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Substantial improvements in compliance, quality of disclosures and spends on CSR in FY16, in a study of 1,300 companies by CII
Apr 19,2017

In the most comprehensive and extensive analysis yet of CSR performance of companies in FY16, CSR performance of companies with respect to requirements of CSR legislation have substantially improved over FY15. The results are based on disclosures of close to 1,270 companies listed on BSE that had to comply with Section 135 of Companies Act 2013. The analysis was conducted by CII-ITC Centre of Excellence for Sustainable Development in form of Annual CSR Tracker 2016, which on yearly-basis captures annual CSR disclosures.

In FY16, these 1,270 companies collectively spent Rs 8,185 cr, which is 27% more than spend of Rs 6,400 cr in FY15. The spend is 92% of the required CSR budget of Rs 8,900 cr, using two percent of average net profits of three financial years. The companies collectively had budgeted Rs 10,257 cr, which is 15% more than the minimum budget required.

A notable feature of CSR disclosures in FY16 is that some companies have begun to disclose output data. 13 percent, or 166 of 1,270 companies making such disclosures, reflects going beyond legislative requirements and improving the quality of disclosures. 1.5 cr people benefitted from Rs 3,747.97 cr spent for which output data has been reported. This averages to Rs 2,498.65 spent per person.

Chandrajit Banerjee, Director General of CII, said n++results of CIIs Annual CSR Tracker 2016, clearly demonstrate improvement in the practice and disclosure of practice of CSR by companies. The fact that companies are budgeting and spending more than the minimum legislative requirement suggests that companies want to do more for betterment of communities. There is always room for improvement and I am hopeful that results of FY17 will reflect that improvement.n++

The number of companies spending CSR budgets exclusively through corporate foundations increased to 72 from 60 in FY15. The number of companies exclusively spending money directly marginally increased to 233 from 227, whereas that spending money exclusively through implementing agencies remained stable at 249 as compared to 251 in FY15. This tends to suggest that companies are building their own capacities for implementation.

Health and sanitation, education and skill development, and rural development are the top three developmental areas for spends. The absolute amount of money contributed to PMs Relief Fund reduced by 25% to Rs 80.55 cr. Though the absolute amounts spent in incubation centres, protection of national heritage, and sports development, are small as compared to the top three areas, the percentage increases over the previous year are anywhere between 18 to 122%.

Out of the 32 industry categories, absolute spends have decreased in just two industries, viz., commercial services and supplies, and oil and gas. Big increases are reported in automobiles and auto components, consumer durables, metals and mining, financial services, pharma and biotech, telecom services and equipment, textiles, apparels and accessories, transportation, and utilities.

Naushad Forbes, President, CII said, n++this extensive and elaborate analysis of almost 1,300 companies is indicative of their commitment to directly contribute to development of hundreds of thousands of fellow citizens. Companies do good in myriad ways and companies should encourage contributions in unique and innovative areas. CSR is a matter of board-level accountability and the boards should be allowed the space to conduct their job without interference or influence from certain stakeholders that have tendencies to exploit CSR legislation for their narrow gains.

The purpose of CIIs Annual CSR Tracker has been for key stakeholders to reflect on yearly and inter-year performance of companies on CSR. In sum, FY16 has been a significant improvement on almost every aspect of CSR legislation. Some companies going beyond the legislative requirements. CESD projects that CSR spends will further increase in FY17, with a back-of-the envelope calculation of around Rs 10,000 cr. There should be improvements in quality of disclosures and more companies disclosing beneficiary data.

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World growth is projected to rise from 3.1 percent in 2016 to 3.5 percent in 2017 and 3.6 percent in 2018- World Economic Outlook (WEO)
Apr 19,2017

With buoyant financial markets and a long-awaited cyclical recovery in manufacturing and trade under way, world growth is projected to rise from 3.1 percent in 2016 to 3.5 percent in 2017 and 3.6 percent in 2018, slightly above the October 2016 World Economic Outlook (WEO) forecast. But binding structural impediments continue to hold back a stronger recovery, and the balance of risks remains tilted to the downside, especially over the medium term. With persistent structural problemsn++such as low productivity growth and high income inequalityn++pressures for inward-looking policies are increasing in advanced economies. These threaten global economic integration and the cooperative global economic order that has served the world economy, especially emerging market and developing economies, well. Against this backdrop, economic policies have an important role to play in staving off downside risks and securing the recovery.

On the domestic front, policies should aim to support demand and repair balance sheets where necessary and feasible; boost productivity, labor supply, and investment through structural reforms and supply-friendly fiscal measures; upgrade the public infrastructure; and support those displaced by structural transformations such as technological change and globalization. At the same time, credible strategies are needed in many countries to place public debt on a sustainable path. Adjusting to lower commodity revenues and addressing financial vulnerabilities remain key challenges for many emerging market and developing economies. A renewed multilateral effort is also needed to tackle common challenges in an integrated global economy.

The world economy gained speed in the fourth quarter of 2016 and the momentum is expected to persist. Global growth is projected to increase from an estimated 3.1 percent in 2016 to 3.5 percent in 2017 and 3.6 percent in 2018.

Activity is projected to pick up markedly in emerging market and developing economies because conditions in commodity exporters experiencing macroeconomic strains are gradually expected to improve, supported by the partial recovery in commodity prices, while growth is projected to remain strong in China and many other commodity importers. In advanced economies, the pickup is primarily driven by higher projected growth in the United States, where activity was held back in 2016 by inventory adjustment and weak investment.

Although changes to the global growth forecast for 2017 and 2018 since the October 2016 WEO are small, there have been meaningful changes to forecasts for country groups and individual countries. In line with stronger-than-expected momentum in the second half of 2016, the forecast envisages a stronger rebound in advanced economies. And while growth is still expected to pick up notably for the emerging market and developing economies group, weaker than-expected activity in some large countries has led to small downward revisions to the groups growth prospects for 2017.

n++ For advanced economies, projected growth has been revised upward in the United States, reflecting the assumed fiscal policy easing and an uptick in confidence, especially after the November elections, which, if it persists, will reinforce the cyclical momentum. The outlook has also improved for Europe and Japan based on a cyclical recovery in global manufacturing and trade that started in the second half of 2016.

n++ The downward revisions to growth forecasts for emerging market and developing economies result from a weaker outlook in several large economies, especially in Latin America and the Middle East, reflecting continued adjustment to the decline in their terms of trade in recent years, oil production cuts, and idiosyncratic factors. The 2017 and 2018 growth forecasts have been marked up for China, reflecting stronger-than-expected policy support, as well as for Russia, where activity appears to have bottomed out and higher oil prices bolster the recovery.

