Industrial growth for FY2013 at subdued 1.0%, March IIP improves to 2.5% - Angel Broking

As per Quick Estimates on the Index of Industrial Production (IIP), industrial growth in March 2013 improved to 2.5% yoy, in line with market expectations. It compares positively to a marginal 0.6% yoy growth in February 2013 and 2.8% yoy de-growth in March 2012 owing to growth in consumer non-durables and capital goods segments. Overall during FY2013, the index decelerated and reported a shallow 1.0% growth as compared to 2.9% growth in FY2012 and a more robust 8.2% growth in FY2011 on account of broad-based slowdown amongst its components. Growth in eight core industries (37.9% weightage in the index) recovered sharply to 2.9% in March 2013, having witnessed a decline of 2.4% in the previous month.

Performance on Sector-wise classification

The Manufacturing sector continued to support IIP growth for the third straight month. It reported a 3.2% yoy growth as compared to a 3.6% decline in growth in the corresponding period of the previous year. The Electricity sector reported a 3.5% yoy growth after posting a 3.2% yoy decline in the previous month. But for FY2013 as a whole, growth more than halved for the Manufacturing as well as the Electricity sector at 1.2% yoy (as against 3.0% yoy in FY2012) and 4.0% yoy (as against 8.2% yoy in FY2012) respectively.

The Mining sector continued to remain in negative territory and contraacted by 2.9% yoy, albeit lower than the decline of 7.6% yoy in the previous month. This can be attributed to a slight 0.3% and 0.2% yoy revival in production of coal and crude oil each, after contracting by 8.0% and 4.0% yoy respectively in February 2013. We expect the overhang on growth in the Mining sector to continue in FY2014 as well in the absence of meaningful reform measures. The decision on reopening 'Category B' mines in Karnataka is likely to improve production in the sector to some extent with a lag of about two quarters.

Performance in the Use-based category

The Capital Goods index posted a growth for the second straight month at 6.9% yoy following a steep 20.1% yoy de-growth in March 2012. Production in commercial vehicles, having the highest weightage in Capital Goods, has declined during the month but performance of the capital goods sector has been supported by very high growth in components such as rubber insulated cables (247.3% yoy) and aluminum conductor (45.0% yoy) etc. Excluding the performance of the volatile capital goods segment, IIP growth stood at 1.8% yoy. Overall, for FY2013 the capital goods index has declined by 6.3% as compared to a 4.0% growth in FY2012 reflecting the subdued investment environment.

The Consumer Durables segment contracted for the fourth straight month by 4.5% yoy indicating worryingly that the consumption slowdown continues to weigh on overall growth. On the other hand, Consumer non-durables reported a pick-up to 6.5% yoy (owing to a low base effect), supporting an overall 1.6% yoy growth in consumer goods. The consumer non-durables segment has contributed about 120bp to growth in the headline IIP growth print of 2.5% during March 2013.

Overall during FY2013, the index decelerated and reported a shallow 1.0% yoy growth as compared to 2.9% yoy growth in FY2012 and a more robust 8.2% yoy growth in FY2011 on account of broad-based slowdown amongst its components. We believe that industrial activity is likely to have bottomed out in FY2013. We expect industrial activity as measured by the IIP to gradually improve to about 3.3% yoy in FY2014, owing to our expectation of growth of around 2.5% yoy in mining, 3.0% in manufacturing and 7.2% in electricity sector. We expect revival in industrial activity to be supported by a low base, lagged impact of monetary easing, the recent pick-up in exports and anticipated improvement in investment.

Source : Equity Bulls

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