We record what companies have said about the impact of the demonetization (announced on 8-Nov) of Rs. 500/1000 notes to their business. This is a live post – more reactions will come as we see them
Here are the comments we captured on 12-Dec. For previous coverage, please scroll down.
Today we cover a few more companies from Industries such as Apparel Manufacturing, Beverages – Wineries & Distilleries, Credit Services, Department Stores and more.
Inquiries dropped drastically post the announcement public & private sectors banks being more pronounced.
While online traffic has increased, they have not come up to pre-announcement levels
Credit Card & Auto Loan inquiry volumes have increased beyond pre-announcement volumes
Other trade types continue to lag behind
Impact on deployments – Logins
2W & 3W finance – Very slow demand post demonetization. 2W & 3W finance business has seen significant deterioration in current bucket portfolio owing to high dependency
on cash collections.
Consumer durable finance – Have cut 18% business in Q3 FY17 as articulated in Q2 earnings call
Digital product finance – Have cut 35% business in Q3 FY17 as articulated in Q2 earnings call
Lifestyle product finance – Deep slow down in first 30 days
Impact on deployments – Disbursal
Latest Investor Presentation shared the Effects of Demonetization:
Real Estate – General: DLF
In its latest Investor Presentation shared the Effects of Demonetization:
DevCo: In the longer term, we believe that the demonetization shall be a positive for both the Company and all its stakeholders especially customers.
Enhanced stress – Limited resources to manage household and business operations
The common perception: reduced discretionary spending
Demonetization Plus: Rs. 100 (continuing legal tender) currency largely used for our products. Most Pincon customers enjoy adequate volumes of Rs. 100 currency note. Rubber & Plastics:Finolex Industries
In its latest Investor Presentation shared the Effects of Demonetization:
Future Outlook: Though demonetization has created a temporary setback, the long term impact will be positive
Demonetization is likely to reduce the gap in primary and secondary market transactions.
In order to support the liquidity, each of our Biz Bazaar POS were deployed to releasenew currency notes in a quick time frame
As an outcome of Demonetization, the share of modern retail trade increased substantially and we believe going forward, this event shall contribute favorably
Typically, card/wallet invoices are of higher value than the cash invoices, this might potentially increasing the overall sales value in future
Houseware: Borosil Glass Work Mr. Shreevar Kheruka – Managing Director & Chief Executive Officer said:
In the short run we will have some impacts on the sales of products from a secondary and tertiary perspective. Eventually this is going to hit us on the primary sales also; however we do have furnace repair sometime in April-May of the coming year, so we are planning to run at full capacity because anyway we have to build stock for selling during the 2 months or so that the furnace is out of production. So we continue on full capacity and hope we are able to come up with ways to limit the impact of demonetization on sales of the organization.
With demonetization we do not know how real estate prices are going to move in terms of the valuation.
Here are the comments we captured on 6-Dec. For previous coverage, please scroll down.
Today we cover a few more companies from other varied Industries such as Apparel Manufacturing, Beverages – Wineries & Distilleries, Drug Manufacturers – Major, Household & Personal Products, Packaged Foods, and more.
Household & Personal Products:Dabur India A.K. Jain – VP Financesaid in a press release:
Demonetization of high currency note initiated by the government on 8th November, 2916 is a positive move for the economy and industry and will lead to better transparency and compliance in the medium to long run. This will be beneficial for organized FMCG players creating a level playing field. However, on account of scarcity of cash available with customers and traders, we foresee some near term pressures on the company’s business. The impact varies across channels and geographies, and stress is highest for wholesalers and small town grocery shops who are facing a severe liquidity crisis and are destocking.
The impact is likely to be positive on modern trade outlets and plastic money enabled retailers who are likely to benefit from this change. On account of continuity of current uncertain situation it is difficult to quantify the impact for Q3 FY16-17 at this point of time, however it is temporary in nature and situation will improve with increase in availability of new currency. In the meanwhile, we are focusing more on modern retail, e-commerce and institutional sales and also encouraging our general trade (GT) retailers to adopt cashless payment systems. This will help in mitigating the overall impact of demonetization and pave the way for normalization in the next few months.
Khushru Jijina – Managing Director, Piramal Fund Managementadded:
Consolidation happening in real estate sector
If one ignores the sentiment for the short-term which is three months to six months, our house view is that obviously, these people (Tier-1 developers) are going to thrive as they always deal in cheque and not in cash
Indore, Jaipur, Ahmedabad are the regions where the cash element is pretty high and sales their are going to be affected
Developers who are in the parlance were using unauthorized construction means their entire project is cash, are going to be in severe trouble
Tier-II cities will see prices coming down and under pressure
RERA clubbed with demonetization is accelerating the death of the non-organized sector
Tier-II cities where we do not operate at all, I do see prices coming under pressure
Definitely do not see prices crashing because the margins have been reduced in the last few years
Approvals will get affected in the short-term. Long term approvals would continue. Because at the end of the day you cannot have a system where the approvals are not given at all, it has to, it will get escalated at some point or the other.
