry will face significant pressures. Overall, that would eventually result in more sectors being negatively impacted, outweighing the positives.”

According to Crisil, credit profiles of firms in select sectors could also get impacted if the supply disruption continues beyond March – for instance automotive components, renewable (solar) and diamonds.

Both diamond and automotive component sector are already witnessing demand sluggishness for over a year; also the automotive sector is on the cusp of adopting BS VI regulations effective April 1, 2020, leading to higher cost of components and hence vehicles.

The analysts said “three giga watt (GW) of solar projects, worth Rs 16,000 crore, could be at risk of penalties for missing their project completion deadline if the covid-19 impact prolongs and delays supplies of solar panels. Credit profiles of some of the firms implementing these projects could therefore witness some strain.”

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Location: India, Telangana, Hyderabad




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