Since the U.S. election, expectations of looser fiscal policy in the United States have contributed to a stronger dollar and higher U.S. Treasury interest rates, pushing up yields elsewhere as well. Market sentiment has generally been strong, with notable gains in equity markets in both advanced and emerging market economies. Stronger activity and expectations of more robust global demand going forward, coupled with agreed restrictions on oil supply, have helped commodity prices recover from their troughs of early 2016.

Headline inflation has been picking up in advanced economies due to higher commodity prices, but core inflation dynamics remain subdued and heterogeneous (consistent with diversity in output gaps). Core inflation has improved little where it had been the weakest (for instance, in Japan and parts of the euro area). Headline inflation has also picked up in many emerging market and developing economies due to higher commodity prices, but in a number of cases it has receded as pass-through from the sharp currency depreciations in 2015 and early 2016 continues to fade.

Risks remain skewed to the downside, however, especially over the medium term, with pervasive uncertainty surrounding policies. Buoyant market sentiment implies that there is now more tangible upside potential for the near term, but in light of the sources of uncertainties discussed below, a sharp increase in risk aversion is possible. Risks to medium-term growth appear more clearly negative, also because policy support in the United States and China will have to be unwound or reversed down the road to avoid unsustainable fiscal dynamics. More generally, downside risks stem from several potential factors:

n++ An inward shift in policies, including toward protectionism, with lower global growth caused by reduced trade and cross-border investment flows

n++ A faster-than-expected pace of interest rate hikes in the United States, which could trigger a more rapid tightening in global financial conditions and a sharp dollar appreciation, with adverse repercussions for vulnerable economies

n++ An aggressive rollback of financial regulation, which could spur excessive risk taking and increase the likelihood of future financial crises

n++ Financial tightening in emerging market economies, made more likely by mounting vulnerabilities in Chinas financial system associated with fast credit growth and continued balance sheet weaknesses in other emerging market economies

n++ Adverse feedback loops among weak demand, low inflation, weak balance sheets, and anemic productivity growth in some advanced economies operating with high levels of excess capacity

n++ Noneconomic factors, including geopolitical tensions, domestic political discord, risks from weak governance and corruption, extreme weather events, and terrorism and security concerns

These risks are interconnected and can be mutually reinforcing. For example, an inward turn in policies could be associated with increased geopolitical tensions as well as with rising global risk aversion; noneconomic shocks can weigh directly on economic activity as well as harm confidence and market sentiment; and a faster-than-anticipated tightening of global financial conditions or a shift toward protectionism in advanced economies could exacerbate capital outflow pressures in China.

Policy choices will therefore be crucial in shaping the outlook and reducing risks. Priorities for macroeconomic demand management are increasingly differentiated, given the diversity in cyclical positions. In economies with slack and persistently weak core inflation, cyclical demand support remains necessary, including to stave off pernicious hysteresis effects. In economies where output is close to or above potential, fiscal policy should aim at strengthening safety nets and increasing potential output. At the same time, credible strategies are needed in many countries to place public debt on a sustainable path.

Global Economy Gaining Momentum-IMF
Apr 19,2017

Momentum in the global economy has been building since the middle of last year, allowing us to reaffirm our earlier forecasts of higher global growth this year and next, says International Monetary Fund (IMF). We project the world economy to grow at a pace of 3.5 percent in 2017, up from 3.1 percent last year, and 3.6 percent in 2018. Acceleration will be broad based across advanced, emerging, and low-income economies, building on gains we have seen in both manufacturing and trade.

Our new projection for 2017 in the April World Economic Outlook is marginally higher than what we expected in our last update. This improvement comes primarily from good economic news for Europe and Asia, as well as our continuing expectation for higher growth this year in the United States.

Despite these signs of strength, many other countries will continue to struggle this year with growth rates significantly below past readings. Commodity prices have firmed since early 2016, but at low levels, and many commodity exporters remain challenged - notably in the Middle East, Africa, and Latin America. At the same time, a combination of adverse weather conditions and civil unrest threaten several low-income countries with mass starvation. In Sub-Saharan Africa, income growth could fall slightly short of population growth, but not by nearly as much as last year.

Policy uncertainties and politics

Whether the current momentum will be sustained remains a question mark. There are clearly upside possibilities. Consumer and business confidence in advanced economies could rise further - though confidence indicators are already at relatively elevated levels. On the other hand, the world economy still faces headwinds. For one thing, trend productivity growth remains subdued across the world economy, for complex reasons that we have explored in a recent paper, and that seem likely to persist for some time. In addition, several prominent downside risks threaten our baseline forecast.

One set of uncertainties stems from macroeconomic policies in the two largest economies. The U.S. Federal Reserve has embarked on monetary normalization and may soon begin to scale back the size of its balance sheet. Given the faster U.S. recovery, we could see more upward pressure on the dollar, as interest-rate hikes are not yet imminent for the Bank of Japan and the European Central Bank. At the same time, however, U.S. fiscal policy still seems likely to turn more expansionary over the next couple of years. If the slack remaining in the U.S. economy is small, the result could be inflation and a faster than expected pace of interest rate rises, reinforcing dollar strength and possibly causing difficulties for emerging and some developing economiesn++especially those with dollar pegs or extensive dollar-denominated liabilities. Chinas desirable rebalancing process continues, as seen in a declining current account surplus and an increased GDP share of services, yet growth has remained reliant on domestic credit growth so rapid that it may cause financial stability problems down the road. These problems could, in turn, spill over to other countries.

Aside from the conjunctural policy uncertainties, a distinct set of threats comes from the growth in advanced economies of domestic political movements skeptical of international economic integrationn++no matter if integration is promoted through multilateral rules-based systems for the governance of trade, more ambitious regional arrangements such as the euro area and European Union, or globally agreed standards for financial regulation. A broad withdrawal from multilateralism could lead to such self-inflicted wounds as widespread protectionism or a competitive race to the bottom in financial oversight - a struggle of each against all that would leave all countries worse off.

There is no universal policy prescription for diverse economies at different conjunctural stages. Deflationary pressures have generally receded, but monetary accommodation should continue where inflation remains stubbornly below target levels. Growth-friendly fiscal measures, especially where there is fiscal space, can support demand where that is still needed and contribute to expanding supply and reducing external imbalances. All countries have opportunities for structural reforms that can raise potential output as well as resilience to shocks, although specific reform priorities differ across economies.

Avoiding the damage from protectionist measures will require a renewed multilateral commitment to support trade, paired with national initiatives that can help workers adversely affected by a range of structural economic transformations including those due to trade. Trade has been an engine of growth, promoting impressive per capita income gains and declines in poverty throughout the world, especially in poorer countries. But its benefits have not always been equally shared within countries, and political support for trade will continue to erode unless governments step up to invest in their workforces and aid the adjustment to dislocations. Another recent paper of ours, co-authored with the World Bank and the World Trade Organization, surveys possible policy approaches. Importantly, such measures not only support trade, they aid adjustment to a range of structural changesn++including those from rapid technology change. They can also raise potential output.

