Domestic Hotels Staring at Major Disruption due to COVID-19: Ind-Ra
Increasing intensity of the COVID-19 in India could meaningfully impact the operating metrics of hotels across segments and regions. Since the sector depends completely on the mobility of people, the outbreak possesses a direct impact on the business performance of this sector, says India Ratings and Research (Ind-Ra).  
 
In a report, the ratings agency says, “Occupancy rates across hotel categories are likely to fall to their lowest levels in the last decade, materially impacting earnings. The industry in general would face challenges in debt servicing, especially for companies in the ramp-up mode, where a large portion of capex is funded by debt.”
 
“Furthermore, this comes at a time when hotels typically enjoy peak season occupancy due to vacations and weddings before the onset of monsoons; hence, any disruption in operations would substantially impact the full-year operating performance of hotel companies,” the ratings agency added. 
 
Ind-Ra estimates the occupancy of mid-scale and two-star hotels to fall to 30%-40% and that of four-star hotels and above categories to 20%-25% for the next three months beginning March-2020.
 
The ratings agency sees sharp deterioration in occupancy rates in domestic hotels. It believes that the occupancy rates would have a multidimensional hit. 
 
It says, “All the major drivers of occupancy rates could be impacted severely, as the movement of people gets limited due the government restrictions and self-precautionary measures taken by them. Considering a look-back analysis during the global financial crisis, the average absolute occupancy rates fell by over 9%. The highest fall of 10.40% was witnessed in the occupancy rates of four-star and above category hotels, followed by three-star ones at 8.5%, because they are mostly occupied by business travellers. These hotel categories have been impacted the most since business travel has shrunk largely post the global financial crisis, If we consider the global financial crisis as a benchmark, the magnitude and the impact on the drivers of occupancy rate due to COVID-19 is much larger than that during the post crisis period.”
 
In its base case, estimates, Ind-Ra modelled the potential impact of COVID-19 on occupancy rates till first quarter (1Q) of FY2021 for different hotel categories. It says, “We assume a higher impact at end-4QFY20 and a modest recovery in the latter half of 1QFY21. We believe the occupancy rates of four-star and above category hotels to be impacted more than that of with three-star and mid-scale ones. This is because the revival in foreign tourist arrival could be stretched and depends heavily on the elimination of COVID-19. If on the other hand the spread in India gets contained in the next couple of months, the movement of people could see some traction and hence we might see some recovery in the mid-scale or three-scale hotels. However, if the intensity gathers pace, then occupancy rates could be significantly lower.” 
 
Furthermore, Ind-Ra says, many south-east nations such as Singapore, Indonesia Hong Kong, where the outbreak started in January 2020 have witnessed a sharp decline in the occupancy rates. In some of these countries, occupancy rates fell to the levels lower than that was recorded during the SARS outbreak in 2003. The occupancy rate during the SARS crisis in China fell to sub 20% from around 70% within a three-month period. A similar situation in India cannot be ruled out, should the outbreak continue and containment remain limited.
 
According to Ind-Ra, in the current scenario where travel restrictions are imposed and people voluntarily curb non-essential movement, there would not be any material change in the average room rate levels, as occupancy would be generated on essential need basis. Assuming the average room rate levels remains constant, the revenue per available room would deteriorate to the extent of change in occupancy levels, it added.
 
“Considering Ind-Ra’s base case scenario over the next month, hotels under the four-star or above categories could witness around 65%-70% fall in the revenue per available room whereas the ratio for those under mid-scale and two-star categories could deteriorate between 50%-60%. Subsequent deterioration in credit metrics is likely,” the ratings agency concluded.
 
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    Brakes on automobile production as plants shut down
    India's second largest car maker Hyundai Motor India Ltd, two and three wheeler makers TVS Motor Company Ltd, Eicher Motors Ltd and Suzuki Motorcycle India Pvt Ltd have announced closure of their plants in order to contain the spread of coronavirus.
     
    In a statement Hyundai Motor India said it is suspending manufacturing operations near here from March 23 till further notice. "We will await further notifications from State Government to resume plant operations," the company said.
     
