Click here to download full report
MUMBAI,2nd DECEMBER, 2019 (GPN):
We hosted a road trip through Punjab recently – visiting a cross section of economic participants including farmers, agricultural agents, auto OEMs, dealers (auto, cement and pharma), MFIs, banks, and financial advisors. Overall sentiment was weak with negligible govt project activity. Weak auto sales trends (sharper decline than rest of India) and pockets of farm stress were offset by our positive takeaways from NBFCs/banks growth and cement prices.
■ Falling farm profitability: The mandi commission agents we met believe that more than half of the farmers in the state are doing fine. The rest are under various levels of stress. Weak prices (driven by poor MSP inflation) and rising costs – in particular land rentals, diesel, fertilizer, pesticides, etc. – have resulted in weak profitability. While payouts from the PM Kisan Scheme have been coming into some of the farmers’ accounts, the amount is too small to make much difference. In general, the richer farmers/larger land owners are able to fare better than the ones with smaller land holdings.
■ Lenders growing strong: The AU Bank branch we met is focusing on raising term deposits with attractive schemes. Deposit growth in the state has grown handsomely in recent months. The MFIs operational staff we met indicated strong industry growth – driven in large part by ticket-size increases. The recent RBI relaxation of borrowing limits is seen to help continue the growth. Collection efficiencies remain high.
■ Cement prices remain strong: There is near-zero govt project activity in the state. Cement volume growth of 2-5% yoy is largely driven by rural housing demand. Prices are up 10% yoy despite the weakness in demand in CY19. Overall cement dealer profits are falling, forcing many to seek other revenue streams (distribution of chemicals, pharma products, etc.). Shree Cement is categorized as a C brand (Ultratech/ACC/Ambuja in A category) due to some issues when it entered the market a few years ago. However, some sub-brands of Shree are able to maintain good pricing power. Shree’s distributor payouts are higher than that of Category A brands
■ Auto industry faring worse than rest of India:The car dealers we met alluded to sharper declines in sales vs. the rest of the country, with the region missing even the festive season positivity that the pan-India numbers showed. The first-time buyer segment has declined sharply, with replacement demand forming the bulk of sales. Dealer inventory stands at 40-45 days. Trends for the Royal Enfield dealers we met were similar to pan-India numbers (flat festive). There is good acceptance of newly launched higher cc products. CV sales have been weak, with industry hoping for scrappage policy to be introduced. We suspect higher procurement of farm produce in the state along with expectations of good Rabi harvest could be supporting tractor sales vs. slowdown in the rest of India.
■ See inside for detailed takeaways from our meetings with dealers of Maruti, Royal Enfield, operational staff of Satin Credit Care and Muthoot MFI, cement dealers, Ikya staffing solutions, agri-industry participants, management of Sonalika Tractors, Nestle dealer, among others.
Please see our model portfolio (Emkay Alpha Portfolio): Nifty
| To view more Research Reports visit the Emkay Research Portal. |
Be the first to comment on "India Strategy Report; Punjab: A road trip across India’s wheat basket by Emkay Global Financial Services"