This week explain why Indian Tyre industry seems to be rebounding, Pharma sector going through a makeover and key development in fertiliser industry followed by what’s trending in markets and curated good reads.
1. Is Indian Tyre industry rebounding?🚚
The market finally is optimistic about the automobile sector. But, at times, playing out a sector via ancillary industries makes more sense (in case of favorable valuations/better profit pool, etc.)
One ancillary industry of the automobile is “Tyres” and all the companies here reported the highest sales ever in FY22..💯
Also, not to forget share prices of these companies have not escalated yet, so let’s find out what’s changing here before everyone else does & the opportunity vanishes😉
- India achieved the highest export growth in Tyres in 2022🏆
The surge in exports is led by high demand in Europe, the US & the Middle east. The noteworthy point here’s that the actual demand globally is not increasing at the same pace👀 So how are India’s tyre exports increasing?
Due to China + 1 strategy followed by these countries☝️
China used to be the largest exporter of tyres globally but as the relations have been souring globally, the US and Europe are moving away from China. This is a potentially very good opportunity for India because of less competition, high margins & shortage of products like truck radial tyres in the international markets.
Also, as these countries are majorly distributor-driven, Indian companies have already started focusing on increasing their distribution network⤴️
- Healthy demand from Commercial vehicles (CVs) and Agricultural segments🌾
All the companies are seeing good growth in CV segment which is led by the government’s infrastructure push. Good volume growth is also seen in the agri-segment, especially in the companies with high agri-exposure like Balkhrishna Industries.
Replacement demand especially in PVs has been -ve or flattish. Although, replacement demand in CV is expected to pick up soon.
- Extensive Capex announcements🔊
Due to high demand (which is expected to increase more in coming years), all the companies have started doing capital expansions.
So, based on other factors, it looks like Tyres is going to benefit big time as the automobile sector performs well further.
We should keep in mind during the due diligence of these companies is that although there is good revenue growth high raw material prices are still the problem. Price increases taken are not sufficient enough, so a company with favorable dynamics should be looked upon.
2. Indian Pharmaceutical industry about to go through a makeover
India’s pharmaceutical industry is 3rd largest by volume and 13th largest by value in the world. For perspective- one out of four pills consumed in the US and one out of five pills taken in the world is manufactured by India.
India has always been known for its generics- low-cost drugs but things had to change given how competitive our country is becoming with every passing year.
For this, last week, Mansukh Mandaviya (Union Minister) discussed the Pharmaceutical sector’s road map to achieve the goal of the “Indian pharma industry moving from volume to value” by becoming self-reliant.
By using our manpower & brand power, India needs to reach the top-notch level in R&D, manufacturing, and innovative technologies, the way it did in other specialty chemicals.
The government is involving the industry in the decision-making process now and has also introduced a PLI scheme of Rs 15,000cr (for 35 APIs which used to be imported earlier) to make the industry self-reliant. And these steps will lead to a makeover in the sector making it more globally competitive💫
3. A Key development in the Fertiliser industry👨🌾
Urea accounts for 82%+ of the nitrogenous fertilizers applied to crops globally and India is the world’s largest importer of Urea.
India got affected because of supply disruptions during the Russia-Ukraine war due to which government will spend Rs 70,000cr on fertiliser subsidy this year. Not just this, Urea also deteriorates soil health, atmosphere, and water bodies.
To solve the above issues, Indian company (1st in the world)- IFFCO has developed a patented Nano urea liquid technology. This will instead enhance the real nutritional value, improve productivity, reduce the Urea’s requirement by 50% and improve the overall yield by ~9.8%🤩
IFFCO has already tested the Nano-UREA on over 11,000 farms on 94 crops and IFFCO already started commercial production in kalol last year, producing 1.5L bottles per day. It plans to scale the production via 8 plants producing 44cr bottles/annum. This will save India’s Rs 40,000crs of foreign exchange reserves🙋♀️
Note: Although Nano-Urea technology has the potential to transform global agriculture, farmer acceptability & reaching to pan India distributors will take time.
4. What else is trendin’?🤙🏻
✔️ Dhanuka agritech bets big on drone application in agriculture. Dhanuka, a pioneer of sustainable agri-practices, has ventured into drone applications that benefit farmers economically as well as make way for sustainable use of natural resources. You can read it in detail here.
A lot of discussions are happening by the community on Multipie, such as investor outlook, pharma companies, Excerpts from best books for finance professionals, and mutual funds that have outperformed the index.
You are definitely missing out on a lot if you are not on Multipie yet. So, join the community & become a better investor 😄
5. Good reads 📚
5.1 Summary of semi-annual letter from Fundsmith: a must-read for all investors.
5.2 Data points to look for to know whether the investors are greedy or fearful in the markets.
5.3 What’s priced in stock market by Ben Carlson.
See you next week. Until then, happy investing!