Chennai Flood: Taking Stock STRATEGY - Spark...
Transcript of Chennai Flood: Taking Stock STRATEGY - Spark...
Page 1
STRATEGY Chennai Flood: Taking Stock
Market data
BSE Sensex 25638
NSE Nifty 7782
Date December 7, 2015
Performance (%)
1m 3m 12m
BSE200 -1% 2% -6%
Sensex -2% 2% -10%
Around 70% of Tamil Nadu’s districts have received 20% plus more rainfall than normal since 1-Oct’15 during the
on going NE Monsoon season. However, the heaviest rainfall in over 100 years in the first week of Dec’15 proves
to be the straw that broke the camel’s back. Chennai, which is the worst affected region, is home to many global
auto manufacturing giants like Hyundai, Ford, BMW, Mitsubishi, Nissan-Renault, Daimler and Caterpillar as well
as domestic players like Ashok Leyland, Royal Enfield, Mahindra & Mahindra, TAFE Tractors and TVS,
production of which have been impacted for most of them. Assuming a loss of 8 working days for the state, we
estimate ~Rs. 214bn loss due to excess rainfall, which accounts for 2.2% of the state’s GDP. Supply-chain
disruption and crop damage could also increase India’s CPI inflation by 15-20bps, given the state holds 5.1%
weight in India’s CPI. Most companies in Tamil Nadu have seen weak sales during the festive season this year
due to massive rainfall, which would result in poor earnings performance of South India focused companies in
December quarter.
Importance of Tamil Nadu in India: With a GDP size of $150bn, Tamil Nadu is around half the size of Singapore’s
economy. It is the third largest state in India and contributes over 8% to India’s GDP. In terms of population, Tamil Nadu
with 72mn population is equivalent of Thailand. It ranks first in terms of urbanization amongst large Indian States, with
48% of the population living in urban areas. Tamil Nadu is the third most industrialized states in the country and it
contributes ~11% to India’s manufacturing sector, the third highest in the country.
Key sectors/companies which have been affected adversely: The state has a diversified manufacturing sector and
features among the leaders in several industries like auto & auto components, engineering, textile, IT and electronic
hardware.
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GAUTAM SINGH [email protected] +91 22 4228 8152
GAURAV NAGORI, CFA [email protected] +91 44 4344 0072
Sector Companies
Affected Facilities Impacted Remarks
Auto
Apollo Tyres
Company has one plant at Oragadam - Chennai,
which constitutes ~33% of the total production
capacity.
Per company press release dated Dec 05, 2015, due to the heavy rains and flooding, production
operations at the Oragadam plant had been impacted and production loss has been to the tune of
10 shifts -1500 MT approx. Per the same release, operations have since commenced and the
production loss/consequential loss of profit is "Not significant"
Ashok Leyland Company has one plant at Ennore - Chennai, which
contributes ~40% of the total production capacity
Though the company has not issued an official statement, media reports indicate that production
might have been impacted.
Eicher Motors
Manufacturing facilities of the Royal Enfield division
are entirely located in the vicinity of Chennai at
Thiruvottiyur and Oragadam.
According to the press release dated Dec 03, 2015, production at its RE division facilities was shut
since Dec 01, 2015. Information on the functioning of the mfg. facilities, loss of production (if any)
during subsequent rain-affected days and number of days for which production was impacted has
not been shared. The company is currently operating at a production run-rate of 1500
motorcycles/day. The production loss in Nov 2015 due to rains was stated as 4000 motorcycles.
TVS Motors Manufacturing facility in South India is located in
Hosur.
The company has not issued any official statement on the production loss, if any, incurred in
December. However, the company had reported loss of sales of ~15,000 units for November on
account of inclement weather.
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STRATEGY Key sectors/companies which have been affected adversely
Sector Companies
Affected Facilities Impacted Remarks
Banks & NBFCs
Repco Has about 28% of the loan book concentrated in
Chennai region.
Collections will be impacted in the short term. Loan growth in the region should also see moderation.
