NEW DELHI: China factory activity is seen normalising gradually after the deadly
coronavirus brought businesses to a grinding halt in the world’s second largest economy.
India Inc, though not-so-alarmed, has started citing the epidemic in their quarterly earnings and corporate briefings of late.
There are reports that manufacturers of televisions, air-conditioners, refrigerators and some smartphone models are set to effect price hikes this month as they grapple with a shortage of components and finished products imported from Covid-19-hit China.
Senior industry executives said companies are cutting down on discounts and promotional offers, which will raise prices 3-5 per cent. For some items such as televisions, the price hike could be as much as 7-10 per cent, since the international price of the main component — the TV panel — has already risen 15-20 per cent due to shortages.
Analysts say while delay in import of key raw materials is going to hurt some businesses, some others are likely to get relief from the onslaught of cheaper Chinese imports.
“The virus is likely to keep factories and other industrial hubs in China closed well into March. Chinese authorities could ask workers not to report to work till it has been brought the situation under control, potentially leading to extensive production losses,” warned
ICICIdirect.
Auto ancillary firm Motherson Sumi expects some clarity to emerge in next 8-10 days. Its subsidiary SMRPBV's generates 8 per cent of its revenues from China while its OEM clients in EU also exports to China.
Bharat Forge does not see any material impact from coronavirus, but 30 per cent of its global supply chain is from China and, therefore, if the shutdown extends, there could be some impact, analysts warned.
Metals major Hindalco said that it was not aware of any supply disruption in aluminum smelters in the past month but said it would keep evaluating the situation to understand the demand-supply implications.
How fast can China’s economy bounce back from coronavirus lockdown?
When will China's economy turnaround?
18 Feb, 2020
The biggest question for the global economy right now is how quickly China can get back to anything like normal operations while it’s battling the coronavirus outbreak that has killed almost 1,900 people and sickened tens of thousands.
Government controls and people’s fears to go outside have decimated spending for businesses from local noodle joints and Starbucks stores to Alibaba delivery men. Meantime, many factories are still not working due to a lack of staff, with workers trapped in their hometowns or spending two weeks in quarantine.
Out of action
18 Feb, 2020
China’s economy was likely running at just 40 per cent-50 per cent capacity last week, according to a Bloomberg Economics report. The following data tracks how much of the world’s second-largest economy remains out of action:
Fewer travellers
18 Feb, 2020
About the same number of trips by planes, trains, automobiles and boats was taken in the run up to the Lunar New Year this year compared to last year, but the fall off since the first day of the Year of the Rat on Jan. 25 has been stark. On average, there’s only about 20% as many trips being taken each day, meaning millions of people still haven’t traveled back to work. And with long-distance buses only allowed to operate at 50% capacity to reduce the risks of viral transmission, that backlog will take a long time to clear.
Industrial demand hit
18 Feb, 2020
Although some companies, especially large state-owned industrial firms and those making medical equipment, have ramped up output, demand for electricity is still well below where it should be at this time of year. Along with anecdotal reporting from across China’s vast east-coast manufacturing heartland, the power numbers suggest much of the nation’s industrial capacity remains idle.
Emissions of nitrogen dioxide in the week after the holiday were 36% below where they were at the same point after the new year break in 2019, according to the Centre for Research on Energy and Clean Air, which cited satellite data. A slowdown of 25%-50% across industrial sectors such as oil refining, coal-fired power generation and steel production contributed to the drop, according to the independent research organization.
Back to work
18 Feb, 2020
A survey of 109 American manufacturing companies in and around Shanghai showed that although almost 70% were operating last week and more than 90% expected to be back by this week, 78% of firms said they didn’t have sufficient staff to run a full production line.
IT firm Hexaware said coronavirus might have a negative impact on its business. Travel vertical accounts for 10.3 per cent of its revenue. Peers NIIT Tech (29 per cent of revenues) and Mindtree (16.6 per cent) have high exposures to travel and transportation verticals.
PhillipCapital sees coronavirus fears are likely to hurt metals companies such as Hindalco, Vedanta, Nalco and NMDC, and sees near-term respite only for a few specific segments.
It sees pharma firms such as Divi’s Labs, Ipca Labs and Biocon as key beneficiaries. In the case of specialty chemicals, the developments could trigger a manufacturing shift to India and Aarti Industries seems to be placed good, Phillip Capital said.
