Monthly Report July 2016bruce.arun@bcg.com

it d @ ii isinghal.mani@bcg.com

dh t di@ ii iMonthly Report – July 2016 sangita.das@cii.in sandhya.satwadi@cii.in

Summary growth trends: July 2016Summary growth trends: July 2016

Overall, July registered a weaker growth of ~6% for the Indian industry compared to June , y g g % y pand May that witnessed growth of 9% and 7% respectively

Growth was moderate-to-low across different regions with South witnessing the highestGrowth was moderate-to-low across different regions with South witnessing the highest growth of ~7% ; West and North saw a growth of ~6% each, while East continued to witness the lowest growth amongst all regions of ~4%

Inflation seemed to be in the range of ~1-2% year-on-year – similar to Q1 2016; North saw above average price increments as indicated by an inflation of ~3%

Passenger vehicles and 2-wheelers emerged as a winners in July posting a growth of over 13%; Auto components and Engineering products & Services registered modest growth of over 7% while Building materials and Commercial vehicles witnessed relatively weak growthover 7%, while Building materials and Commercial vehicles witnessed relatively weak growth of <1%

1

1. Not all respondents filled in regional growth numbers. Average of regional growths therefore, may not coincide with national average. The growth numbers reported are on an year-on-year basis. Inflation reported above is the value over volume growth based on the survey results.Source: CII BCG Growth Index Survey; Industry association data on automotive sales

Survey results: July 2016 performanceSurvey results: July 2016 performance

Y Y th %

Summary – all respondents Regional growth – All respondents1

4

8

12

4%6%

YoY growth %

8%9%6%7%

3%5%

VolumeValue

0

Jul’16Jun’16May’16Apr’16

Industry growthPeer growth

North:6% (3%)

All

right

s re

serv

ed.

Industry growth comparison

Peer growth comparison

8060

Volume growth (%)

15

20 PV2 wheelers

West:6% (5%)

East:4% (4%)

Volume growth (%)

onsu

lting

Gro

up, I

nc. A60

4020

0-20-40-60 5

0

5

10

15

Others Engg prod.& serv.

Build. mater

Auto comp

CV

2 wheelers

Region

xx: xx% (yy%)South:

7%(6%)

2016

by

The

Bos

ton

Co

Value growth (%)

-60 -40 -20 0 20 40 60 8060

Value growth (%)

-58 18100-2-6 -4 2 4 6 12 14 16

All industry average All industry average

Valuegrowth yoy

Volume growth yoy

(6%)

2

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ht ©

21. Not all respondents filled in regional growth numbers. Average of regional growths therefore, may not coincide with national average. The growth numbers reported are on an year-on-year basisNote: Building materials (BM) industry refers to cement, cementitious products, paints, tiles, roofing, scaffolding. Industry average is displayed only when there are 3+ responses per industry. Other industries where responses were received include: consumer durables, Steel, chemicals, plastics, logistics, packaging, Consulting services, Financial services. Regional averages may not fully align with national average because of different regional exposures of respondent industries. All averages are 'simple averages' (i.e. not weighted by size of company). CV – Commercial vehicles, PV –Passenger vehicles, Auto Comp – Auto Components, Engg prod & services – Engineering products and servicesSource: CII BCG Growth Index Survey; Industry association data on automotive sales

Building materials witnessed poor growth due to heavy and patchy monsoonheavy and patchy monsoon

Peer growth comparison Regional growth – All respondents1

48

121620

Volume growth (%) < 500 cr

-16-12-8-40

-16 -12 -8 -4 0 4 8 12 16 20

North:-3% (-6%)

E t

All

right

s re

serv

ed.Value growth (%)

All industry average

• Building materials grew sluggishly at <1% after strong growth of over 7% in June

West:-3% (-3%)

East:-4% (-4%)

onsu

lting

Gro

up, I

nc. A

• Concentrated monsoon (>10% than average) in North, East, and Central India adversely impacted construction and logistics

• Less than average monsoon (~12%) in South resulted in a relatively higher growth

Region

xx: xx% (yy%)South:

4%(6%)