International cooperation key

International growth and stability rely on multilateral collaboration across a range of problems that spill over national borders--not just trade. The challenges include financial oversight, tax avoidance, climate, disease, refugee policy, and famine relief. Historically, inclusive cooperative approaches to interdependence have worked best. National policymakers, however, must do the hard work to ensure that the gains from harnessing interdependence, which are substantial, are broadly shared.

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Uttrakhand needs 4 lakh skilled workers in next five years: study
Apr 19,2017

Industries in Uttrakhand are grappling with huge shortage of skilled manpower and to meet the requirement ASSOCHAM-TARI study has recommended urgently a comprehensive training centres equipped with better infrastructure facilities for training so that in 5 years about 4 lakh workers are trained to give thrust to the industrialisation.

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) and Thought Arbitrage Research Institute (TARI) have jointly brought a Sustainable Action Plan for the new government.

During 2012-22, about 2.06 million jobs will be created whereas 2.53 million additional people will be added to the labour force. The paper further suggests the comprehensive training to youths for the primary sector like irrigation management, rainwater harvesting needed, noted the study.

The report further stressed that the skilling centres should be set up, like food processing in Rishikesh, handloom in Almora and tourism in Uttarkashi. n++Management Information System (MIS) should be designed to capture the requirement of skilled personnel at various levels in various districts in line with NSDC study/ recommendationsn++.

The state needs to build up a database for current level of migration, employment, agri processing industries, urban housing, telecom etc. There is a need for fresh policies in the areas of health, education, skilling and water management.

n++Collaboration between the state government and state universities, research institutes and public and private think tanks too is necessary for economic research and reworking of policy frameworksn++.

Higher growth has encouraged private sector participation and higher investment. In 2015-16, it received fresh investment of Rs 1.45 lakh crore with a growth rate of 23.7% over the previous year. Most of the investment has come into infrastructure, construction and real estate. The share of investment in infrastructure has increased from 11.8% in 2004-05 to 27.5% in 2015-16. Construction and real estate investment share increased from negligible in 2004-05 to 3.9% in 2015-16.

The industry sector is dominated by small scale industries (SSIs). During 2011-12 to 2014-15, SSIs grew by 18.5%. The sector comprises of floriculture, horticulture, agri/food processing, biotechnology and tourism and has been showing continuous improvement. However, the full potential of these industries has not been exploited due to various bottlenecks which have been addressed below.

The growth in the services sector is driven by tourism (depicted by trade, hotels and restaurants) which has the highest share in this sector. Its growth, in fact, accelerated during 2004-5 to 2014-15 and its share increased from around 34% in 2004-05 to 51% in 2014-15. Growth rate of this sector has been around 17%.

While addressing the press conference Mr. Jajodia said, n++A comprehensive policy of public private partnership (PPP) needs to be framed along the lines of Kerala, which has brought private investment and done wonders to promote tourismn++.

According to the ASSOCHAM paper, more investment is needed in building warehouses, cold storages and specialized transport vehicles for food processing industries. More private sector participation should be encouraged to build tourist infrastructure.

Lack of modern techniques and technologies, lack of high quality seeds for crops suitable for rain-fed and hill areas, small and fragmented land holdings, high taxes on purchase of food grains and lack of sufficient marketing facilities are hampering growth. The state needs to invest more in research and development of high quality seeds, application of new and innovative technologies and provide training to farmers. Village adoption programme which provides for farmers training and technological assistance in the plains should be expanded to hilly areas, added ASSOCHAM Chief.

The concept of cooperatives, contract farming, self-help groups and farmers organisation are helpful in addressing the problems arising out of small and fragmented land holding, like access to credit and innovative technologies.

The report said the industrial sector has done well, particularly the rural and small industrial units have grown by leaps and bounds and the sector now contributes around 40% to the GSDP - one of the highest in India. However, there is a huge potential for the expansion of agri-based industries which needs to be harnessed by improving marketing facilities and skilling. The ease of doing business ranking has improved but complex documentation, lack of IT-based tracking and monitoring of administrative clearances act as disincentives and need to be addressed.

Micro-credit institutions and SHGs need to be promoted to provide credit to women to set up their own small business in hill areas. To generate more employment in the informal sector, agriculture growth should be supported with storage, warehousing and marketing facilities and more emphasis should be put on vertical integration of labour intensive industries - like apparel industries should be motivated to integrate button and cuff making units etc. to generate employment in such micro sectors.

The state should make efforts to promote other forms like adventure and eco-tourism by setting safety standards for adventure sports and implementing and expanding the scope of Uttarkhand Homestay Agenda for Uttarakhand Government 2017 Policy formulated. The state also needs to provide skilling in foreign languages as the inflow foreign tourists has been steadily going up.

The states Char Dhaam highway connectivity is a good model to follow in the rest of the hill areas. Power supply in hills is particularly worrisome as it is skewed in favour of the plains. AT&C losses are high. Efforts should be made in setting up small, mini and micro hydropower generation plants and revival of 15,000 water mills lying defunct. Besides, electricity generation through pine gasification is still in the pipeline.

Financial inclusion needs to be strengthened to overcome regional disparities and low index of financial inclusion. The state would do well to take advantage of the central government sponsored slum redevelopment and urban renewal programmes to overcome such problems. The state needs to launch a full-fledged programme of training local bodies to make city sanitation and promote MFIs and Business Correspondents (BCs) to take financial inclusion to remote areas.

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Indian Nutraceuticals industry to touch US$ 8.5 billion by 2022: study
Apr 19,2017

Indian nutraceuticals market is expected to cross from a value of US$ 2.8 Billion in 2015 to a value of US$ 8.5 Billion by 2022, according to the joint study brought out by ASSOCHAM and RNCOS.

In 2015, India accounted for a share of around 2% of the global market. By 2022, this share is anticipated to increase to a value of approximately 3% owing to countrys large population base, increasing urban belt and awareness, according to a study on Indian Nutraceuticals, Herbals, and Functional Foods Industry, jointly conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) and RNCOS.

The overall market is classified into Dietary Supplements and Functional Food & Beverages, with the former estimated to occupy the larger chunk of around 65% in 2015. Functional food & beverages are expected to grow with a higher growth rate. This is due to the increasing visibility of such products in modern retail formats and promotional activities through TV advertisements.

