The credit profile of the domestic non-ferrous metal players is expected to remain healthy in FY2023 driven by supportive base metal prices. The buoyancy in metal prices is expected to outweigh input cost pressures, which will keep the profitability of domestic base metal companies at healthy levels in FY2023. Consequently, the industry outlook remains positive in ICRA’s view. As for the international base metal prices, they were up sequentially by ~3-18% during Q4 FY2022 compared to the previous quarter and are expected to remain elevated in the first half of FY2023, owing to supply-side constraints in the near term. While the downside risks to prices, particularly in the second half of FY2023, cannot be ruled out, depleting inventories would limit any sharp price corrections during this period
The industry continues to witness earnings pressure in the near-term given the elevated input prices and inflation in other operating costs like freight. Key headwinds impacting demand include softened OE demand in the two-wheeler segment amidst higher ownership costs and subdued rural sentiments on the back of delayed harvesting and uneven monsoons, and supply concerns in passenger vehicle segment due to semiconductor shortage issues. ICRA also expects higher working capital requirements for auto ancillaries over the next few months.
ICRA estimates e2W penetration to touch 13-15%/30% of new vehicle registrations by 2025/2030, respectively, translating to 2.5-3million/7.5-8-million-unit sales. The demand is expected to remain robust, aided by continued policy push, increasing consumer awareness, and improving battery technology. While the industry is expected to remain dependent on imports for batteries and critical raw materials, given the rise of global EV demand, ramp-up of local battery production is expected over the medium term. This would aid the transition towards electrification.
Limited commodity price risks are expected on the India from the Russian-Ukraine conflict, however, the impact remains to be seen if the war escalates and prolongs. In the initial period, commodity price risk pertains to rise in prices of oil & gas which have already crossed $ 115/bbl. The positives are strong forex reserves and a current account deficit below 3% of GDP, besides the rupee depreciation is unlikely beyond 78/US$ in H1 CY2022. Also import trade with Russia is not significant. In terms of sectoral impact, upstream oil & gas, ferrous and non-ferrous metals stand to gain from all-time high commodity prices, whereas there could be negative implications for sectors where oil/gas is a primary input such as chemicals, gas utilities, refining & marketing, etc.
The Indian Port sector has witnessed healthy recovery in cargo volumes with YoY growth of ~6.5% during 10m FY22 and while they remain moderately lower compared to pre Covid levels for the full year the volume may reach pre Covid levels. The recent policy and legislative measures including the Major Port Authorities Act 2021, which came into force in November 2021 and the new tariff guidelines released subsequently should be favorable for the sector and will aid in improving competitiveness of Major Ports and their ability to attract investments.
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