Economic Broadcast

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

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.

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.

Tata Motors share price, which has been trading below 11-year lows since March 11 is one of the most affordable stock from the auto sector available for sale amid the Covid-19 pandemic. The stock closed 10.36% higher on Thursday at Rs 74.60 compared to the previous close of Rs 67.90 on BSE. It hit a fresh 52-week low of Rs 63.60 on March 24 this year as market took into account slowing demand of passenger and commercial vehicles at home and abroad. Its arm Jaguar Land Rover (JLR) has also been witnessing decline in sales  on account of rising number of coronavirus cases in UK, US, Europe, China and other markets. S&P downgrades Tata Motors, JLR amid coronavirus scare The Tata Group firm logged a 82.69% year-on-year fall in its total sales to 12,924 units in March, compared to 74,679 units in the same month last year. Amid the nationwide coronavirus lockdown, Tata Motors' domestic sales were down by 84% in March 2020 to 11,012 units from 68,727 units on a yearly basis. JLR's UK sales in March slipped 30.9% to 17,175 units compared to the same period last year. Coronavirus was a major factor behind  JLR's weak performance in February.  Tata Motors reported a huge 85% fall in February sales in China, the world's largest car market. Possible supply chain disruptions due to coronavirus and resultant shutdown of various parts of China led to the slump in sales. Before that, Jaguar Land Rover sales in China grew on an average about 25% year on year for the 6 months from July through December 2019. The firm saw strong growth for the first 3 weeks of January. China accounts for almost a quarter of JLR's global sales, which in turn accounts for almost 73 per cent of Tata Motor's annual turnover of around $41 billion. Coronavirus crisis: DRDO working with Tata, Mahindra on 'multi-patient ventilators' With huge disruptions in the firm's business, traders and investors are concerned about the outlook of the stock. Abhijeet Ramachandran, Founder and Trainer at Tips2trade,  said "Tata Motors has recovered well from its recent lows but faces stiff resistance at Rs 76-85 levels. Closing above Rs 85 only could trigger further buying or else a correction back to 60-64 levels could be a possibility." "For long term, these levels are attractive, but better to wait for a dip to buy near 60-64 levels for better returns," he added. Recently in an interview, Tata Sons chairman N Chandrasekaran said the passenger car and the commercial vehicle market had already hit the bottom even before coronavirus crisis started. "These sectors can now come back faster having hit a low. A little push with stimulus can help these sectors revive and get many people back to work which is critical for the economy to revive," he said.