In general, third quarter is seasonally a tough quarter with regards to collections and this event may
accentuate this problem marginally.
Cholamandalam
Investment &
Finance
Has only about 9% of the portfolio in the state of
Tamil Nadu and even lower share in Chennai region. Do not see much impact.
Shriram City Union
Finance
Has ~40% of the business in TN and sizeable portion
in AP. See some moderation in collections. Loan growth also likely to see a blip.
City Union Bank Has about 70% business from TN. Given the wide spread diversification of portfolio within the state, we see a limited impact.
Karur Vysya Bank Has about 45% of the business from TN. Growth may slow down marginally but we see limited impact on asset quality.
Cement
Ramco Cements,
India Cements,
Dalmia Bharat
Companies exposed to Tamilnadu will see volumes
impacted for the month of Nov and Dec. Ramco
cements and India cements have around 40-45% of
their volumes contribution from TN whereas Dalmia
Bharat has around 15-20% volume exposure.
Building material companies generally have 30% - 40% exposure to TN will see volume contraction
in month of Nov and Dec
Consumption
Asian Paints The company has 2 facilites in Tamilnadu
viz.Sriperambadur & Cuddalore which are impacted We observe that both the locations were severly impacted by floods.
Indian Terrain Chennai facility and warehouse The company disclosed that both the company's office as well as factories remained shut due to
inundation of water.
Titan Coimbatore & Housur facilitiies We observe that these areas were least affected by the latest floods.
ITC Chennai & Coimbatore facilities We believe the Chennai facility would have been affected.
Hindustan Unilever Chennai, Coimbatore & Hosur facilities We believe the Chennai facility would have been affected.
United Breweries Aranvoyal & Udambakkam facilities We believe both the facilities would have been severely affected on account of the proximity to the
lake.
Godrej Consumer
Products Limited Maraimalai Nagar (Chennai) & Karikkal facilities We believe the Maraimalai Nagar facility would have been impacted on account of the floods.
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STRATEGY Key sectors/companies which have been affected adversely
Sector Companies
Affected Facilities Impacted Remarks
Consumer
durables
TTK Prestige, V-
Guard
Direct impact on floods should be visible in V-Guard
and TTK Prestige where TN contributes atleast ~15%
of revenues.
White goods (TVs/Refrigerators/Washers), festive demand commentary has been weak in TN while
we expect this flood could have impacted sales further.
IT Services All IT Companies
Chennai is a huge delivery center for all major IT
companies, with ~25-30% of the total sector
workforce based out of here. Cognizant, TCS,
Polaris, Hexaware,Infosys led the list.
We don’t expect any major impact of Tier-I IT companies given their size and scale of operations. As
employees have been temporarily relocated to other offices in Bangalore and Hyderabad, we don’t
expect any major loss of man hours on account of floods for Q3FY15. As far as Tier-II IT companies
are concerned, we also don’t expect any major loss as companies are more likely expected to work
over the next three Saturday’s of the month to recover any man hours lost due to floods in Chennai
city. For Instance, to recover the billable hours lost due the excessive rainfalls in last fortnight of
November 2015, Hexaware worked on one of the Saturdays last month and is expected to do the
same in December 2015 as well. Other Tier-II IT companies are expected to follow the same path.
Pharma Natco Pharma The company has one API manufacturing facility at
Manali Industrial Area, Chennai
The Unit manufactures a few oncology APIs. The company believes that this temporary shutdown
should not impact its pipeline launches associated with this plant. The unit is also adequately insured
for any losses it has incurred in fixed assets, raw materials and loss in production including work-in-
progress.
Road Sector KNR Construction
From our coverage, KNR should witness subdued
execution in this quarter with ~45% of orderbook from
TN
Oil & Gas CPCL Refineries has been shutdown for the last 5 days Water has completely receded now. CPCL is working to restart the plant which could take some time
(at least a week). CPCL operates a 10.5 mmt refinery in TN
Others Redington
Whilst it’s too early to comment on the extent of loss
Redington might have faced due to floods, given its
strong presence in Chennai and other parts of Tamil
Nadu some minor inventory loss and revenue loss
cannot be ruled out.
