Good monsoons this year are sure to help the automobile industry continue on its growth path in 2004. |
After all, there has been an evident improvement in consumer sentiment, vehicle prices in some segments are lower and financing continues to be easy and cheap. |
Most segments including motorcycles, cars and commercial vehicles are expected to do well next year, in terms of volume growth. |
In terms of profitability, commercial vehicle makers are better poised because of the limited competition. In fact, there was evidence for this recently when Ashok Leyland raised prices a bit to counter rising input costs (primarily driven by the jump in steel prices). |
With better economies of scale kicking in and the ability to raise prices to counter rising input costs, commercial vehicle makers, Telco and Ashok Leyland are expected to well next year. |
On the other hand, car and two-wheeler makers may not be able to raise prices owing to the high level of competition. But market leaders in these segments have been aggressively cutting costs, and this may even make up for the hit owing to higher steel prices. |
Maruti, for instance, is expecting annual savings of over Rs 150 crore from FY04 onwards owing to different factors. For two-wheeler players, there could be a positive surprise from other segments like three-wheelers and exports. |
Consumer goods The good monsoons and the improvement in consumer sentiment mentioned earlier is sure to help consumer good companies as well. A good monsoon and harvest means better income levels in rural areas, a segment where penetration is relatively low. |
Besides, the feel-good factor is expected to put to an end the downtrading that has plagued the industry for the past few years. Yet, revenue growth is still expected to be in single-digits, albeit slightly higher than the current year's growth of 4-5 per cent. |
Meanwhile, prices of most commodities have been on the rise, and this is sure to impact many consumer goods categories. But analysts expect companies to take price hikes to offset this. |
Given the high level of cost-cutting in the past few years, there doesn't seem much room for productivity gains going forward. Besides, since ad spend has already been cut quite a bit this year, there aren't much gains to be had from that quarter as well. |
However, since many companies including HLL, Britannia, Marico, Dabur and Godrej Consumer are either planning or have set up facilities in backward areas, they would gain in terms of savings on excise duty. This could be major driver of profitability growth going forward. |
Cement The cement industry has been under pressure over the last couple of years, with cement prices being more or less stagnant. This was partly because there was an addition to capacity owing to de-bottlenecking, and an increase in the proportion of blended cement. |
Besides, with the industry still being fragmented, players indulged in price competition. The scenario has changed slightly with prices firming up in the south and east. |
The outlook for 2004 is not much different except for a few factors. First, there is a deficit in the eastern region and therefore prices are firm. Hence, companies like ACC will benefit if despatches increase in the region. |
Second, efficiency of companies are improving, mostly in the area of power costs, with some companies having commissioned captive power plants. |
For instance, Shree Cement will benefit as it shifts from grid power to captive power. Most cement stocks have risen sharply and are now quoting at expensive valuations, which means there may not be much upside from current levels. |
Pharmaceuticals The US plans to lower healthcare costs and is putting in place a legislation to increase the use of generics rather than branded drugs. This will provide explosive growth to generic producers in the country. |
The success of Ranbaxy and Dr Reddy's proves that the potential is there and will increasingly be exploited in the coming years. With more companies getting nods from the US FDA for their production facilities, sourcing of drugs from India will only increase. |
This is reflected in the rally of second-rung stocks like Matrix Labs, Aurobindo Pharma and Divi's Labs to quote a few. |
Further, the acquisitions made in Europe - namely, the acquisition of CP Pharma (UK) by Wockhardt and the recent acquisition of RPG-Aventis (France) by Ranbaxy-should start paying off in 2004. |
But the sea change in the pharma scene will come in 2005, when the patent regime is implemented. This will bring the MNC pharma companies in focus, especially when they launch their global blockbuster drugs. |
With contributions from Mobis Philipose and Sameer Ranade |