In 2015, the Indian dietary supplements market was valued at US$ 1.8 Billion. However, with growing awareness, number of people opting for dietary supplements on their own has also increased. Higher purchasing power has prompted Indians to be more health conscious and adopt a healthy diet routine completed with consumption of nutritional supplements, said Mr. D S Rawat, Secretary General ASSOCHAM.

The demand for the vitamin and mineral supplements may increase in the future due to the unhealthy eating habits and stress in daily lifestyle. People may benefit from the extra nutrients found in these supplements. A multivitamin and mineral supplement will help in safeguarding against periodic nutrient shortfalls in the diet. Due to these reasons the vitamin and mineral market in India is anticipated to grow in the coming years and reach a value of US$ 2.1 Billion by 2022, adds the study.

Herbal supplements are type of dietary supplements that contain herbs plant or parts of a plant. These plants or plant parts are used for their scent, flavour or potential therapeutic properties. The flowers, leaves, bark, fruit, seeds, stems, and roots of a plant are used either singly or in mixtures. However, some herbs can cause serious health issues if they are not taken without prior consultation. Therefore, it is best to take herbal supplements under the guidance of a medical professional.

In 2015, the market for herbal supplements was at an approximate value of US$ 0.6 Billion in India. Owing to their natural ingredients and popularity among people, this market is forecasted to reach a value of US$ 1.7 Billion by 2022, noted the study.

Functional foods and beverages market in India has strengthened itself, fostered by its rising penetration amongst health conscious people in the country. Functional foods include food products such as functional biscuits, breads, cereals, vegetable oil, nutrition bars, yogurt and others. Functional beverages include functional fruits juices, milk, tea, coffees, and energy drinks. Rising knowledge about wellness and health along with inclining expenditure on food has increased the number of consumers accepting functional foods & beverages. This is propelling the growth of the functional foods and beverages market to reach a value of US$ 3.2 Billion by 2022.

Additionally, protein drinks have also showcased an increasing demand from a segment of people searching for weight management solutions while maintaining a sound lifestyle. Functional teas and coffees are slowly capturing the demand in the country.

The Indian Functional Foods and Beverages market can be segmented into Functional Foods Market and Functional Beverages Market. Among the two, functional foods occupy the major share of 70%. However, convenience, availability of innovative products and health benefits associated with functional beverages are the leading factors influencing the growth of this market.

Functional foods are food products that consist of vital nutrients that go beyond simply nurturing usual growth and development of an individual. These food products are fortified with nutritional and disease preventing qualities. The consumption of such food is done with an intention towards improved wellbeing, prolonged existence and prevention of chronic diseases. The functional foods available in the market include the likes of oats, soy, flaxseed, nutrition bars, probiotic yogurt, fortified baked goods, and fortified edible oils. The market for functional foods was valued at US$ 0.7 Billion in 2015. This market is forecasted to grow to an approximate value of US$ 2 Billion by 2022 owing to the increasing health consciousness of people and their awareness about availability of such products.

A functional beverage is an emerging segment of the Indian nutraceuticals industry that was valued at US$ 0.3 Billion in 2015. Functional beverages, like Yakult, Ocean, Gatorade, are available in the form of energy drinks, vitamin water, fortified milk and buttermilk, and enhanced iced tea, among others. Various companies, including Danone, Dabur, PepsiCo, Coca-Cola, Amul, Britannia and Rasna, are introducing innovative beverages with enhanced nutritional value in order to woo the health conscious Indian consumers. The market for this type of beverages is forecasted to reach an approximate value of US$ 1.1 Billion by 2022. This exponential growth will be majorly due to the erratic eating habits of people and their efforts to make-up for the lost nutrients with the help of these easy-to-consume fortified beverages.

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Monsoon Seasonal Rainfall likely to be 96% of the Long Period Average
Apr 18,2017

The first stage forecastn++ of Southwest monsoon seasonal rainfall was issued by Indian Meteorological Department(IMD) in New Delhi today.n++ IMD has forecast that quantitatively, the monsoon seasonal rainfall is likely to be 96% of the Long Period Average (LPA) with an error of n++ 5%. Forecast assessment suggests 38% of probability for near normal monsoon rainfall.

n++IMD issues various monthly and seasonal forecasts of rainfall for the southwest monsoon season (June to September). Operational forecasts for the southwest monsoon season rainfall are issued in two stages. The first stage forecast has been issued today and the second stage forecast will be issued in June. These forecasts are prepared using state-of-the-art Statistical Ensemble Forecasting system (SEFS) that is critically reviewed and improved regularly through in-house research activities. Since 2012, IMD has been using the dynamical global climate forecasting system (CFS) model, which was developed under the Monsoon Mission. The original coupled ocean-atmospheric model framework of CFS was adopted from the National Centres for Environmental Prediction (NCEP), USA. The CFS model was further modified to provide improved rainfall forecasts over the Indian monsoon region through research efforts taken up under the Monsoon Mission.

The forecast for 2017 southwest monsoon rainfall over the country as a whole based on both the SEFS and the Monsoon Mission Climate Forecasting System (MMCFS) are as follows. IMDs SEFS model for the April forecast uses the following 5 predictors that require data monitored up to March.

S. NoPredictorPeriod1

Then++ Sea Surface Temperature (SST) Gradient

December + January

between North Atlantic andn++ North Pacific2

Equatorial South Indian Ocean SST



East Asia Mean Sea Level Pressure

February + March


Northwest Europe Land Surface Air Temperature



Equatorial Pacific Warm Water Volume

February + March

Sea Surface Temperature (SST) Conditions in the equatorial Pacific & Indian Ocean

The weak La Nina conditions developed in the later part of the last monsoon season peaked in December 2016 and started weakening thereafter. Currently, neutral conditions are prevailing over the equatorial Pacific. The atmospheric conditions over the Pacific also reflect neutral El Nino conditions. The latest forecast from MMCFS indicates weak El Nino conditions to develop during the latter part of the monsoon season. However, there is no one to one relationship between El Nino and Indian Monsoon. For example, during 34% of El Nino years, monsoon season rainfall was normal or above normal.

At present, neutral Indian Ocean Dipole (IOD) conditions are prevailing over the Indian Ocean. The latest forecast from the MMCFS indicates weak positive IOD conditions are likely to develop during the middle of the monsoon season and to persist for some more months subsequently. Positive IOD conditions are likely to be favourable for a normal/above normal monsoon.

As the extreme sea surface temperature conditions over the Pacific particularly El Nino conditions over the Pacific (El Nino or La Nina) and positive IOD development over the equatorial Indian Ocean are known to have strong influence on the Indian summer monsoon, IMD is carefully monitoring the sea surface conditions over the Pacific and Indian oceans.

