News Analysis

Amid Covid-19 gloom, some healthy signs for India Inc

Anand Kalyanaraman BL Research Bureau | Updated on February 24, 2020 Published on February 23, 2020

Import substitution, export opportunities, dip in commodity prices could help

Could there be a silver lining for India Inc. amidst the coronavirus (Covid-19) outbreak in China? The news flow so far has been largely negative with supply-chain disruptions and adverse impact being foreseen for many sectors, including pharma, auto, electronics, consumer durables, mobile phones, tourism, and gems and jewellery. But a few Indian sectors and companies could also gain, say some research houses.

Stepping in

Import substitution could help some sectors. A recent Crisil report says that in ceramics and plastics, Indian domestic manufacturers are expected to benefit with import volumes from China reducing. For instance, India imports 44 per cent of its total plastics from China, and a reduction in cheap imports could benefit India’s plastic industry. Emkay Global, in its report, says that some pharma players such as Divi’s Laboratories and Granules India with the capacity to supply APIs (active pharmaceutical ingredients) could gain from an expected rise in the price of these ingredients.

 

There could also be opportunities to fill the void left by China in some export markets. The Crisil report says that India’s steel, paper, leather and textile ready-made garments segments have a window of opportunity to expand exports, with China’s exports being impacted. For instance, Indian leather exporters are operating at about 60 per cent capacity utilisation; these entities, therefore, have the capacity to absorb any sudden influx of orders from the US and EU players. But not all Indian sectors can benefit from this opportunity, given their capacity constraints or capability issues, the report adds.

Cost benefit

The dip in commodity prices due to China’s demand destruction worries could also help some Indian companies. The report by Emkay Global points out that the cooling-off in crude oil prices should benefit FMCG companies such as Asian Paints, Berger Paints and Pidilite Industries, and tyre firms such as Apollo Tyres that use crude-oil based raw materials. It says that oil marketing companies such as Indian Oil, HPCL and BPCL could benefit from higher refining and marketing margins.

Gas utilities such as Gujarat Gas and GSPL could gain from higher volume offtake due to lower LNG prices, while battery-makers such as Exide Industries and Amara Raja Batteries should see improved margins on lower lead costs, the report adds.

Early days yet

While there could be some beneficiaries in India Inc, it may still be early to gauge the full impact of the coronavirus. News about infections/fatalities rising in South Korea, Italy and Iran is trickling in. If this continues and the virus becomes a global pandemic, the impact on India Inc could get much more complicated.

Also, the second-order impact of the disruptions needs to be seen. A worst-case scenario could play out if India sees an increase in the number of infections. That could lead to lockdowns and contraction in both supply and demand, akin to China, and exacerbate an already challenging economic situation. Fortunately, incidences of the disease in India have been low — in low single-digits — so far. Hopefully, as some predict, the virus will fade away with the advent of summer in the next couple of months.

Published on February 23, 2020
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