IIP Update March 2013 | Economy

May 10, 2013

IIP Update March 2013

Industrial growth in line with market expectations
Key highlights

Bhupali Gursale
022-3935 7800 Ext: 6820 bhupali.gursale@angelbroking.com

As per Quick Estimates on the Index of Industrial Production (IIP), industrial growth in March 2013 improved to 2.5% yoy, in line with market expectations.

It compares positively to a marginal 0.6% yoy growth in February 2013 and 2.8% yoy de-growth in March 2012 owing to growth in consumer non-durables and capital goods segments.

Overall during FY2013, the index decelerated and reported a shallow 1.0% growth as compared to 2.9% growth in FY2012 and a more robust 8.2% growth in FY2011 on account of broad-based slowdown amongst its components.

Growth in eight core industries (37.9% weightage in the index) recovered sharply to 2.9% in March 2013, having witnessed a decline of 2.4% in the previous month.

Performance on Sector-wise classification

The Manufacturing sector continued to support IIP growth for the third straight month. It reported a 3.2% yoy growth as compared to a 3.6% decline in growth in the corresponding period of the previous year. The Electricity sector reported a 3.5% yoy growth after posting a 3.2% yoy decline in the previous month. But for FY2013 as a whole, growth more than halved for the Manufacturing as well as the Electricity sector at 1.2% yoy (as against 3.0% yoy in FY2012) and 4.0% yoy (as against 8.2% yoy in FY2012) respectively. The Mining sector continued to remain in negative territory and contracted by 2.9% yoy, albeit lower than the decline of 7.6% yoy in the previous month. This can be attributed to a slight 0.3% and 0.2% yoy revival in production of coal and crude oil each, after contracting by 8.0% and 4.0% yoy respectively in February 2013. We expect the overhang on growth in the Mining sector to continue in FY2014 as well in the absence of meaningful reform measures. The decision on reopening Category B mines in Karnataka is likely to improve production in the sector to some extent with a lag of about two quarters.

Performance in the Use-based category

The Capital Goods index posted a growth for the second straight month at 6.9% yoy following a steep 20.1% yoy de-growth in March 2012. Production in commercial vehicles, having the highest weightage in Capital Goods, has declined during the month but performance of the capital goods sector has been supported by very high growth in components such as rubber insulated cables (247.3% yoy) and aluminum conductor (45.0% yoy) etc. Excluding the performance of the volatile capital goods segment, IIP growth stood at 1.8% yoy. Overall, for FY2013 the capital goods index has declined by 6.3% as compared to a 4.0% growth in FY2012 reflecting the subdued investment environment.
Please refer to important disclosures at the end of this report

IIP Update March 2013

Exhibit 1: Trends in industrial production (%, yoy)

General Index Sector-wise Classification Weights 1000 141.57 755.27 103.16 456.82 88.25 156.86 298.08 84.6 213.47 Mar-13 2.5 (2.9) 3.2 3.5 2.6 6.9 (0.2) 1.6 (4.5) 6.5 Feb-13 0.5 (7.6) 1.9 (3.2) (1.8) 8.7 (1.0) 0.4 (2.4) 2.5 Jan-13 2.4 (2.2) 2.5 6.4 3.2 (1.7) 2.5 2.8 (0.8) 5.3 Mar-12 (2.8) (1.1) (3.6) 2.7 1.1 (20.1) 1.1 1.2 1.0 FY2013 1.0 (2.4) 1.2 4.0 2.3 (6.3) 1.3 2.4 2.0 2.7 FY2012 2.9 (2.0) 3.0 8.2 5.5 (4.0) (0.6) 4.4 2.6 5.9

Use-based Classification

Mining Manufacturing Electricity Basic goods Capital goods Intermediate goods Consumer goods - Consumer durables - Consumer non-durables

Source: MOSPI, Angel Research

The Consumer Durables segment contracted for the fourth straight month by 4.5% yoy indicating worryingly that the consumption slowdown continues to weigh on overall growth. On the other hand, Consumer non-durables reported a pick-up to 6.5% yoy (owing to a low base effect), supporting an overall 1.6% yoy growth in consumer goods. The consumer non-durables segment has contributed about 120bp to growth in the headline IIP growth print of 2.5% during March 2013. Overall during FY2013, the index decelerated and reported a shallow 1.0% yoy growth as compared to 2.9% yoy growth in FY2012 and a more robust 8.2% yoy growth in FY2011 on account of broad-based slowdown amongst its components. We believe that industrial activity is likely to have bottomed out in FY2013. We expect industrial activity as measured by the IIP to gradually improve to about 3.3% yoy in FY2014, owing to our expectation of growth of around 2.5% yoy in mining, 3.0% in manufacturing and 7.2% in electricity sector. We expect revival in industrial activity to be supported by a low base, lagged impact of monetary easing, the recent pick-up in exports and anticipated improvement in investment.