Forecast For the 2017 Southwest monsoon Season (June - Season) rainfall over the Country as a whole n++

n++ n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++ Monsoon Mission Coupled Forecasting System (MMCFS) based Assessment

For generating the forecast for the 2017 southwest Monsoon season rainfall, atmospheric and oceanic initial conditions during March 2017 were used. The forecast was computed as the average of the 44 ensemble members. The forecast based on the MMCFS suggests that the monsoon rainfall during the 2017 monsoon season (June to September) averaged over the country as a whole is likely to be 96% n++ 5%of the Long Period Average (LPA).

n++ n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++ Forecast Based on the Operational Statistical Ensemble Forecasting System (SEFS)

Quantitatively, the monsoon seasonal rainfall is likely to be 96% of the Long Period Average (LPA) with a model error of n++ 5%. Further, forecasts for the seasonal rainfall for the country suggest 38% probability for near normal rainfall scenario.

Summary of the Forecast for the 2017 southwest monsoon Rainfall

1. n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++ Quantitatively, the monsoon seasonal rainfall is likely to be 96% of the Long Period Average (LPA) with an error of n++ 5%.

2. n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++n++ Forecast assessment suggests 38% of probability for near normal monsoon rainfall

IMD will issue the update forecasts in early June, 2017as a part of the second stage long range forecast of monsoon rainfall. Along with the update forecast, separate forecasts for the monthly (July and August) rainfall over the country as a whole and seasonal (June-September) rainfall over various geographical regions of India will also be issued. By that time, more information on the evolution of El Nino and IOD will be available.

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Electronic Interlocking - Yard Remodeling commissioned in record time of only 150 minutes
Apr 18,2017

In a significant move for high tech infrastructure with the view to improve mobility in train operations on the busiest route of Delhi Howrah section of Indian Railway network, Electronic Interlocking & massive Yard Remodeling has been commissioned at Dadri Railway Station in Uttar Pradesh which falls under Allahabad Division of North Central Railway. This project is part of ongoing process of modernization of Indian Railway network.

This Electronic Interlocking involves 318 routes adopting most Modern Signalling System with Centralized Operation controlling 45 Signals, 74 Points and 176 Track Circuits with massive yard remodeling. The another significant point is that this work has been commissioned in record time of only 150 minutes on 16th April 2017.

Dadri is a complex yard in North Central Railway spread over six kilometers on busiest route of Delhi-Howrah Section of Indian Railways and also having connectivity with National Thermal Power Corporation Power Plant and Container Depot.

With Commissioning of this, 3rd line between Aligarh-Ghaziabad section is made through Dadri Yard improving mobility in train operation which was earlier not available. This has also facilitated extension of platform No. 1, 2 & 3 and addition of new platform No. 4 at Dadri Station. All these four platforms have also been connected with new foot over bridge improving passenger amenity facilities at this station.

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Ind-Ra: Debt Funding of Dividends to Reduce by A Third to INR58 billion
Apr 18,2017

India Ratings and Research (Ind-Ra) estimates that the funding of corporate dividends by external borrowings is on a declining trend because of improving profitability. The debt component of dividend funding is likely to reduce to around INR58 billion each year during FY17-FY18 from the average INR90 billion observed between FY14-FY16. Ind-Ras sectoral projections, which are a combination of its own forecasts and Bloomberg estimates for various sectors, point towards a continued improvement in the profitability in FY17 and FY18. However, this is under the assumption that debt reduction remains minimal and continues to get refinanced.

Category A companies (entities having free cash flow to the firm (FCFF)> dividends), which had followed a growth strategy between FY10-FY13, have moved towards a higher dividend payout strategy. The absolute dividend of these companies grew at a faster rate of 21% (CAGR) during FY10-FY16 in relation to the 6% CAGR observed in FCFF. These corporates have resorted to higher payout on the back of steady cash accruals coupled with limited incremental revenue visibility thus limiting further capex. Ind-Ra expects the pace of dividend payout to pick up in FY18 for Category A companies, averaging 40% payout compared to the 23% witnessed during FY10-FY16.

Ind-Ra observes that the dividends paid by Category C companies (entities whose dividends are 100% debt-funded) increased at an 11% CAGR between FY10-FY16. This is a measure possibly taken by the companies to recoup market cap - which has increased 2% despite negative FCFF since 2012. Similarly, Category B companies (entities whose dividends partly debt-funded) witnessed a 5 % CAGR increase in absolute dividends despite a negative 21% CAGR in FCFF. This appears to have aided the market cap to increase by 4%.

Ind-Ra believes that market value of few weak corporates has remained unchanged despite a sharp deterioration in their credit profiles over the years. Ind-Ra believes that the market value of these corporates may not be reflecting the true picture unless it is cyclical, and hence may be overpriced. Banks and financial institutions, therefore, need to be cautious in pricing their products that are linked to the market value of such corporates.

According to Ind-Ras analysis, capital-intensive sectors have hitherto accounted for 73% of the debt-funded dividends paid by Indian corporates between FY10-FY16 and the trend is likely to continue in FY17-FY18. While the composition of such companies in the auto, telecom, infrastructure, power, and real estate sectors is likely to increase to 77% by FY18 from 42% during FY10-FY16, the likely improved profitability of metals and mining sector, as reflected in 9MFY17 financials, could lead to a significant decline in the debt-funded dividends to 1.4% by FY18 from 44% in FY16.

The quantum of the dividends paid in FY16 for each of the 65 dividend-paying companies (accounting for close to 89% of total dividend paid) increased with an increase in promoter shareholding, despite a fall in the profitability.

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SC Setting Aside Compensator Tariff to Lead to Continuous Higher Under-Recoveries at Coastal Gujarat Power, Reduces Rating Headroom for Tata Power Co.
Apr 18,2017

The Supreme Courts recent order to not allow the Compensatory Tariff to Coastal Gujarat Power (CGPL), a wholly owned subsidiary of Tata Power Company (TPCL: IND AA/Stable), will result in continuous under-recoveries of fuel cost at CGPL of around INR10 billion for coal prices at USD60 MT (FoB), says India Ratings and Research (Ind-Ra). Ind-Ra believes that TPCL at a consolidated level has a natural hedge to an extent from the increase in coal prices due to its 30% stake in the Indonesian coal mines.

Ind-Ra highlighted that while an increase in international coal prices will adversely impact CGPLs profitability, it will help improve the profitability of TPCLs Indonesian coal mines. Thus, TPCL enjoys a commodity price hedge at the consolidated level, if not exactly as a cash flow hedge for the operating losses at CGPL.