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STRATEGY Around 70% of Tamil Nadu receives 20% plus excess rainfall over the
normal rainfall during the on going NE Monsoon season
Tamil Nadu witnesses two consecutive years of deficient rainfall in
FY12 and FY13…
Source: IMD, Spark Capital Research
…this year , it has received 58% excess rainfall during the NE
monsoon season so far
Source: IMD, Spark Capital Research
79
15 21
31
12
42
23
-16
-33
-2
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
NE Monsoon: % deviation from normal (Tamil Nadu and Puducherry)
Tamilnadu and
Puducherry
subdivision has
received 58%
excess rainfall
during the on
going NE
monsoon season.
Most districts have received excess rainfall in Tamil Nadu % DEP. CATEGORY
KANCHEEPURAM 215 EXCESS
TIRUVALLUR 188 EXCESS
VELLORE 148 EXCESS
CHENNAI 129 EXCESS
TIRUNELVELI 109 EXCESS
VILLUPURAM 105 EXCESS
PUDUCHERRY 91 EXCESS
CUDDALORE 78 EXCESS
TOTAL SUBDIVISION 58 EXCESS
KANYAKUMARI 48 EXCESS
SALEM 39 EXCESS
ERODE 36 EXCESS
TIRUCHIRAPALLI 19 NORMAL
COIMBATORE 7 NORMAL
MADURAI -3 NORMAL
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STRATEGY Why Tamil Nadu matters
Tamil Nadu is the third largest state in India, which
contributes 8.4% to India’s GDP
Source: CSO, Spark Capital Research
Tamil Nadu is one of the most Industrialized state in India
Tamil Nadu contributes ~9% to industry and services
sectors of India
Source: CSO, Spark Capital Research
Tamil Nadu’s economy outperforms Indian economy
during the economic up cycle and vice a versa
Source: CSO, Spark Capital Research
Tamil Nadu is one of the most Industrialized state in
India
Source: CSO, Spark Capital Research
13.9
26.1
59.9
7.3
29.0
63.7
0
10
20
30
40
50
60
70
Agri Industry Services
Sector-wise share in GDP (%)
India Tamil Nadu
6.7 5.4
9.6 8.9
5.4
4.7
-1.6
15.2
13.1
7.2
-2
0
2
4
6
8
10
12
14
16
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
Real GDP growth,(%, yoy)
India Tamil Nadu
Tamil Nadu: A high
beta economy
Long term growth trends
indicate that Tamil Nadu
is a high beta economy.
During the high growth
phase, its economy
grows faster than the
Indian economy and
during the down cycle its
GDP growth falls below
the growth rate of India.
This is because Tamil
Nadu’s economy is
driven by services and
Industry sectors, which
tend to do well during
the up cycle and vice a
versa.
0
2
4
6
8
10
12
14
16
Share in India's GDP (%)
8.4
4.4
9.3
8.9
2 4 6 8 10
Overall GDP
Agri
Industry
Services
Share of Tamil Nadu in India's respective sectors (%)
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STRATEGY Why Tamil Nadu matters
Tamil Nadu has been growing at a faster pace than the rest of India in the last four years
Industrial growth
Source: CSO
Real GDP growth
Source: CSO
Services sector growth
Source: CSO
Agri sector growth
Source: CSO
Tamil Nadu has grown at
the fastest pace in South
India in the last four years
led by higher services and
industrial growth.
Agriculture sector growth
has been lower than India
due to weak NE monsoon
in the last three years.
