ICRA INSIGHT - Monthly Newsletter | December, 2022
The Monetary Policy Committee (MPC) hiked the repo rate by 35 basis points in December 2022, lower than the 50 basis points seen in the recent reviews, after inflation remained above 6% for 10 straight months from January to October 2022. The MPC has maintained its projection of the consumer price index (CPI) inflation in FY2023 at 6.7%, while the GDP growth expectation was trimmed to 6.8% from 7%. Subsequently, the November 2022 CPI inflation fell below 6% due to a base-effect cooled food inflation and sequential correction in vegetable prices. Simultaneously, the Index of Industrial Production (IIP) contracted in October 2022, which may partly be attributed to holidays in the festive period. In our view, how much the CPI inflation is expected to ease further in Q4 FY2023 will hold the key to the MPC's February 2023 Policy decision on rates.
We also examine the multiplex industry’s revenues which are expected to top pre-pandemic (FY2020) levels by 6–8% in FY2023e. Higher average ticket prices (ATP) and F&B spend per person (SPP) will boost total revenue growth. Although occupancy rates (27–29%) are below the pre-pandemic numbers (32–33%), a good content pipeline and positive consumer sentiment towards going to the movies (post pandemic) should increase them in H2 FY2023. ICRA has revised its outlook to Stable from Negative. Albeit, in the near-to-medium term, the industry will face instability in content quality, especially as over-the-top (OTT) platforms increase competition.
After a surge in FY2022, penetration of compressed natural gas (CNG)-driven medium commercial vehicles (MCV in the 12–16-tonne category) fell the most in FY2023. During 8M FY2023, penetration of CNG vehicles declined from 38% in FY2022 to 27%. The narrowing CNG-diesel price gap has cut CNG vehicles' fuel savings, thereby affecting demand. This will certainly continue for some time due to geopolitical concerns, especially the Ukraine-Russia war’s impact on gas prices. Nonetheless, the medium-term forecast is bright due to improved CNG infrastructure and a push for cleaner automobiles.
Lastly, we examine the all-India power demand, which is expected to climb 5.5–5.8% in FY2024 despite a Q1 slowdown. The estimations are based on the fact that all-India energy demand grew by 10.6% in 8M FY2023 due to a severe heat wave in North & Central India and a favourable base. To help discoms clear their overdues, the PFC and REC have sanctioned Rs. 1 trillion under the Late Payment Surcharge (LPS) scheme, payable in 12–48-month instalments. This is a near-term benefit for Gencos and IPPs. However, discoms must improve their overall financial profile to be sustainable. Weak operating efficiencies, the absence of timely and adequate tariff changes, and delays in obtaining payments from the state governments and Government entities keep the distribution segment's outlook and also the forecast for thermal generation at a negative.
Economy
February 2023 Policy decision to be data dependent
With inflation stubbornly entrenched above the 6% upper threshold for 10 consecutive months from January 2022 to October 2022, as expected, the Monetary Policy Committee (MPC) raised the repo rate but stepped down its quantum to 35 basis points (bps) in the December 2022 Policy review, from the ‘new normal’ of 50 bps seen in the previous three meetings. The MPC maintained its CPI inflation forecast for FY2023 at 6.7%. On growth, the MPC’s commentary around domestic factors was optimistic, even as it highlighted risks owing to global factors, including tightening financial conditions and slowing external demand. On balance, it cut the FY2023 GDP growth projections to 6.8% from 7.0%.
Multiplex Industry
It’s showtime for the Indian Multiplexes
ICRA estimates that multiplex industry revenues will exceed pre-pandemic revenues (FY2020 revenue) by 6-8% in FY2023e. Higher average ticket prices (ATP, up 10-15% in FY2023 compared to pre-pandemic levels) and spend per person (SPH, up 30-35%) on food and beverage (F&B) will enhance total revenue growth. Despite revenue and margin growth, current occupancy levels (at 27-29%) remain below pre-pandemic levels of 32-33%. The industry had a great start to FY2023, with occupancy levels of 32% in Q1FY2023. While occupancy decreased sequentially during Q2FY2023 due to a lacklustre content line-up, occupancy is likely to rise in coming quarters due to a solid content pipeline and favourable consumer sentiments about watching movies in theatres. The return of the windowing gap (the time between theatrical release and release on other platforms) to pre-pandemic levels of eight weeks, beginning in August 2022, is likely to be beneficial to exhibitors.
Commercial Vehicles Industry
Rising gas prices constrain CNG penetration in the Indian CV sector to 9-10% in FY’23 from peaks of 16%
ICRA Ratings has said that the Indian commercial vehicle (CV) industry has witnessed a contraction in the penetration of compressed natural gas (CNG) driven vehicles in the current fiscal year, which comes after witnessing a spike in the previous fiscal year. The fall has been particularly noticeable in the medium commercial vehicles (MCVs) (12-16T) in the goods carrier class. The percentage of vehicles powered by CNG has dropped from 38% in FY2022 to 27% in 8m FY2023. However, the market for passenger carriers and buses continued to show a gradual acceptance of vehicles powered by CNG, which has been supported to some extent by the government's push for greener vehicles. This, along with electric vehicle adoption, is expected to continue going forward as well.
Power Sector
Thermal PLF level estimated to improve to 63% in FY2024; LPS scheme to provide nearterm liquidity relief for Gencos/IPPs
Rating agency ICRA, expects all-India electricity demand to remainealthy at over 7% in FY2023 despite growth slowdown post Q1 of this fiscal; and grow at 5-5.5% in FY2024. The estimates are based on the fact that all-India electricity demand increased by 10.6% on a year-on-year (YoY) basis in 8M FY2023, because of the severe heat wave in North & Central India and a favourable base.
Auto Components
Airbag market expected to grow to ~2.5 -3x of current levels to Rs. 6,000-7,000 crore by FY2027
Real Estate
Replacement rate remains comfortable at below 1 time due to calibrated pace of launches by developers
Banking
ICRA’s outlook on the banking sector
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