Ind-Ra notes that post the sale of Arutmin mines, TPCLs 30% stake in Kaltim Prima Coal (KPC) with an annual production run rate of 55mmtpa, would be equivalent of effective 16.5mmtpa coal production per annum, which is higher than the annual coal requirement of 10.15mmtpa of CGPL for it to achieve a plant load factor of 73%. And thus, TPCL would still have net long positions on coal. Since Indonesian coal mining is subject to royalty payment of 13.5% on FoB value, as long as each dollar increase in realisation of coal price net of royalty is captured in improving gross profit of the mining business, TPCL profitability would be positively impacted at consolidated level (excluding the tax implication at Indonesian mine company).

Ind-Ra, notes that if 36% of each dollar increase in coal realisation is translated into higher mining gross profit, TPCL would be hedged to coal price increases at a consolidated level. In the 3QFY17 analyst presentation, TPCL reported USD11.86/MTqoq improvement in coal realisation, while the cost of goods sold increased by USD5.70/MT, and thus gross profit improved by USD 6.16/MT (52% of increase in realisation).

Ind-Ra had highlighted in February 2017 that Compensatory Tariff as announced by CERC, provides a cushion to CGPLs earnings. And thus, now there is limited headroom for TPCLs current rating of IND AA. Thus Ind-Ra believes it is imperative for TPCL to deleverage, based on the other announced measures, such as the sale of non-core assets and other means of equity raising.

TPCL is exploring all possible options to reduce the under-recovery at its CGPL plant, including sourcing of competitive coal and use of low grade and blended coal options.

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Ind-Ra: Linkages with Parent - Vodafone Group Plc May Moderate Post Vodafone-Idea Merger
Apr 18,2017

The operational and strategic linkages between Vodafone Mobile Services Limited (VMSL; IND AAA/RWE) and its parent - Vodafone Group Plc (Fitch Ratings Ltd; Issuer Default Rating: BBB+/Stable) may moderate post the merger of VMSL and Idea Cellular Ltd (Idea), says India Ratings and Research (Ind-Ra). Last month, Idea and Vodafone Group Plc announced the amalgamation of Idea and Vodafone Group Plcs Indian operations, excluding its investment in Indus Tower.

Ind-Ra is in the process of assessing the benefits of the synergy and the revised business and financial profile to arrive at the standalone assessment of the merged entity. While evaluating the standalone profile of the merged entity, Ind-Ra will factor-in the inherent risk of the industry, such as capital intensive, intense competition, technology and regulatory changes.

The agency is evaluating the standalone credit profile of the merged entity, and is in talks with the management to assess the timing and the likely synergies of the deal. The agency is likely to complete its assessment over the next few weeks. On 7 February 2017 n++India Ratings Placed Vodafone Mobile Services and its NCDs on RWEn++. Ind-Ra placed VMSLs ratings on RWE awaiting further clarity on the post-merger shareholding structure, group structure, operational and management control and the likely impact on its credit profile.

As per the contours of the announced deal, Vodafone Group will jointly own and manage the merged entity along with the promoters of Idea Cellular. Immediately post the all share deal, Vodafone group will sell 4.9% stake to the promoters of Idea (Aditya Birla Group; AB Group) to bring the shareholding to 45.1% from 50%. The amalgamation scheme provides for a mechanism to equalise the shareholding between Vodafone and the promoters of Idea. Until, the shareholding is equalised, both will have equal voting rights.

The scheme also provides a right to AB Group to buy additional 9.5% from Vodafone Group over the next four years after completion of the amalgamation. It provides for Vodafone to offload surplus shareholding in the market over five years after the completion of four years from the amalgamation date to bring its shareholding at par with the AB Group.

Both the JV partners will have rights to appoint three directors each, while AB Group will have the rights to appoint the chairman and Vodafone Group will have rights to appoint the CFO. CEO and COO would be selected jointly on the best person for the role principle.

The scheme is subject to shareholders, creditors, lenders and regulatory approvals, and is envisaged to be completed within a period of two years from the announcement date.

While assigning the rating to Vodafone Mobile Services Ltd, Ind-Ra had taken a top-down rating approach, on the back of the strong strategic linkages and moderate-to-strong operational linkages Vodafone India had with its parent - Vodafone Group Plc.

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Tickets booked across reserved ticket booking window can be cancelled through IRCTC website or through 139
Apr 18,2017

In an endeavor to provide smooth travel experience to the railway travelers, Indian Railways have taken various initiatives for improved passenger experience. Considering the peak season during summers, Indian Railways is poised to offer convenient travel to the passengers without upsetting their plans. To ensure optimal utilization of available accommodation, following initiatives have been undertaken by Indian Railways:-

i) Finalization of first reservation chart at least 4 hours before the scheduled departure of the train.

ii) After preparation of first reservation chart, current ticket booking facility provided through any reserved ticket booking window as well as on internet till preparation of second reservation chart.

iii) Transfer of vacant available accommodation after preparation of second reservation chart to next remote location.

iv) Following facilities are also provided online through IRCTC website:

a) Waitlisted passengers given the option of accommodation in any other train without payment of any difference of fare or grant of refund thereon under VIKALP scheme. This facility can also be availed for e tickets booked prior to 01.04.2017

b) Tickets booked across reserved ticket booking window can be cancelled through IRCTC website or through 139.

c) In case of e tickets, boarding points can be changed through IRCTC website at least 24 hours before the scheduled departure of the train.

d) The facility of online booking of wheel chair provided free of cost to passengers.

e) The facility of online booking of retiring rooms through IRCTC website has been introduced.

f) Disposable bedrolls can be purchased through IRCTC website.

g) E Catering introduced to increase food options available with passengers.

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Fitch Assigns HPCL-Mittal Energy BB IDR, Rates Proposed USD Notes
Apr 18,2017

Fitch Ratings has assigned India-based HPCL-Mittal Energy Limited (HMEL) a Long-Term Issuer Default Rating (IDR) of BB. The Outlook is Stable. The agency has also assigned HMELs proposed senior unsecured US dollar notes an expected rating of BB-(EXP).

The final ratings on the notes are contingent upon the receipt of documents conforming to information already received.

Fitch assesses HMELs standalone credit profile at BB-, reflecting its robust refining operations supported by its highly complex refinery, strong profitability and expectations of high leverage on account of the large capex plans for its proposed petrochemical expansion. The IDR of BB benefits from a one-notch uplift for its parent - Hindustan Petroleum Corporation Limited (HPCL, BBB-/Stable) - given the moderate linkages. HMELs IDR will benefit from an additional notch uplift in the case of any weakening of its standalone credit profile below the current level of BB-, provided its linkages with HPCL remain intact.


Strong Refining Operations: HMELs refining operations are supported by its robust asset quality. Its refinery is highly complex (Nelson Complexity Index of 12.6), which enables the company to optimise its crude diet and supports strong margins. HMELs utilisation rate has also been high (year ending March 2016 (FY16): 119%) with a throughput of 10.7 million metric tonnes per annum (mmtpa) - given the strong demand-supply dynamics in north India, where the refinery is located.