2016

by

The

Bos

ton

Co

• Stalled projects increased to Rs 60,0002 cr compared to Rs35,000 cr in Q4 2015

• Boost in rural income and UP elections augur well for demand in North post monsoon

Valuegrowth yoy

Volume growth yoy

(6%)

3

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ht ©

2

p

1. Not all respondents filled in regional growth numbers. Average of regional growths therefore, may not coincide with national average. The growth numbers reported are on an year-on-year basis. Building materials include cement, cementitious products, paints, tiles, roofing, scaffolding , and glass. 2. Source: CII BCG Growth Index Survey, CMIE

Good monsoon, RERA, and FDI liberalization augur well for the Building material sectorthe Building material sector

Demand drivers Key enablers Key trends/indicators

1

Infrastructure

• 10,000 km greenfield road project (FY2016) worth ~Rs. 70,000 cr

• Port expansion initiative• FDI liberalization in brownfield and

greenfield airport projects• Power sector rural electrification

• Highest pace (~20 km/day) of road construction, ~85% stalled projects resumed

• Land allotment for 4 cities in DMIC to start in October• 4 new ports – Enayam, Sagar, Dugarajpatnam, and Vadhwan

proposed• ~4 5 lakh villages covered under DDUGJY1

1

• Power sector – rural electrification

Real Estate (Residential)

• ~4.5 lakh villages covered under DDUGJY1

• Real Estate (Regulat. & Dev.) Act• FDI liberalization – no size and minimum

capitalization restriction• Affordable housing scheme

• Residential sales up by 8% and new launches grew by 14% concentrated in Bangalore, Hyderabad, Mumbai, Pune, Delhi NCR

• Personal home loans grew by ~18%

2

All

right

s re

serv

ed.

Real Estate (Retail)

Affordable housing scheme• Higher than average monsoon

Personal home loans grew by 18%• Credits to affordable housing segment grew by ~30%

• FDI liberalization – no size and minimum capitalization restrictions

• 100 FDI (automatic route) in retail sector

• ~$150 m FDI investment as of May 2016, poised to beat the previous highest FDI investment in retail in 2008

• Warehousing demands of e-commerce grew by 200% (since

3

onsu

lting

Gro

up, I

nc. A(Retail)

Real Estate (Office)

(with few conditions on single-brand retail)

• FDI liberalization – no size and minimum capitalization restrictions

2012) to account for >22% of the total demand by 2015; poised to grow further

• Absorption of offices increased by 46%; growth driven by Hyderabad, Mumbai, Bangalore,B id IT t h ti l d BFSI t d f hi h

4

2016

by

The

Bos

ton

Co(Office)

Real Estate (Hospitality)

• FDI liberalization – no size and minimum capitalization restriction

• No lock-in period on hotels restaurants

• Aggregate revenue per available room up by 6-8%• Average occupancy up by ~300 bps, average room rates up by

3-4%

• Besides IT sector, pharmaceutical and BFSI accounted for higher office demand

5

4

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2(Hospitality) No lock in period on hotels, restaurants, resorts

3 4%• Share of top hotel firms up by 9-64% in the last 4 months

1. DDUGJY – Deen Dayal Upadhyaya Gram Jyoti Yojana. Source: BCG Internal Research, CMIE, Ministry of Power

Automotive industry continued to grow on the account of a good monsoon and pay revisionaccount of a good monsoon and pay revision

Passenger vehicle (PV) Commercial vehicle (CV) 2-wheelers

2040

6080

Volume growth (%)

20

30

40Volume growth (%)

0

20

40Volume growth (%)

Value growth (%)All industry average

-40-20

0

-40 -20 0 20 40 60 80Value growth (%)

All industry average

-10

0

10

24201612840-8-12 -4 28 32Value growth (%)All i d t

-60

-40

-20

-60 -40 -20 0 20 40

All

right

s re

serv

ed.