    The car maker has two plants near here with a capacity to roll out about seven lakh units per annum.
     
    Two and three wheeler maker TVS Motor in a regulatory filing said as an interim measure it has decided to shut operations at all its manufacturing facilities and offices for two days effective from Monday.
     
    "The Company would take further steps after reviewing the situation," the statement added.
     
    Similarly, Eicher Motors that rolls out Bullet and other motorcycles in a regulatory filing said it has decided to suspend all operations globally, starting Monday, March 23, 2020, till March 31, 2020.
     
    "This will include the company's manufacturing facilities across Tiruvottiyur, Oragadam and Vallam Vadagal in Chennai, Technical Centres across Chennai and at Bruntingthorpe, Leicestershire in the UK, and all company offices and company owned dealerships in India," Eicher Motors said.
     
    Eicher Motors has further issued advisories to all dealerships in India to shut down for the same time period, or follow local administrative orders, as may apply.
     
    "During this time period, company employees will continue to work-from-home, and there will be no salary deduction for any permanent or temporary employees or workforce, and no reduction of workforce," Eicher Motors said.
     
    Another two wheeler maker Suzuki Motorcycle India has said it has suspended production at its manufacturing plant at Kherki Dhaula, Gurugram till further notice.
     
    "This is in view of the precautionary measures taken in the wake of the COVID-19 (coronavirus) pandemic and in line with the Haryana Government directives in this regard," Suzuki Motorcycle said.
     
    While the Company has taken all measures to ensure the well-being of its employees at the workplace, we have announced a 'Work from Home' advisory to our employees and associates who are not involved with maintaining essential services,a Koichiro Hirao, Managing Director, Suzuki Motorcycle said.
     
    On Sunday India's largest car maker Maruti Suzuki India, Mahindra & Mahindra and Hero MotoCorp announced shutting down of their plants.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    How Badly India Inc. Will be Hit by Covid-19
    The situation on corona virus (COVID-19) is an emerging one and as of now there are over 400 confirmed cases in India. Six major sectors, metals and mining, pharmaceuticals, chemical and agrochemicals, textiles, gems and jewellery and hotels are likely to face headwinds in terms of demand and profitability, says a research note.
     
    In the report, CARE Ratings says, “COVID-19 is an emerging situation and the final impact on each of the above sectors would only be known after the severity and duration of the present virus attack dies down. However, each of the above major sectors are likely to face headwinds in terms of demand and profitability. We are closely looking at portfolio companies to examine the impact on credit quality on the various factors mentioned above. Apart from these sectors, many others like real estate, media and entertainment and construction would be impacted. The fallout and resultant impact on other sectors is still an emerging situation which would be studied in detail.”
     
     
     According to the ratings agency, the COVID-19 impact on the Indian Industry is no longer limited to the extent of trade and dependence on China by the various sectors, but will also have effects of shutdowns announced across Europe, Americas and Australia.
     
    Here is analysis on six sectors by CARE Ratings…
     
    1. Metals and Mining Sector
     
    China is the largest supplier, consumer and exporter of commodities like steel, aluminium, copper and zinc as well as of steel making raw materials and additives. The Virus outbreak had significantly affected Chinese demand, but the situation seems to have bottomed out in China. However, the spread of the virus outside China appears to have worsened especially in Europe, USA, Middle East and other Asian economies which are severely impacting the global demand-supply balance for ferrous and non-ferrous metals. While demand has ebbed, supply has also been curtained with extending shut down of furnaces.
     
    Domestic steel demand is likely to get impacted during the current and the next quarter owing to the loss of manufacturing output on account of the expected shut-downs to contain the spread of the virus. While the demand is likely to get impacted, steel production output is likely to remain constant as India has sufficient raw material security for steel production and most of the steel plants maintain inventory levels for the next two months.
     
     
    CARE Ratings says it does not expect significant dumping of the Chinese inventory into the Indian markets, owing to the several protectionist measures adopted by the government. While the domestic steel prices are expected to remain subdued, the same is also likely to get insulated from the landed cost parity of the global steel prices, owing to the continuation of MIP at around $479 per tonne. 
     