HMEL expects to complete its refinery expansion to 11.3 mmtpa (from 9 mmtpa) during 1HFY18. We expect margins to benefit from higher volumes, an improved product slate, ability to process acidic crude oils, and cheaper fuel alternatives in the near to medium term. HMEL also benefits from its take-or-pay agreement with HPCL for its liquid hydrocarbon production (about 75% of total), and also incentives from the state of Punjab.

Locational Benefit, Strong Profitability: HMELs refinery-utilisation rate benefits from the strong demand for petroleum products in India - and particularly in the north. HMELs land-locked refinery benefits from the favourable demand-supply dynamics in the region and minimal competition. This is likely to result in utilisation rates remaining high (FY16: 119%) over the medium term. The off-take agreement with HPCL for its liquid hydrocarbon further minimises the off-take risk and supports the high utilisation rates. The company also has a strong marketing infrastructure for its solid products, including polypropylene, which is likely to support its enhanced downstream operations following completion of its planned petrochemical expansion.

Large Capex Plans: HMEL plans to improve its downstream integration by setting up a petrochemical plant. The company estimates to spend around INR215 billion over the next five years starting in FY18. Increasing downstream integration should benefit HMEL in the long-term as a result of the petrochemical expansion. However, we expect HMELs FCF to be negative over the medium term on account of the high capex; HMEL is likely to fund its capex partly from its operating cash flows and balance with debt.

Leverage to Rise: FCF turning negative after FY18 and the long lead time to revenue generation (after FY22) leads us to expect net leverage (net adjusted debt/ operating EBITDAR) to rise and remain between 4x-5x over the medium term. This may stay temporarily above our downward net leverage guideline of 5x over FY21-FY22 just before the completion of the petrochemical capex. Fitch takes a positive view of the take-or-pay off-take agreement with HPCL, which provides minimum payments to cover HMELs debt obligations and ensures that the debt service coverage ratio (DSCR) is always maintained at or above 1.0x. However, net leverage is likely to improve once the petrochemical project starts operations, expected in FY23.

Uplift for Parent Support: HMEL benefits from a two-notch uplift from its standalone credit profile, to reflect moderate linkages with its 49% parent - HPCL - as assessed under Fitchs Parent Subsidiary Rating Linkage Criteria. HMELs IDR of BB includes a one-notch uplift, while its IDR will benefit from one more notch in the case of any weakening of its standalone credit profile below the current level of BB- - provided these linkages with HPCL remain intact. Similarly, HMELs IDR will also benefit from one more notch in the case of any improvement in HPCLs standalone profile - again, provided the linkages with HPCL remain intact.

These linkages factor in HMELs strategic importance and operational linkages with HPCL. HPCL has a product off-take agreement with HMEL (valid until 2026) to buy all liquid products of HMEL, which also supports its debt-servicing capacity. Liquid products constituted over 75% of HMEL total output and about 80% of HMELs revenues in FY16. HMELs capacity will constitute over 40% of HPCLs total refining capacity, after expansion, to 11.3 mtpa. HMEL is also accorded first priority by HPCL for sourcing its product requirement in north India - where it is its only refinery.

Notching for Secured Debt: Fitch has rated HMELs proposed senior unsecured debt one notch below its IDR, due to the high proportion of secured debt in its capital structure. Secured debt comprised nearly 88% of HMELs total consolidated debt as of FYE16. The proportion of HMELs secured debt is likely to come down after the proposed US dollar note issuance. However, we expect HMELs secured debt/EBITDA to remain above 2.5x over the medium term, resulting in the notching.


[HMELs IDR of BB includes one notch uplift for linkages with its parent - Hindustan Petroleum Corporation Limited (HPCL, BBB-/ Stable). HMEL ratings will benefit from one more notch in the case of any weakening in its standalone credit profile - provided the linkages with HPCL remain intact. HMELs standalone credit profile of BB- reflects its strong refining asset quality which is likely to drive its strong cash flows and expectations of high leverage, in light of its large capex. HMELs standalone credit profile of BB- is one notch higher than that of Swedens Corral Petroleum Holdings AB (CPH, B+/ Stable), due to HMELs better asset quality, stronger profitability and presence in the high-growth Indian market. CPH has larger scale and some integration into fuel retailing, while its ratings are constrained by its presence in the mature European market with expected excess refining capacity, a structural decline in fuel consumption, stiff competition and high leverage despite manageable capex. Indian Oil Corporation Ltds (IOC, BBB-/ Stable) large scale, dominant position as the largest refiner and fuel retailer in India, integration into fuel-retailing and petrochemicals, average asset quality and relatively better financial profile explain the two-notch differential with IOCs standalone credit profile of BB+. IOCs IDR is equalised with that of the sovereign (BBB-/ Stable), die to the strong linkages.]


Fitchs key assumptions within our rating case for the issuer include:

- Crude oil price (Brent) of USD52.5 per barrel (bbl) in FY18, USD55/ bbl in FY19 and USD60/ bbl in FY20, in line with Fitchs crude oil price deck

- Moderation in the industry-wide gross refining margins, though remaining strong.

- Refinery throughput of 11 mmtpa in FY18, 12.3 mmtpa in FY19 and 11.7 mmtpa in FY20.

- Capex of over INR80 billion during the next three years starting FY18.


Future Developments That May, Individually or Collectively, Lead to Positive Rating Action

- Any improvement in HPCLs standalone credit profile, provided the linkages remain intact

- We do not expect any positive action on HMELs standalone rating over the next medium term, given the expectations of increasing leverage on account of the large capex.

Future Developments That May, Individually or Collectively, Lead toNeg

Fitch: Waiver Scheme May Raise Indian Tractor Loan Delinquencies
Apr 18,2017

Delinquencies on tractor loans could rise in several Indian states as a result of political pressure for farmers to be granted waivers on agricultural loans, says Fitch Ratings. Media reports that farmers loans may be waived are likely to create moral hazard and credit discipline issues, given that there will be an incentive for farmers to skip loan repayments pending greater clarity on the potential policy. However, the negative impact of any potential rise in tractor loan delinquencies on Fitch-rated ABS transactions is likely to be minimal, given the low exposure.

The newly elected Uttar Pradesh (UP) state government has already announced farm loan waivers, with a cap of INR100,000 per farmer, for small and marginal farmers. Tractor loans were not included, but farmers may expect this position to change in future announcements. Moreover, there is a lack of clarity over whether tractor loans will be included in potential loan-waiver programmes in Maharashtra, Punjab and Haryana. These four states account for around 30% of Indias population.