• PV growth rebounded,16.8% (YoY)

• CV growth is flat at 0.12% (YoY)• Heavy rains and diesel prices

g ( )All industry average All industry average Value growth (%)All industry average

• 2 wheelers segment grew at 13.5% (YoY) owing to good

onsu

lting

Gro

up, I

nc. A• Maruti Suzuki witnessed a YoY

growth of ~14%, primarily contributed by Brezza

• Compact UV and premium

y phike put a brake on CVs segment

• Short term outlook: pan-India BS IV implementation by April 1

monsoon• Bajaj and Royal Enfield posted

growth upwards of 20%• Pay revision and good

2016

by

The

Bos

ton

Co• Compact UV and premium

hatchback most attractive segments

• Sales driven by new models of f t

BS IV implementation by April 1, 2017 will push demand up

• Pay revision and good monsoon expected to drive high growth in coming quarter

5

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2manufacturers

1. Not all respondents filled in regional growth numbers. Average of regional growths therefore, may not coincide with national average. The growth numbers reported are on an year-on-year basis. Revenue size of the companies not represented in the graph Source: CII BCG Growth Index Survey, Industry association data on automotive sales

Engineering products witnessed a healthy growth across all the regionsacross all the regions

Regional growth – All respondents1Peer growth comparison

8

12

16

20Volume growth (%) < 500 cr

North:6% (4%)

-8

-4

0

4

-8 -4 0 4 8 12 16 20

All

right

s re

serv

ed.

West:6% (5%)

East:8% (8%)

Value growth (%)All industry average

8 4 0 4 8 12 16 20

• Engineering prod. and serv. growth slowed to ~7% in July compared to ~12% in June owing to stalled projects due

onsu

lting

Gro

up, I

nc. A6% (5%)

South:

compared to 12% in June owing to stalled projects due to monsoon

• Heavy engineering and electrical segment get boost from capacity expansion in power sector and infrastructure Region

2016

by

The

Bos

ton

Co

Value Volume

xx: xx% (yy%)

South:7%

(4%)• Power Grid awarded orders worth ~Rs. 24.6 bn in May

2016, up 60% YoY

• NITI Aayog targets to add 51,400 ckm of transmission lines in FY17 to fuel demand for electrical equipment

6

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2growth yoy growth yoyes to ue de a d o e ect ca equ p e t

1. Not all respondents filled in regional growth numbers. Average of regional growths therefore, may not coincide with national average. The growth numbers reported are on an year-on-year basis. MHE – Material handling equipmentsSource: CII BCG Growth Index Survey

Automotive components witnessed a high growth on the back of a higher than average monsoonthe back of a higher than average monsoon

Regional growth – All respondents1Peer growth comparison

8

12

16

20Volume growth (%) < 500 cr

North:11% (11%)

-8

-4

0

4

-4 0 4 8 12 16 20

All

right

s re

serv

ed.

West:10% (10%)

East:7% (7%)

Value growth (%)All industry average

4 0 4 8 12 16 20

• Automotive components sector maintained a good growth of ~8% similar to June 2016

onsu

lting

Gro

up, I

nc. A10% (10%)

South:

growth of 8% similar to June 2016

• Tractor, 2-wheelers likely to see double-digit growth due to good monsoon

• CV segment mainly driven by the replacement market Region

2016

by

The

Bos

ton

CoSouth:

11%(12%)

• Good monsoon coupled with pay revision and arrears likely to push sales of PV

• Exports relatively weak due to volatile international market

Value Volume

xx: xx% (yy%)

7

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yrig

ht ©

2growth yoy growth yoy

1. Not all respondents filled in regional growth numbers. Average of regional growths therefore, may not coincide with national average. The growth numbers reported are on an year-on-year basis. MHE – Material handling equipmentsSource: CII BCG Growth Index Survey

Monsoon in July made up for the monsoon deficit in JuneJune

Monsoon 2016 forecastO ll 6 7% hi h th t d (J S t 2016)• Overall, 6-7% higher than average monsoon expected (June – Sept 2016)

• Last year, 15% lower than average monsoon ~20% higher monsoon expected than last year• Monsoon arrived a week late on June 7; June received ~12% lower monsoon than average

July statistics• One of the highest July monsoons since 1990; makes up for deficit in June 2016g y ; p• The cumulative monsoon in July (until July 29) was 7% higher than average

– East and North-east: 2% below normal– Central India: 18% above normal– North and West India: 9% above normal– Southern peninsula: 12% below normal

