Demonetisation will impact margins in December quarter

With consumers postponing purchase decisions amid uncertainty and severe cash crunch, companies, especially in consumer-facing sectors, will face the brunt of demonetisation. This is more so in the case of rural consumption, where the impact of this exercise in the midst of rabi sowing is more acute. Auto, cement, retail and paints among others have seen a marked slowdown. A look at the sectors:
 
Auto
 

• Significant fall in queries and footfalls, full impact will be felt in December as retail inventory runs out

 

• Two-wheelers, tractors bear the brunt of cash crunch in rural markets

 

• M&M, Hero MotoCorp to see a large impact of the move, Tata Motors and Maruti to have minimal impact

 
Banking & Finance
 

• Banks' CASA ratio may increase 3-4%

 

• Falling yields/rates could aid treasury income, but NPAs could rise

 

• Loans against property, vehicle financing and consumer durables lending to be hit immediately

 
Capital goods
 

• While large players see limited impact, electrical consumer companies remain more impacted

 

• Air conditioner and consumer durables sales remain less impacted as festive season over and as they have relatively lesser chunk of sales in cash

 
Cement
 

• Among the most impacted sectors, with earnings estimates cut by 9-28%

 

• Retail sales dropped 20-50% in November due to low availability of currency

 

• Demand is set to fall by 1.6% against earlier estimates of a 5.5% growth

 
Consumer & FMCG
 

• Demand for electrical and consumer durables companies to be worst hit

 

• Paint companies to see higher demand fall; staples to recover earlier

 

• Companies having meaningful international revenues more resilient, cigarettes/alcohol players to be hit

 
Media
 

• Broadcasters to witness slowdown in advertising revenues

 

• Multiplex players are witnessing falling footfall, delayed ad spends and lower ticket sales

 

• Print media companies to be more impacted by slowing ads
• Analysts at Kotak estimate 0-5% ad revenue growth in current quarter versus 12-18% earlier

 
Metals
 

• Domestic steel sales remain most impacted especially for long products

 

• Volume estimates for steel players cut by up to 19% for H2 of FY17

 

• Tata Steel (India operations) and SAIL to see more impact; JSW Steel can make up for volumes through exports

 
Real Estate
 

• Biggest loser among various sectoral indices, down 18% since November 8

 

• Analysts peg sales to fall sharply in the December quarter, and by 20-30% in CY17; secondary market more impacted, given higher cash component

 

• Delayed sales, higher debt to impact financials; sector could take a year to recover

 
Retail
 

• Sales decline of 25-35% expected across formats and segments, led by fall in footfalls and delay in discretionary spending

 

• Retail sector operating profit estimates cut the most among sectors in second half of FY17 

 

• Jewellery stocks, seasonal players and retailers such as Shoppers Stop impacted

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