    “Profitability of most of the steel players is likely to remain under pressure owing to volatility in
    raw material prices and falling global prices, which mean the steel prices in the domestic markets, are likely to hover around the minimum import price (MIP). Credit profile of Indian steel industry is likely to deteriorate if the duration to contain the virus spread extends beyond a month or two from now. India exports around 10% of its total production and the same is also likely to get impacted.,” the ratings agency says.
     
    2. Pharmaceutical
     
    The total Indian pharmaceutical industry is estimated to be around $38 billion of which almost 50% is exports. India derives about 40% of its export revenue from regulated markets, some of which are experiencing lockdowns with import restrictions on various goods.
     
    “However, there have not been any restrictions on importing of healthcare products and drugs and we do not expect that to happen. CARE Ratings has 3 entities in AAA rating category and nine entities in AA rating category whose financial risk profiles remains robust with very low debt levels, strong liquidity position and considerable unutilised credit lines, which provides necessary cushion to meet any kind of exigency.” 
     
    Further, CARE Ratings has 24 and 48 entities in A and BBB rating category. The impact on these companies depends on their sourcing mix and product mix.
     
    Indian bulk drug and formulations companies are heavily dependent on import of key starting material (KSM) and active pharmaceutical ingredient (API) particularly from China. 
     
    “However, considering the holiday period of Chinese New Year, most of the Indian pharma players had by January 2020, stocked additional inventory (see graph below) for production up to fourth quarter (Q4) of FY2020. Also, due to supply disruption faced during the pollution control issue in China in 2018, most large Indian formulation companies have backward integrated for APIs whereas the bulk drug companies have backward integrated for KSM,” CARE Ratings says. 
     
    At present, the industry is receiving supply from the Chinese market with a delay of about 10-15 days. However, this supply gap has resulted in increase in raw material prices especially for paracetamol, ibuprofen and vitamins. With fewer number of new cases being registered (18 March 2020 being nil) at China, it is understood that Chinese bulk drug manufacturers will soon commence operations at optimal capacity. Till such time, it is expected the price escalations would continue. 
     
    “If this situation persists for the next three-six months, then CARE Ratings expects credit
    pressure on companies rated BBB and below unless the players are able to pass on the increased costs to customers. While price increase in the domestic market for all affected products may not be feasible due to the drugs prices control order (DPCO) regulations, pharma companies may look to increase prices in the export markets to recover increased cost of raw materials,” the ratings agency says. 
     
    At present, India has restricted export of 26 APIs and formulations in the face of the COVID-19 outbreak and companies having large reliance on such single product may face challenge, CARE Rating says, adding companies in the lower rating categories are also expected to be significantly impacted if lock-down kind of situation arises because most of these entities have one to two manufacturing facilities and inhibition of operations at these facilities would entirely arrest their cash flow from operations thus leading to cash flow mismatch.
     
    3. Chemicals and Agro Chemicals
     
    Agrochemicals
     
    China accounts for over 50% of total agrochemical imports of India. As per the latest available import data the proportion continues to remain at similar level with some moderation. The decline in imports from China has been made good from other locations. 
     
    According to CARE Ratings, the procurement of agrochemicals for the Rabi season has already ended and kharif season procurement normally commences in March-April every year. 
     
    “Given the fact that domestic manufacturers already knew the COVID-19 situation of China, most of the manufacturers had sufficient time to make alternative arrangements for short term. Further, the imports from China are intermediates and not the final product, thus same can be procured from other destinations. The situation is still evolving with capacity utilization in Chinese factories at around 30% and other major importing destinations facing the COVID-19 closure. This may adversely impact the procurement for upcoming Kharif season,” it added.
     
    Other Chemicals – Dyes & Intermediates and Rubber Chemicals
     
    CARE Ratings says it believes supply of some of the dye intermediates is likely to be disturbed owing to COVID-19. Although, Indian dyestuff companies manufacture large part of chemical intermediates in domestic market, they are still dependent on China for some specific dye intermediates like k-acid, j-acid, bromamine acid, sulpho tobias acid and cyanuric chloride. 
     