7.8 7.1
6.6 6.2 6.1
Tamil Nadu Kerala Andhra Pradesh
Karnataka Telangana
Avg. GDP growth in last 4 years, %
India: 6.2%
3.4 3.1
2.6
1.9
-0.7 Tamil Nadu Telangana Andhra
Pradesh Karnataka Kerala
Avg. agri growth in last 4 years, %
India: 4.9%
10.3
6.2 5.3
4.8 3.8
Kerala Tamil Nadu Andhra Pradesh
Telangana Karnataka
Avg. industrial growth in last 4 years, %
India: 4.2%
9.2 9.1 8.6
7.7 7.3
Tamil Nadu Andhra Pradesh
Karnataka Telangana Kerala
Avg. services growth in last 4 years, %
India: 7.5%
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STRATEGY Appendix 1
Tamil Nadu: Key Industries that drive the economy
IT and ITeS
Chennai, the ‘Detroit of India’, is fast emerging as a major export hub of cars for the Southeast Asian and South African
markets.
Chennai has the capacity to produce 12.8 lakh cars and 3.5 lakh commercial vehicles annually.
Tamil Nadu has 30% share each in the Indian automotive and auto components industries, 17% in the trucks segment,
and 20% each in the passenger cars and two-wheelers segments.
The Government of Tamil Nadu has signed memorandums of understanding (MoUs) with five auto companies –
Daimler India Commercial Vehicles, India Yamaha Motor, Ashok Leyland-Nissan, Eicher Motors and RPG Group
company Philips Carbon Black – for an investment of up to US$ 1.7 bn in the state.
The Government has recently unveiled an automobile policy which would focus on future development and
consolidation of the automobile and components industry, where the state enjoys a comparative advantage.
Chennai Hosur
Automotive
Tamil Nadu has emerged as a key destination for IT investments. The state has 22 approved IT Parks.
The TIDEL Park in Chennai is spread over 1.28 mn sq ft. It is the largest IT facility in India, promoted by TIDCO and
ELCOT.
Electronics Corporation of Tamil Nadu Limited (ELCOT) has established eight Information Technology Special
Economic Zones (ELCOSEZs) in Chennai and seven in Tier-II locations: Coimbatore, Madurai (2), Trichy, Salem,
Tirunelveli and Hosur.
A TIDEL Park (IT-SEZ) in Coimbatore was inaugurated in August 2010
The land for setting up the first International Institute of Information Technology (IIIT) in Tamil Nadu has been identified
in Sethurapatty, near Tiruchirapalli.
Coimbatore
Tiruchirapalli
Ranipet Hosur
Madurai
Salem
Tirunelveli
Chennai
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STRATEGY Appendix 1
Tamil Nadu: Key Industries that drive the economy
Wind Energy
Tamil Nadu is known as the “Yarn Bowl” of the country. It is the largest producer of cotton yarn, accounting for 41% of
India’s production
Coimbatore and Tirupur are the major textile centres in Tamil Nadu.
Tirupur is known as the “Knitting City” and the Tirupur cluster contributes nearly 56% of India’s total knitwear production
and about 90% of cotton knitwear exports.
Coimbatore is called the “Manchester of South India”. Karur, Madurai and Rajapalayam are the other textile centres in
the state.
Tamil Nadu produced about 1,482.79 mn kg of spun yarn, accounting for about 34% of the annual spun yarn production
of the country. Tamil Nadu has 1,997 spinning mills (60.6% of mills in India), 458,000 power looms and 207,000
handlooms.
Karur
Madurai Rajapalayam
Tirupur
Coimbatore
Tamil Nadu has the highest installed wind energy capacity in India. The state has very high-quality, off-shore wind
energy potential off the Tirunelveli coast and Southern Thoothukodi and Rameshwaram coast.
As of March 2014, Tamil Nadu had installed wind capacity of about 7,300 MW. Wind energy generation has increased
from 2,040 MW in 2004-05 to 7,300 MW at present at a CAGR of 15.2%.
Tamil Nadu added an all time high capacity addition of 1,083 MW in 2011-12. Another 220 MW was added between
2012-14.
Consumption of wind energy stood at 9,000 mn units in 2013-14 compared to over 11,000 mn units in 2012-13. The
state plans to add 5,000 MW capacity in the next five years.
Tirunelveli
Rameswaram Thoothukudy
Textile
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STRATEGY
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STRATEGY
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