Effects of demonetisation receding, GDP growth set to rise in FY18

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April 01, 2017 4:46 AM

The CII-BCG monthly growth survey of CXOs across sectors indicates that overall, February sales grew by ~2% across all CEO respondents, clearly better than January growth.

CII-BCG monthly growth survey, CXOs, demonetisation, capex growth, Building materials, Material handing equipment, Engineering products, Welding, Auto componentsThe CII-BCG monthly growth survey of CXOs across sectors indicates that overall, February sales grew by ~2% across all CEO respondents, clearly better than January growth. (Source: Reuters)

The CII-BCG monthly growth survey of CXOs across sectors indicates that overall, February sales grew by ~2% across all CEO respondents, clearly better than January growth of 1%, indicating that the effects of demonetisation were receding. However, this performance was considerably lower than the 7%-8% witnessed in Q1-Q2 of FY17. But average order-book inflows, which is an indicator for sales in upcoming months saw an improvement of around ~7.3%.

Moreover, the growth rate turned positive for most sectors in February after a relatively muted January, with auto components leading in terms of planned growth for FY18. Industry participants were planning for ~11.6% revenue growth, ~9.8% net profit growth and ~8.6% capex growth in FY18 compared to FY17.

Building materials
Respondents witnessed an average revenue growth of 3.1% (with volumes growing by around 2.5%). Northern region seemed to have performed the best, clocking 4% positive growth, while southern and western regions registered worst performances with 2% and -1% performance respectively. The sector is clearly on the recovery path after a de-growth both in value and volume terms in January.

Material handing equipment
Respondents reported an average revenue growth of 3.8% (with volumes increasing 7%). The eastern region showed the highest growth rate of 5%, whereas the southern region performed the worst with a de-growth of 4%. Demonetisation effect in the sector is almost negligible now. However, most of the players are in the wait and watch mode since the impending GST implementation is expected to have a huge impact on the logistics and warehousing sectors, two of the biggest consumers of material handling equipment.

Engineering products
The sector witnessed strong growth in February with respondents reporting a value growth rate of 4% (volumes increased by 6%). The western and the southern parts of the country clocked growth rates of 4% and 6%, respectively, whereas the northern and eastern regions grew around 3% each. Demonetisation effect was short lived and has ceased to be a concern in the sector, with >75% of respondents experiencing growth in new order flows.

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Welding
Respondents in the welding sector experienced strong overall value growth at the rate of 11% (with volume growth of 4%), largely backed by increased exports. The northern and the western regions of the country witnessed the highest growth of 5% and 6%, respectively, whereas the Eastern region was the poorest performer growing by a mere 1%. Demonetisation effect has rapidly diminished. However, caution is being maintained ahead of GST implementation. Capex investments are being encouraged in the sector.

Auto components
Respondents witnessed de-growth of 0.8% in terms of value (volumes de-growing around 0.3%). Western, northern and southern regions clocked a 1% growth rate, whereas the eastern region de-grew at the rate of 1%. Return of positive growth in the commercial vehicles segment (~7% yoy for February) seen as a good sign for the auto components sector. Auto-components sector planning for the highest growth for FY18 in terms of revenue (13.9%), net profit (9.8%) and capex (8.6%).

The author is partner and director, BCG, Sangita Das, deputy director, CII and Mani Singhal, principal, BCG.

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