    Manufacturing these intermediates in domestic market is costly in the long-run as compared to procuring it from China. Most of the key intermediates for the segment were manufactured in Hubei province and Henan province, which are adjacent to COVID-19 epicentre and thus, the manufacturing plants are closed there. All the large domestic dye manufacturing companies have adequate stock of these intermediates, which would last them another 45-60 days. 
     
    “So, if situation does not improve in this period, the cost of production of domestic dye manufacturers is expected to move up. Further, in contrast, demand for dyes from developed countries (which are now facing COVID-19) is likely to remain subdued leading to lower sales volume and consequent impact on operating profit margin for these players. However, the integrated dye manufacturing players would be in a better position to meet this challenge. The dye Intermediate sellers and exporters may see short-term boost in their profitability as supply disruption has already elevated prices for some of the intermediates by 30-40% in recent past,” the ratings agency says.
     
    China has been the largest chemical exporter globally with total exports amounting to $80 billion as per industry estimates ended 2018, while India with its about $19 billion (for FY2018) exports stands 10th in global chemical exports. The chemical exports from India reported staggering growth during last two years as can be seen in the below table. This growth was attributed to stricter clampdown on chemical companies by the Chinese government for achieving greater environmental compliance.
     
    In this backdrop, according to CARE Ratings, COVID-19 provides Indian chemical manufacturers a unique opportunity to grab market share and establish relationship with the customers that were until now largely catered by China. “China has been one of the key manufacturing destinations for some of the large global chemical companies. The Covid-19 outbreak in China has highlighted the risk of overdependence on single country for supply-chain. Large organizations are looking to geographically diversify their sourcing plans. India with favourable tax structure and potent chemical clusters (clusters having common effluent treatment capacities) becomes one of the key destinations for new investments and tie-ups with
    existing industry players,” it added.
     
    4. Textiles
     
    The textile and clothing industry employ over 105 million people and also earn around $40 billion forex for India, apart from substantial revenue under goods and services tax (GST) and other taxes. 
     
    According to CARE Ratings, the outbreak of Covid-19 is expected to impact the segment of the Indian textile sector which is significantly dependent on exports. 
     
    In 2018-19, North America was the largest contributor to Indian Cotton Textile exports with a share of 24% followed by SAARC at 17% and European Union (EU) at 14%. Several countries in EU have reported a complete lockdown post outbreak of Covid-19. Further, even in US, as per the news reports, retail sales have also fallen significantly.
     
    “In India, the major impact would be felt by exporters of ready-made garments, made-ups and home textiles. As per our understanding, the companies are reporting order cancellations or deferrals by two-three months. This could lead to inventory build-up. Further, for the orders already shipped there could be a possibility of stretch in receivables resulting in delay in settling post-shipment credit. Domestic situation also is not favourable with malls in many states being closed and retail sales showing significant decline,” the ratings agency says. 
     
    CARE Ratings rates around 540 companies in textile industry of which 144 companies are in investment grade category. The agency says it expects moderation in credit profile of textile companies, which would be more pronounced in case of companies with high leverage or small and medium enterprises (SMEs), which have limited bargaining power and modest liquidity backup.
     
    5. Hotel Industry
     
    Perhaps the most visible and immediate impact of COVID-19 is seen in the hotel and tourism sector in all its geographical segments - inbound, outbound and domestic and almost all verticals - leisure, adventure, heritage, and meetings, incentives, conferences, and events (MICE), cruise and corporate. Given various travel restrictions imposed by the Indian government as well as governments across the globe, forward bookings for various conferences and leisure travel bookings to foreign destinations have already been cancelled. 
     
    In India, most of the summer holiday bookings have been cancelled (about 40-50% most of which was to states of Kerala, Rajasthan and Goa) impacting the domestic tourism.
     