F t f A tForecast for August• 4-5% higher than average monsoon expected in August • Central-North, and Eastern India (MP, UP, Bihar, WB, Delhi, North-eastern states) India to receive higher than

l i it ti

8

normal precipitation

Source: Indian Meteorological Department

Boosted rural income due to a good monsoon expected likely to have a positive impact on most industriesto have a positive impact on most industries

Implications of good monsoonImpactSector

Agriculture sector Positive• Sowing for kharif crops has seen an increase of ~6%; rural income is

expected to increase• Inflation likely to drop on the account of good produce

Automotive sector Positive• Good monsoon expected to drive up demand of tractors, farm

equipments, and 2-wheelers• Pay revision coupled with good monsoon bode well for PV• CV not much affected by good monsoon • Monsoon to drive demand in rural and sub urban regions

Building materials Neutral• Monsoon to drive demand in rural and sub-urban regions• Infrastructure, repair, and re-construction activities to resume post

damages caused by heavy monsoon• Projects stalled during heavy monsoon

• Strong consumer sentiments uplifted by good monsoon to boostConsumer goods

Storage and

Positive

• Higher FMCG and retail demand drive the need for higher and better h i

Strong consumer sentiments uplifted by good monsoon to boost FMCG consumption levels

• Higher disposable income likely to boost white goods sales

Storage and Warehousing Positive warehousing

• Higher agricultural produce entail higher demand for cold storage and warehouse

Di l N ti• Good monsoon obviates the need for irrigation through pumps driving

down the diesel demand

9Source: BCG Internal Research

Diesel Negative down the diesel demand• Reduced road transportation hampered by heavy rains result in lower

diesel demand

GST will subsume large number of taxes and simplify the overall taxation processoverall taxation process

State Taxes and Levies• Central and Additional Excise Duties

(~12%)• The Excise Duty levied under the

Medicinal and Toiletries Preparation Act

• Service Tax (14%)• Additional Customs Duty, also known

as CVD• Special Additional Duty of Customs -

4% (SAD)• Surcharges and Cesses

GST1• Surcharges and Cesses• Customs duty (ranges from 0% to

150% with the average rate being 12%)

Central Taxes

Scenario 1: 16%Scenario 2: 18%

• VAT (ranges from 8% to 20%) / Sales tax (2%)

• Entertainment tax• Luxury tax

Central Taxes

Exceptionsy

• Taxes on lottery, betting and gambling• State Cesses and Surcharges• Entry tax not in lieu of Octroi

Initially, GST will not apply on:

• Alcoholic liquor for human consumption• Petroleum crude High speed diesel Motor spirit (petrol) Natural

10

• Petroleum crude, High speed diesel, Motor spirit (petrol), Natural gas, Aviation turbine fuel

Sectoral impact would vary – bonus for manufacturing sectorSectoral impact would vary bonus for manufacturing sector

Sectors Overall impact Additional comments

Tech

FMCG If the recommended 40% "sin/demerit" GST for aerated beverages and tobacco products is levied then prices may increase by over 20%

Duty on manufactured goods will go up from 14-15% to 18%, hence, cost of electronics- from mobile phones to laptops will rise

Engineering

and tobacco products is levied, then prices may increase by over 20%

Handset segment will get impacted positively however call charges

Current tax is ~30% due to its integrated business model. GST will reduce taxes substantially

Telecom

Automobile Demand for commercial vehicles may be hit in the medium term as with fleet productivity increasing, operators will not expand fleet size

Handset segment will get impacted positively, however, call charges, data rates will go up if tax rate in the GST regime exceeds 15%

Media

Insurance

Elimination of multiple taxation can lead to reduction in taxes 2-4%, impacting footfall in multiplexes positively

GST rates above 15 percent will impact services sectors overallInsurance

Airlines

GST is expected to lead to savings in transportation cost which

GST rates above 15 percent will impact services sectors overall. Currently taxes are 6-9%, depending on the class of travel

11

Cement GST is expected to lead to savings in transportation cost, which currently comprises up to 20-25% of total revenue