Growth of Core Industries

Growth in eight core industries (37.9% weightage in the index) recovered sharply to 2.9% in March 2013 after witnessing a decline of 2.4% in the previous month as performance of electricity, crude oil and coal production revived from negative territory. Overall for FY2013 as a whole, growth in eight core industries decelerated to the lowest level of 2.6% as compared to 5.0% in FY2012 and an even higher 6.6% in FY2011.

Exhibit 2: Performance of Core industries (%, yoy)

Eight core industries Coal Crude Oil Natural Gas Petroleum Refinery Products Fertilizers Steel Cement Electricity
Source: MOSPI, Angel Research

Weight 37.9 4.4 5.2 1.7 5.9 1.3 6.7 2.4 10.3

Mar-13 2.9 0.3 0.2 (17.7) 5.6 3.6 6.6 6.6 3.0

Feb-13 (2.4) (8.0) (4.0) (20.1) 4.3 (4.0) 0.5 3.1 (3.7)

Mar-12 3.0 7.3 (2.9) (9.9) 1.6 1.5 6.2 7.1 2.8

FY2013 2.6 3.3 (0.6) (14.5) 6.9 (3.4) 2.5 5.6 4.0

FY2012 5.0 1.3 1.0 (8.9) 3.1 0.4 10.3 6.7 8.1

May 10, 2013

IIP Update March 2013

Exhibit 3: Recent uptick in industrial activity

(%) 15.0 12.0 9.0 6.0 3.0 (3.0) (6.0) Apr-10 Apr-11 Oct-10 Oct-11 Apr-12 Feb-10 Feb-11 Feb-12 Oct-12 Aug-10 Aug-11 Aug-12 Dec-10 Dec-11 Dec-12 Feb-13 Jun-10 Jun-11 Jun-12 IIP 3MMA IIP

Exhibit 4: IIP growth likely to have bottomed out

(%) 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 (2.0) Feb-11 Feb-12 Aug-10 Aug-11 Aug-12 Dec-10 Dec-11 Dec-12 5.9 2.4 2.6 2.0 2.7 Non-durables Feb-13 Mar-13 Jan-13 Feb-13 Jun-10 Jun-11 Jun-12 Oct-10 Oct-11 Oct-12 Apr-10 Apr-11 Apr-12 3MMA IIP 3MMA IIP ex-capital goods

Source: MOSPI, Angel Research

Source: MOSPI, Angel Research

Exhibit 5: Slowdown broad-based across sectors

(%) 10.0 8.0 6.0 4.0 2.0 (2.0) (4.0) IIP (2.0) (2.4) Manufacturing Electricity Mining 2.9 1.0 3.0 1.2 4.0 FY2012 FY2013 8.2

Exhibit 6: Slowdown across segments

(%) 8.0 6.0 4.0 2.0 (2.0) (4.0) (6.0) (8.0) FY2012 5.5 2.3 1.3 FY2013 4.4

(0.6) (4.0) (6.3) Capital Intermediate Consumer Durables Nov-12 Dec-12 Basic

Source: MOSPI, Angel Research

Source: MOSPI, Angel Research

Exhibit 7: Sector-wise contribution to IIP growth

(%) 10.0 8.0 6.0 4.0 2.0 (2.0) (4.0) Nov-12 Feb-13 Jul-12 Apr-12 May-12 Jun-12 Sep-12 Aug-12 Mar-13 Oct-12 Dec-12 Jan-13 Mining Manufacturing Electricity

Exhibit 8: Use-based goods contribution to IIP growth

(%) 10.0 8.0 6.0 4.0 2.0 (2.0) (4.0) (6.0) Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Basic Capital Intermediate ConsumerDurables ConsumerNondurables

Source: MOSPI, Angel Research

Source: MOSPI, Angel Research

May 10, 2013

IIP Update March 2013

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May 10, 2013

IIP Update March 2013

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May 10, 2013