Bank brokerages demonstrated a strong performance in FY2021, with a healthy growth in transaction volumes and strong uptick in earnings, supported by favourable capital markets and growing retail investor participation. This notwithstanding, bank brokerages witnessed a decline in market share, in terms of transaction volumes or active clients, primarily on account of faster growth of discount brokerages which are fast emerging as broker-of-choice for new accounts. That said, bank brokerages enjoy better brand recall, credibility and financial flexibility, by virtue of being a part of banking groups, and this would continue to support their retail franchise. Their ability to effectively ramp up digital initiatives, attract younger demographics and expand to newer geographies (such as tier II and tier III cities), however, would remain critical. ICRA expects bank brokerages to continue to report healthy earnings with 20-25% growth in NOI and 17-20% growth in profit in FY2022
The Indian fertiliser industry is facing headwinds on account of elevated prices for key inputs and finished fertilisers in the international markets. Fertiliser volumes in FY2022 are expected to decline by 5-7% YoY, driven by significant sales growth in FY2021, an erratic monsoon kharif season of FY2022 and limited availability of phosphatic fertilisers in the global markets. The fertiliser availability is expected to remain adequate for the upcoming rabi season although regional pockets of inadequacies may occur. While we expect the urea segment to remain stable, the phosphatic segment will witness subdued profitability owing to the raw material price inflation. On the budgetary allocation for subsidy, the subsidy for phosphatic fertilisers is expected to remain adequate while that for urea will witness marginal shortfall. With the GoI taking proactive steps in raising subsidy rates and the budgetary allocation, the business risk profile of the industry is expected to remain stable.
Demand recovery for the Indian Road Logistics sector was stunted by the resurgence in Covid-19 cases during Q1 FY2022, with industry revenues declining by 17.5% QoQ. However, there has been a gradual revival in Q2 FY2022 with steady fall in fresh Covid cases amidst a faster pace of vaccination. We expect a broad-based recovery across end-user industries during H2 FY2022 and accordingly the demand growth is pegged at ~6-9% for FY2022. Diesel price inflation and absence of Covid-induced cost measures are likely to impact the industry operating margins, which is expected to contract by over 100 bps YoY for FY2022. The industry players’ ability to hike freight rates amidst sharp diesel price inflation remains a key monitorable.
Despite Covid 2.0 challenges, the bottom-line and capital position of ICRA’s sample set of banks has improved, supported by steady operating profitability and reducing provisioning on legacy stressed accounts. Both their GNPAs and Net NPAs are expected to decline going forward and while the restructured loans stood at 2.0% of loan books as on June 30, 2021 and is expected to increase marginally by December 2021, it is lower than our initial estimates. Overall, given the elevated level of overdue loan book and the restructured loan book, the asset quality for banks remains monitorable. Driven by improved capital position and moderation in asset quality pressure, the RBI has kicked in enhanced regulatory capital requirements. ICRA continues to maintain credit growth estimate of 7.3-8.3% for banks for FY2022 as compared to 5.5% for FY2021.
The non-aeronautical revenues of major private airports registered a modest CAGR growth of 12% between the FY2017-20 period. The hit on passenger traffic due to Covid-19 has severely impacted the revenues of non-aero concessionaires, which has consequently impacted the non-aero revenues for the airport operators. The average non-aero yield per passenger at major domestic private airports is much lower compared to major airports across the world and given the evolving consumer spending behaviour, there is significant room for improvement, to maximise non-aero yields. The second wave put a break on the steady ramp-up in passenger traffic during Q1 FY2022 and the recovery of the airport infrastructure industry is likely to be delayed and the outlook continues to remain Negative. ICRA expects domestic air travel to recover back to pre-Covid levels by FY2023 and the international sector by FY2024.
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