Overall economic indicators: August 2016 review

Commercial vehicle sales

Overall economic indicators: August 2016 review

L t t P i

Growth Indices Growth Indices

L t t P iLatest month

Previous month

India GDP growth est. (%)1

8

7.9 7.3

Latest month

Previous month

Exports growth* (%)3

3

1.3 (0.8)

Economy statistics Current account

(y-o-y) 54625759

5253

40

60

80

80

-2%'000-7%

China GDP growth est. (%)8

Inflation – WPI (%)2

BSE Sensex2

3.55

6.7

1.62

26,999

6.7 Oil imports growth* (%)3

Non-oil imports growth* (%)3

Trade deficit (US$ Bn)3

(4.1)

(8.1)

(16.4)

(7.1)

(6.3)

(30.4)(y-o-y)

(y-o-y)0

20

4052

Feb-

16

80

Mar

-16

56

Apr

-16

57

May

-16

Jun-

16Ju

l-16

Jan-

16D

ec-1

5

62

Nov

-15

59

Oct

-15

Sep

-15

63

Aug

-15

Jul-1

5

52

Jun-

15

28,052S Se se ,

(y-o-y)IIP (%)3 0.9 0.7

ade de c t (US$ ) ( ) ( )

NRI deposits (US$ Bn)6 126 127

Select industry metrics Capital account Passenger vehicle sales

M MDNSA

+18%

8,05

(y-o-y)

(y y)

(y-o-y)

CV Auto vol growth2 (%)

Energy req growth3 (%)

PV Auto vol growth2 (%)

6.1

0.1

16.8

6.6

8.9

2.7

Forex reserves (US$ Bn)5

FII flows (US$ Mn)5

FDI flows (US$ Mn)4

1878

363

2294

555

361

3528242234231

269222218

100150200250300

232252222 232

+16%

260257 223232

'000

Steel production (Mn Tn)2

CV Auto vol growth (%)

Cement production (Mn Tn)3(y-o-y)

26.1

0.1

8.2

24.9

8.9

8.6

Forex reserves (US$ Bn)

Currency competitiveness7 67.1

363

67.2

361

050

100 232

Jan-

16

Nov

-15

Jun-

15Ju

l-15

222

Aug-

15Se

p-15

232

Oct

-15

Jun-

16

Mar

-16

Feb-

16

223

May

-16

Apr

-16

232

Dec

-15

Jul-1

6

12

*Not comparable as negative percentage in prior month1. Average of GDP estimates for FY15-16 for China and India made by leading international financial institutions in Apr & Feb 2. As of Jul & Jun 3. As of Jun and May 4. As of end May and Apr 5. For Jul and Jun, Includes only equity flows. 6. Total outstanding values as of Jun and May 7. As in Jul and Jun 8. As of Q2 2016 and Q1 2016, released in July 2016Note: PV and CV refer to passenger and commercial vehicles resp. Source: RBI, Thomson One, Ministry of Finance monthly Report, Capitaline, EIS, BCG analysis, Press Search.

Quick recap - Summary growth trends: June 2016Quick recap Summary growth trends: June 2016

Overall, June registered a stronger growth of ~9.0% for the Indian industry compared to May , g g g % y p yand April that showed growth of 7.3% and 5.1% respectively

Growth was high across all the regions with South witnessing the highest growth of ~9 3% ;Growth was high across all the regions with South witnessing the highest growth of 9.3% ; West and North saw healthy growth of ~8.8% and ~8.5% respectively, while East grew at ~7.7%

Inflation seemed to be in the range of ~1% year-on-year – similar to May and April; West saw above average price increments as indicated by an inflation of ~2.5%

Engineering products and services, 2-wheelers emerged as winners in June posting a growth of over 10%; Building materials and Auto components registered modest growth of ~7 5% while Commercial vehicles (5 6%) and Passenger vehicles (2 8%) witnessed relatively~7.5%, while Commercial vehicles (5.6%) and Passenger vehicles (2.8%) witnessed relatively weak growth

13

1. Not all respondents filled in regional growth numbers. Average of regional growths therefore, may not coincide with national average. The growth numbers reported are on an year-on-year basis. Inflation reported above is the value over volume growth based on the survey results. Growth numbers reported are on year-on-year basisSource: CII BCG Growth Index Survey; Industry association data on automotive sales

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