The introduction of the National Logistics Policy is a long-term positive for the logistics sector, given that it focuses on better integration of different modes of transport. This bodes well for the road logistics sector, as it is expected to reduce the over-dependence on roads and improve demand identification. Timely implementation of the policy will be a key monitorable given that several moving parts of the project have to be synchronised and taken forward.
Corporate India reported a 27% YoY growth in revenues during Q2 FY2023, primarily driven by increased realisation levels on account of input cost inflation, while volume growth was relatively subdued. However, this did not translate into earnings growth, and the operating profit margin (OPM) contracted to multi-year lows of 14.5%, with the commodity inflation, energy cost hikes, forex fluctuations, etc., playing spoilsport. The suppressed earnings and increase in working capital intensity also led to increased reliance on external borrowings by India Inc. during this period.
The recommendations of the Kirit Parikh committee on gas pricing balance the interests of consumers and producers. The floor and ceiling prices provide healthy gas realization to Upstream producers. The reduction in gas prices should result in a cut in CNG and PNG (domestic) prices by the CGD players and would improve the conversion economics. Lower domestic gas prices would also reduce GoI’s subsidy burden for the fertilizer sector.
Payment Banks (PB) have been aiding in furthering the financial inclusion in the country, the objective, for which they were granted license by the Reserve Bank of India (RBI). With increasing digitisation and financial inclusion, PBs’ transaction volumes have grown at compounded annual growth rate (CAGR) of 60% over the last four years. Though at present their share in the overall banking system remains low at 0.6% in September 2022, there is significant scope for PBs to increase their outreach and transaction volumes. With the increasing transaction volumes, some of the PBs have reached/are nearing their breakeven points and on consolidated basis the industry turned profitable in FY2022. However, pressure on yield/margin remains with increasing competition and the industry remains exposed to operational risks, including cash mismanagement and frauds. ICRA expects the growth in volumes to remain healthy and the industry to witness further improvement in the profitability.
Indian Multiplexes have witnessed a healthy rebound in performance in YTD FY2023, evidencing that the “Cinema Experience” continues to have a pull on the consumers. ICRA expects the multiplex industry revenues to surpass pre-pandemic levels by 6-8% in FY2023. Increasing footfalls, higher average ticket price, higher spend per head on food and beverages and recovery in advertising business, will support improvement in profitability margins, however these are likely to see a gradual recovery and touch pre-pandemic levels only in FY2024. A steady improvement in cash flows available with the industry will support debt servicing/capex. The credit profile of multiplexes is expected to improve as they consolidate to leverage their scale and gain market share at the expense of single-screen owners. Volatility in content quality, especially in the wake of increasing competition from digital Over-the-top platforms, remains a key challenge for the industry over the near-to-medium term.
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