We would expect the delinquency rate on agricultural loans to take several months to return to normal following the announcement of policy details. The crop season is currently in its harvesting period in most parts of India, a time when most farmers earn the bulk of their income. If the farmers postpone loan repayments and use the money earned elsewhere, it could take at least until the next harvest in six months time to cure delinquencies.

The introduction of government support might help cure delinquencies faster, but only if state governments compensate lenders quickly - which is unlikely, given the usually slow workings of state bureaucracy. A compensation timeline for UP states farm loan-waiver programme is yet to be announced. Servicers effective collection practices and customer-education programmes could, however, help to contain the potential rise in delinquencies.

Indian ABS transactions are unlikely to be significantly affected, even if tractor loan delinquencies do rise. We do not expect any significant stress or rating impact and we have a stable rating outlook on these transactions.

Tractor loans accounted for a relatively significant 10%-21% of the securitised pool in six of the 21 Fitch-rated ABS transactions, as per their original pool characteristics. They accounted for 5%-10% in another 11 transactions. However, the maximum exposure to tractor loans from these four states was 3% among the securitised pools.

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Ind-Ra: Fall in Operating Performance of Weak Entities to Drag Down Overall EBITDA Recovery in FY18
Apr 18,2017

India Ratings and Research (Ind-Ra) does not expect a broad-based recovery in FY18, given decelerating EBITDA growth of corporates with weak operating performance. Corporates with strong financial profiles are likely to witness a marginal positive EBITDA growth in FY18 (9MFY17: 6%; FY16: 8%) compared with corporates with weak financial profiles (EBITDA growth: 9MFY17: negative 19%; FY16: negative 22%), which are likely to witness a significant decline in EBITDA growth in FY18.

EBITDA Growth of Top 365 Corporate Borrowers in FY18

Ind-Ra expects FY18 earnings (EBITDA) growth of the top 365 corporate borrowers (excluding public sector units and banking and financial services providers) to be 9%-12%, driven by a slow but improving consumption and a recovery in exports. The level would be the highest since FY15 (8%). Therefore, the number of corporates showing an improvement in operating performance is likely to be higher than that in FY17. Ind-Ra expects FY17 EBITDA growth to be lower than the previously estimated 5%-6% owing to demonetisation in 4QFY17. However, the impact of demonetisation is likely to be transitory on the FY18 corporate performance.

Sectoral Outlook Indicates Divergent EBITDA Growth

Ind-Ras expectation for FY18 remains in line with the FY17 trend. The agency expects the EBITDA growth of capital-intensive- and commodity-linked sectors, including infrastructure and power, to decelerate in FY18.

The steel sector registered positive EBITDA growth for 9MFY17, driven by an increase in commodity prices and base effect. Ind-Ra expects the steel sectors profitability in FY18 to remain under pressure, as companies ability to fully pass input prices to customers would be limited owing to muted demand and overcapacity.

Meanwhile, the telecom sector registered flat EBITDA growth for 9MFY17. Ind-Ra expects the sectors EBITDA growth to decelerate in FY18. Ind-Ra has a negative outlook for the telecom, steel, power and infrastructure sectors for FY18.

In the oil and gas sector, downstream companies could witness a moderation in EBITDA margin in FY18 on an increase in crude prices. On the other hand, upstream companies are likely to benefit from benign prices. However, the agency expects consumption- and export-driven sectors such as pharmaceutical to register positive EBITDA growth for FY18.

The auto sectors EBITDA growth in FY18 is likely to moderate. Meanwhile, automotive suppliers are likely to benefit from an increase in commodity prices and an improvement in exports. Ind-Ra has a stable outlook for the auto and automotive supplier, oil and gas, and pharmaceutical sectors for FY18.

Divergent EBITDA Growth Trend Reflected in Rating Categories

EBITDA growth decelerated across the rating categories. However, it remained positive for the majority of investment-grade issuers (rating scale of IND BBB- and above) in 9MFY17. Nearly 70% of the total number of investment-grade registered positive EBITDA growth over FY14-9MFY17. On the other hand, a large number of non-investment grade issuers (rating scale of IND BB+ and below) registered negative EBITDA growth in at least three of the last six years. Nearly 60% of the total number of non-investment grade issuers recorded a negative EBITDA growth over FY14-9MFY17. Thus, any meaningful recovery would be conditional on a strong economic recovery or structural changes such as consolidation, deleveraging and non-performing asset resolution.

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Ind-Ra: Northern Millers to Perform Better than Southern Counterparts
Apr 18,2017

India Ratings and Research (Ind-Ra) has assigned a stable outlook on the sugar sector for FY18 as the agency believes that production recovery in sugar season October 2017 to September 2018 (SS18) is likely to constrain any further increase in the commodity price from 1HSS18 (October 2017-December 2017). With average domestic sugar price expectation of INR37-40/kg (6% higher than expected FY17 prices) in FY18, high cane procurement costs are likely to constrain EBIDTA below FY17 levels. This is likely to result in credit profiles of sugar companies remaining largely similar or marginally worse-off than FY17.

Industry reports estimate that global sugar deficit is likely to contract in SS18 with India registering production of 25 million metric tons, amid improving acreage levels in Maharashtra and Karnataka. The stock-to-use ratio for SS18 is likely to improve to 14.7%, following an anticipated decline to 13.7% in SS17 (October 2016 to September 2017) and 28.3% in SS16. In the agencys assessment, lucrative cane prices and normal monsoons would drive production gains in the country.

Ind-Ra expects UP-based millers to fare better than their southern and western counterparts, despite assuming a higher cane costs (10% yoy increase in state advisory prices for SS18). Ind-Ra expects the profitability of UP-based sugar companies to be 10%-15% lower in FY18 than the estimated FY17 level, due to higher cane costs (premium over and above state-advised price to farmers). In the absence of major working capital changes and capex plans, the credit metrics for FY18 for UP-based millers is likely to maintain or improve from estimated FY17 level.

Ind-Ra expects millers to produce higher distillery volumes in SS18. The ability to divert the same towards ethanol, and the consequent achievement of a higher blending rate for FY18 would largely depend on the pricing of alternative fuels.

Outlook Sensitivities

Recovery in Sugar Cycle: Higher-than-anticipated global sugar production due to sharp production recovery levels at end-SS18 may rapidly transform the current scenario to a high surplus one. In such an event, sugar prices could be under pressure resulting in lower margins thereby impacting credit profile of sugar companies.

Favourable Policy Changes: Pan-India changes in the regulatory policies i.e., linking of raw material cost (cane prices) to the sugar and by-products realisations would help millers gain better control over their profitability and balance sheets. This is because the profitability would depend on individual operational efficiencies, thus positively impacting their credit profile.

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