    As per CARE Ratings, the impact on the inbound and outbound passengers is expected to be most severe in the next couple of quarters. It says, “COVID-19 has already impacted the January to March 2020 and as the lean season seeps in for both business and leisure segments from April, the hotel players will have some time to realign themselves (cost rationalisation, process
    improvement measures) before the next peak season. The operational parameters (occupancy rates and average room rates) of the hotel players are expected to get adversely impacted for next couple of quarters. Though a medium-term impact, this may lead to lower cash flows for the hotel entities and thus exert pressure on their profitability and liquidity.”
     
    “Hotels, which derives higher share of revenue from foreign passengers and food & beverages segment will be the worst affected. Cost-cutting measures are the need of hour. Hotel entities which will be quick in trimming down the unnecessary costs and implement various efficiency improvement measures will be able to cut down the damage better,” the ratings agency added.
     
    6. Indian Cut and Polished Diamond (CPD) industry
     
    Two major markets, Hong Kong and US, contributed around 73% of total exports of CPD during first 10 months (10M) of FY2020. Exports of CPD to China are largely routed through Hong Kong, a major diamond trading hub along with Belgium and the UAE.
     
     
    The overall export of CPD in 9MFY20 (refers to the period April to December 2020) was already lower by 17.14%, as compared to 9MFY19. 
     
    “The Indian diamond industry, which was expected to recover in Q4FY20, owing to reduction in inventory levels in the midstream segment, the trade treaty between US–China and a recovery in exports during January 2020 (growth of around 31%), has, however, been adversely affected due to COVID-19 outbreak. The outbreak, which, initially brought China and Hong Kong to a standstill, led to decline in jewellery manufacturing operations and has caused a 40% drop in the overall exports of CPD from India to $1.38 billion in February 2020,” CARE Ratings says.
     
    In order to cushion the economic fallout of COVID-19 and to enable the revival of business activity, a large number of global central banks have announced emergency rate cuts and monetary policy measures since February 2020. National governments too have announced a raft of measures to soften the impact of the disruptions caused by the pandemic. In line with these, CARE Rating says it believes that the Indian government along with the Reserve Bank of India (RBI) would announce fiscal measures to support the economy.
     
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    COMMENTS

    doctordhanbpathi

    2 weeks ago

    https://www.moneylife.in/article/how-badly-india-inc-will-be-hit-by-covid-19/59790.html
    COVID-2019 & ITS IMPACT ON INDIA:
    A SENIOR CITIZEN REACTS-
    India, successfully, faced Dengue, Chikun Gunya, Swine Flu & SARS, etc. since the past decade.
    In 2007-2008, we faced & survived Dengue/Swine Flu- fever with prophylactic/remedial doses from Homeo. More prudent to immunize the entire 130 crores Indian population with Homeo/Ayurveda/Unani medication as per GOI, AYUSH Department’s advisory. Ruling/Opposition parties with their infrastructure + manpower can participate in immunization by the distribution of ‘free medication’. Ministers, MPs, MLAs, & NGOs, etc., can implement, during the interim period of JANATA CURFEW; WHEREIN THE PEOPLE ARE INDOORS.
    1. Deaths happen in every country on a daily basis. When the then AP CM, Dr.YSR expired accidentally; many deaths were reported to be post-YSR’s death. Whether similar politics are played, now?
    2. [a]. If a corona +ve patient dies, if he/she had co-morbidities which resulted in death.
    [b]. Is there any Govt. control/verification on the veracity of the news-reporting? It is not my intention to downplay the truth.
    4. Why GOI & Central/State ministries/NGOs failed to take initiative for distribution of Prophylactic medication as advised by THE AYUSH Dept.?
    5. Janata Curfew is the right & timely step. It must be strictly implemented through the length & breadth of India.
    6. https://www.youtube.com/watch?v=4Si8U02s8cQ.
    7. SATYAMAEVA JAYATHE!!!

    rhmum123

    2 weeks ago

    One more sector which may be affected is banking sector/ NBFC which has provided loan to corporates , with a slow down there is a possibility of no interest payment further increasing loan default for the lenders. There may be slow down on transport and logestic sector too with business slow down.

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