Manufacturing Gaining Lost Momentum in Q-4: FICCI Manufacturing Survey

New Delhi: FICCI’s latest quarterly survey on Manufacturing  assessed recovery of manufacturing sector for Q-3 (October-December 2020-21)  and pointed that the manufacturing sector is expected to regain the lost  momentum in the Q-4. The percentage of respondents reporting higher production  in third quarter of 2020-21 had increased vis-a-vis the Q-2 of 2020-21. The  proportion of respondents reporting higher output during October-December 2020  rose to 33%, as compared to 24% in Q-2 of 2020-21. The percentage of respondents  expecting low or same production is 67% in Q-3 2020-21 which was 74% in Q-2  2020-21.

Figure: % of  Respondents Expecting Higher Production in the Quarter
vis-a-vis Respective Last Year’s  Quarter

  Source FICCI Survey

FICCI’s latest quarterly survey assessed the performance of  manufacturers for Q-3 (October-December 2020-21) and the sentiments for the  next quarter (Q-4) for twelve major sectors namely automotive, capital goods,  cement and ceramics, chemicals, fertilizers and pharmaceuticals, electronics  & electricals, leather and footwear, medical devices, metal & metal  products, paper products, textiles, textile machinery, and miscellaneous.  Responses have been drawn from over 300 manufacturing  units from both large and SME segments with a combined annual turnover of  around Rs 5.3 lakh crore.

Capacity Addition & Utilization

  • The  overall capacity utilization in manufacturing has witnessed a rise to 74% as  compared to 65% in previous quarter.
  • The  future investment outlook, however, looks slightly better as 30% respondents  reported plans for capacity additions for the next six months as compared to  18% in previous quarter.
  • High  raw material prices, high cost of finance, shortage of skilled labor and  working capital, high logistics cost, low domestic and global demand due to  imposition of lockdown across all countries to contain spread of coronavirus,  excess capacities due to high volume of cheap imports into India, lack of  financial assistance, uncertain demand scenario across globe, complex  procedures for obtaining environmental clearances, high power tariff, are some  of the major constraints which are affecting expansion plans of the  respondents.
  • From  the table below, the average capacity utilization has increased for half of the  twelve sectors.

Table: Average Capacity Utilization  Levels as Reported in Survey (%)

Sector Average    Capacity Utilization in Q-3 2020-21 Average    Capacity Utilization in Q-3 2019-20
Automotive

73

67

Capital Goods

72

67

Cement and Ceramics

73

70

Chemicals, Fertilizers & Pharmaceuticals

78

76

Electronics & Electricals

72

67

Leather & Footwear

55

60

Medical Devices

80

70

Metals & Metal Products

82

80

Paper Products

80

90

Textiles

76

83

Textiles Machinery

64

67

Inventories

  • 78% of  the respondents had either more or same level of inventory in October-December,  whereas around 79% of the respondents maintained either more or same level of  inventory in July-September 2020 quarter of 2020-21.

Exports

  • The  percentage of respondents expecting increase in exports has increased  substantially to 29% when compared to previous quarters during lockdown period,  wherein 24% respondents were expecting a rise in exports. Also, 34% are  expecting exports to continue to be on same path as that of same quarter last  year.

Hiring

  • Hiring  outlook for the sector, seems to be improving, as 37% against 20% in previous  quarter are planning to hire additional workforce.

Interest Rate

  • Average  interest rate paid by the manufacturers has increased slightly to 9.5% p.a. as  against 9.2% p.a. during last quarter. The recent cuts in repo rate by RBI has  not led to a consequential reduction in the lending rate as reported by 55% of  the respondents.

Sectoral Growth

  • Based  on expectations in different sectors, sectors such as Medical Devices,  Chemicals, Fertilizers & Pharmaceuticals, Textile Machinery, Electronics  & Electricals, Capital Goods and Metal and Metal Products are likely to  register strong growth in Q-3 2020-21.

Table: Growth Assessment Going Forward

Sector

Growth Assessment

Medical Devices & Technologies

Strong

Chemicals, Fertilizers & Pharmaceuticals

Strong

Cement & Ceramics

Moderate

Textile Machinery

Strong

Textiles

Moderate

Electronics & Electricals

Strong

Capital Goods

Strong

Paper Products

Low

Automotive

Moderate

Metals and Metal Products

Strong

Leather and Footwear

Moderate

Note: Strong > 10%; 5% <  Moderate < 10%; Low < 5%
Source: FICCI Survey

Production  Cost

  • The  cost of production as a percentage of sales for manufacturers in the survey has  risen for 63% respondents. Industry respondents have attributed the hike in  productions costs primarily to high fixed costs, higher overhead costs for  ensuring safety protocols, drastic reduction in volumes due to lockdown, lower  capacity utilization, high freight charges and other logistic costs, increased  cost of raw materials, power cost, high manpower costs, energy costs, rupee  depreciation and high interest rates.

Back  to Business Scenario in Manufacturing (Unlock period)

  • As  evident from the table below, percentage of active operations in various  sectors ranges from 44 to 88 percent in the factories as per the demand and  current orders post easing out of lockdown restrictions.

Table:  Operations taking place in facilities post easing of the Lockdown Restrictions

Sector

% of Active Operations

Chemicals, Fertilizers & Pharmaceuticals

88%

Cement & Ceramics

88%

Textile Machinery

63%

Textiles

80%

Electronics & Electricals

83%

Medical Devices & Technologies

80%

Capital Goods

81%

Paper Products

88%

Automotive

80%

Metals and Metal Products

85%

Leather and Footwear

44%

Workforce  Availability

  • Below table highlights the total labor force engaged in the operations.

Table: Workforce Engagement in Factories

        Sector

% of workforce engaged in the current operations

Automotive

95%

Capital Goods

88%

Cement and Ceramics

  97%

Chemicals, Fertilizers & Pharmaceuticals

  86%

Electronics & Electricals

90%

Leather & Footwear

100%

Medical Devices

60%

Metals & Metal Products

   89%

Textiles

84%

Textiles Machinery

85%

Miscellaneous

90%

Sourcing Strategies

  • While  not all sectors indicated a change in their input sourcing strategies but there  are plans to shift the sourcing of inputs away from single country in certain  areas.

Table:  Sector wise plans to shift away input sourcing from outside

        Sector Changes in Input Sourcing Strategies
Automotive No major change
Capital Goods No major change
Cement and Ceramics One-third of the respondents are planning to change their sourcing strategy
Chemicals, Fertilizers & Pharmaceuticals Around 86% of the respondents are not planning to change their sourcing strategy
Electronics &    Electricals Around 60% of the respondents mentioned that they are not planning to change their raw material/input sourcing    strategies.
Leather & Footwear No major change
Textiles Majority are not planning to change input sourcing    strategy
Textiles Machinery Two-third of respondents indicated that they are planning to change their raw material/input sourcing strategies.