“In agrochemicals, PI and UPL have very limited exposure (10-20 per cent) to raw materials. But there is higher input dependency for – Dhanuka, Rallis India, Insecticides India and Sharda Cropchem. For automobiles, consumer durables and electricals segments, the virus outbreak is negative due to broad based input dependency,” it said.
Death toll from the coronavirus outbreak in China reached 2,000 by Wednesday. Across mainland China, there were 74,185 confirmed infections. China is known as the factory of the world.
In the case of auto and auto ancillaries, India’s import of car equipment from China has gone up by 22.1 per cent to $33 million whereas exports have come down by 54 per cent to $11 million. For Tata Motor’s, JLR’s 17 per cent volume mix comes from China, Geojit Securities said in a note.
Thus, the impact of coronavirus on Tata Motors, Motherson Sumi and Bosch is seen as negative.
How coronavirus outbreak can impact India, world economy
Near-term impact on India Inc
13 Feb, 2020
India Ratings and Research (Ind-Ra) does not expect the novel coronavirus outbreak to materially affect Indian corporates’ supply chains in the near term, provided it remains contained in the Hubei province. In case the virus is transmitted over the next three to four months, the extent of supply chain disruptions globally could be higher than that during the 2003 SARS outbreak. The quantum of impact on sectors would be contingent on the nature of business activity and the nature of linkages the rest of the world has with mainland China.
Source: Report by India Ratings
Sectors that could be hit
13 Feb, 2020
Several Indian industries have a significant direct dependence on supplies from China. Some of these products such as antibiotics, activated pharmaceutical ingredients (APIs) and fertilizers are critical commodities and any disruption in the supply over the long-term could have far-reaching economic consequences for India.
Textiles and automobiles could also face supply disruptions for critical raw materials.
All this together could further worsen the recovery in industrial production over near to medium term.
Weak commodity prices bode well for India
13 Feb, 2020
China is a net importer of various commodities globally. Commodities, where the country contributes to a large part of global consumption, are likely to experience pricing pressures over near to medium term. Indian corporates which are net users of these commodities are likely to report an improvement in their debt protection metrics; whereas some of the net producers are likely to be affected.
Supply chain disruptions imminent
13 Feb, 2020
China accounted for nearly 11% of the global imports and 13% of global exports in 2018. It also serves as an import supplier of various raw materials and intermediate goods. Thus, the supply chains for various global and Indian industries are linked to China. In a situation wherein the outbreak continues for over two quarters, the impact on China’s industrial activity could be substantial – both due to a fall in labour availability and consumption demand.
Fitch Ratings expects the Chinese GDP to grow by 5.50% in 2020 as against 5.90% in its pre-outbreak scenario. However, in a worst case scenario, it expects GDP to drop to 5.2%.
China as a transit country
13 Feb, 2020
China serves not only as one of the largest importers for many commodities, but also as a transit hub for various supply chains in South and East Asia. Ind-Ra believes if the outbreak continues to spread unabated, these supply chains could temporarily be decapitated, although major trading hubs and ports outside Hubei province are yet to be locked down. The agency expects a severe impact on global trade volumes – which are already under pressure amid mounting uncertainties emanating from geo-political tensions, trade protectionism and Brexit.
Meanwhile, India imported $93 million worth of tyres from China in FY19. The developments can marginally reduce competition for MRF, Apollo tyres and JK Tyre.
For companies such as Voltas, Whirlpool, Havells and V-Guard, the virus outbreak is a negative news as supply disruption of components like compressors for refrigerators and air conditioners, television panels, LED chips and motors will lead to rise in prices and shortage of supply products in channels, Geojit said.
Meanwhile, a drop in crude oil prices will aid bottom lines of Asian Paints, Bajaj Consumer Care and Jyothy Labs.
For pharma companies like Sun Pharma, Lupin, Aurobindo Pharma and Dr Reddy's Labs which import both bulk drugs (API) and intermediates, the virus scare is negative.
Meanwhile, the development will be positive for textile companies such as KPR Mills, Raymond, Trident and Gokaldas as China accounts for 40 per cent of global apparel & textile exports. It will be negative for the textile outsourcing firm Kewal Kiran.