Economic News Update
Economic Broadcast
Claim This Podcastby Rudra Nath
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April 15, 2020
UPL surges after Company around the world back to Operations
United Phosphorous or UPL surged in trade after the company informed the exchanges that its factories around the world remain operational and that the company has adequate raw material inventory to meet production requirements until April 2020. The company, which manufactures and markets agrochemicals, says that the multi-sourcing strategy for active ingredients and raw materials also helps in hedging supply risks. The management has highlighted that it is geared to meet the robust demand in North America and Europe to enter the peak cultivation season. Also, as the new season kicks off, the management expects inventory levels to normalise resulting in improved cashflows. UPL has a diversified exposure to regions like India, Latin America, Europe, North America and the rest of the world and the company says that global presence with full portfolio offerings in many crops has helped the Company respond to upsides and downsides directly related to the impact of COVID-19. Agri inputs tend to be relatively defensive due to their non-discretionary nature (~14 percent of overall farmer spends). Analysts say Indian contract manufacturers may also benefit from growth coming from new plants being commissioned. The stock has almost fallen 40 percent since the start of this year due to fears around COVID-19 and debt impacting the company’s business. The stock is also trading at reasonable valuations at 10X FY21EPS
April 15, 2020
Bank to Borrow about 10 million Dollars
Saudi Aramco, the world's largest oil producer, is in early talks with banks for a loan of about $10 billion to help finance its acquisition of a 70 percent stake in Saudi Basic Industries Corp (SABIC), according to three banking sources. Aramco agreed last year to buy the controlling stake in SABIC from the kingdom's wealth fund for $69.1 billion, sealing one of the biggest-ever deals in the global chemical industry. "The financing would be for the SABIC deal, but the borrower is Aramco," said one of the sources, adding that the discussions were at an initial stage, with the company sounding out banks. "Ten billion dollars is where they want to get to, (it's) not clear if, in this market, they'll manage to reach that." A second source said banks involved in the talks included HSBC and JPMorgan, as well as lenders in the Gulf. In response to a Reuters request for comment about whether it was seeking such a loan, Saudi Aramco said: "The company continues to review its financial options as part of its normal course of business, while prudently preserving its pristine balance sheet and its resilience." JPMorgan declined to comment, while HSBC did not immediately respond to a request for comment. A third banker said Aramco was looking to borrow in U.S. dollars because it was cheaper than in Saudi riyals, in terms of interest, and to avoid pressuring Saudi banks' liquidity. OIL PRICES CRASH The SABIC stake acquisition from Saudi Arabia's Public Investment Fund (PIF) will help Aramco's downstream expansion plans. The deal came after months of talks between the company and PIF and was one of the reasons for the delay of Aramco's blockbuster initial public offering late last year. The loan discussions come at a time when oil-producing nations have been hit by a plunge in demand for crude as a result of the coronavirus outbreak and a slide in oil prices. OPEC and its allies led by Russia, a group known as OPEC+, have agreed to the largest oil output cut in history that could curb supply by up to 20 percent. But the agreement has done little to boost oil prices as many economies remain under lockdown due to the novel coronavirus pandemic, curbing demand. Brent crude traded at around $30 on Tuesday, still less than half its close at the end of last year and below the $31.48 price before the output cut deal was reached. Aramco's shares closed at $31.10 on Tuesday, below the $32 price of its IPO late last year that initially raised $25.6 billion and became the world's largest. Saudi Arabia, which owns more than 98 percent of the oil giant, is likely to sell new international bonds soon, according to sources, as the output cut deal further squeezes revenues hit by the plunge in oil prices.
April 14, 2020
India's Pharma Sectors Impact on Coronavirus
The impact of the coronavirus pandemic and the lockdown it triggered is clearly visible in financial markets. But there is still no clarity on the deeper impact that it is having across businesses and industrial sectors. Based on assessments made by different analysts and industry body Ficci, here is an impact analysis on the pharma sector. India pharma’s global standing The Indian pharma industry has been a world leader in generics both globally and in domestic markets contributing significantly to the global demand for generics in terms of volume. Made-in-India drugs supplied to the developed economies such as the US, EU and Japan are known for their safety and quality. In recent years, India has seen increasing competition from China, which it has been able to leverage due to its inherent cost advantage, manufacturing intermediates and APIs at a cost much lower than those in India which has resulted in a gradual increase in API imports from China to India and this in turn has led to killing of domestic manufacturing capacity for certain key APIs and their advanced intermediates. Risks from India pharma’s China linkages India’s large import dependence on China (nearly 70% by value) has become a significant threat to India’s healthcare manufacturing and global supply chain. While Indian pharma players over a time period have steadily migrated up the value chain to focus on value-added formulations with higher margins, but this over dependence on China has increased the threat to the nation’s health security as some of these critical APIs are crucial to mitigate India’s growing disease burden. Supply chain disruption for India pharma Any disruption in supply chain of APIs can result in significant shortages in the supply of essential drugs in India. Some of the critical APIs for high-burden disease categories such as cardiovascular diseases, diabetes and tuberculosis are listed in the National List of Essential Medicines (NLEM). In fact, the current market is largely dependent on China for many antibiotic APIs manufactured by the fermentation route such as penicillin, cephalosporins and macrolides. The increased dependency of low-cost API is mainly attributed to China’s extensive efforts towards developing economies of scale, easing regulations for bulk drug manufacturers, availability of low-cost utilities, building process efficiencies and supporting manufacturers in the form of subsidy, low taxes and fiscal incentives.India has significantly lost out on the API manufacturing owing to the inadequate government support and API focused infrastructure coupled with complexity in getting approvals for setting up a manufacturing plant, delayed pollution clearances, high cost with low availability of utilities, regulatory and price control regime are some of the key challenges faced by the bulk drug industry. Major earnings cuts ahead for pharma firms Edelweiss Securities says the novel coronavirus, or COVID-19, pandemic has caused severe supply-side disruptions in various sectors, earnings will be cut by 10-15%. Pharma as a sector has emerged as a strong contender to drive the next leg of rally, whenever it comes. In anticipation, pharma stocks have seen a huge run up in the last 10 days.This is not just true for India, but globally too pharma companies have performed well. While in the short term, most companies will bounce back from the last 5 year of underperformance, this time around, the leader will be different. Relative stability, reasonable valuations HDFC Securities says Indian pharma has been relative resilient to the Covid disruption, and is poised to gain from favourable currency tailwinds and stable outlook for India and US business. India growth has picked up (~10% growth for IPM as of MAT Mar’20). It forecast 11% growth for covered companies over the next two years. US pricing environment continues to remain benign and the regulatory challenges are well understood.
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