Wide expectation of taxes coming down in the budget
Lodha is our client who does Rs. 200 crores per week, have just finished last two weeks of Rs. 100 crores each so, it is no mayhem as people think, the mayhem is in Tier-II please.
De-monetization will completely remove the cash component which was involved in the high value transaction properties and that was what was existing more in two tier cities as well as properties around Metros
No impact on the service class and the middle-income group people
De-monetization will help the real estate industry to groom up and to come in a format where it would be more easily understandable to people and the myth about that each and every transaction has and had a lot of cash component would be eliminated to a larger extent
After effects of de-monetization undoubtedly would be that land prices will have to drop down
Temporary inconvenience to the public which is happening there would be lay back for one and half month – two months. So, we see no more large price reduction would happen – a bit of correction, may be to an extent of 2% to 5% depending upon the prices and its location and the competition
The enquiries from the customer’s side have completely dropped down to zero as our call centers also are not ringing
De-monetization has led to temporary parking of money in real estate which would stop post January 1st – luxury segment
Beverages – Wineries & Distilleries: Globus Spirits Mr. Ajay Kumar Swarup – Managing Director; Mr. Shekhar Swarup – Executive Director; Dr. Bhaskar Roy – Executive Director & COO and Mr. Ajay Goyal – CFO in a concall:
In the near term we anticipate slowdown in demand owing to the liquidity crises faced by the end consumer due to demonetization of old currency notes
On the consumption side, demonetization has not had too much of an impact right now
There has been initial few days of concern but considering the fact that IMIL is quite a low priced product and I do not think our consumers are using the old high denomination notes to pay for our products
This is the time of year when the consumption is picking up. So in fact, if you look at the data, there is not a decline in consumption in the last few days
High consumption period is yet to come and we will see that towards the end of November and possibly full December and January
Spoken to a few dealers yesterday also, they are saying that the supply is going on and they somehow anticipate that there will not be much problem
There is no problem in raw material, there has been no impact on raw material, there has been no impact on transportation of products.
We will have a much clearer picture towards the end of December as to what is the effect on the business in the short-term
Long-term this is a great shot in the arm for companies like ourselves who are organized and have a national presence
Impact of demonetization on our business will be very small
Bigger companies will face some of the demand erosion
The business will come to the middle, the mid-sized retail companies will continue to grow, very small ones will have a very difficult environment, the big ones will see some decline in their product offering because of the liquidity being affected.
Too early to assess the impact of de-monetisation but NBFC’s (financing commercial vehicles), logistics, CV manufacturers might get impacted in near term.
Cash collections of commercial vehicle financiers has dwindled over last 10 days. Some leading NBFC’s have 30-60% of cash collection. Small fleet operators and LCV owners usually pay in terms of cash.
Cash crunch might ease, but it might be followed by slowdown and in turn might impact viability of fleet operators and loan servicing. Delinquency levels may go up in near term.
Impact on operators more in Tier II/III than in metros. Demand for trucks has fallen by 15-30%, owing to high reliance on cash for the daily operations.
Small fleet operators/Single LCV owners are most hit. Unavailability of cash to meet trip expenses has pushed this sector to edge.
Organized fleet operators are least hit, due to their cashless system, except for certain expenses which cannot be met by online payment
Commercial Vehicle Sales:
Demonetisation might reduce commercial vehicle sales. Fleet owners might no go for vehicle addition or replacement owing to liquidity crunch. 90% of the CV sales in India rely on external financing.
Weak industrial activity, uncertainty of impact of GST have been the major factors for declining trend in commercial vehicles (especially heavy commercial vehicles) sales. The trend might have reversed from April 2017 due to application of BS-IV emission and end of the fiscal year.
Inventory levels stands at 4-6 weeks, which might increase in coming weeks. OEMs would continue to dispatch vehicles already produced, but realign inventory based on future demand.
Growth forecast revised for M&HCV from 12-13% earlier to 5-8%. In Sept 2016. LCV’s also might see a decline in sales.
Bus segment is least impacted due to higher sales to institutional clients. Typically orders are placed 6-12 months in advance.
Mr. Shekhar Bajaj, Chairman and Managing Directorsaid:
More fear in those people dealing with cash. Therefore likelihood of more people coming in the official channel is likely to go up. This means dealers who were not dealing with us before since they wanted to deal without any bill, will be ready to buy from us . We call this FMCG model for consumer durable industry.
People depending on no bill type of people will lose out
Introduced channel financing to all dealers which will increase substantially over the next 3-6 months.
No impact on consumer products business. Cash flow is made a little difficult for short term.
We are not a luxury item which customers are going to worry about
Might impact smaller markets where banking is very far in rural areas
This demonetization is an issue with the illegitimate money keepers and so we don’t have to worry at all
Here are the comments we captured the first time
Household & Personal Products:Hindustan Unilever In a Presentation yesterday HUL says it is a long term win-win. But short term pain exists: wholesale trade hurt due to liquidity squeeze, long distance logistics impacted, advertising impact too. (“Few months”).
Credit Services:Cholamandalam Finance & Investment Vehicle Finance forms 68% of the portfolio with a 50:50 cash to non-cash collection. While the current mode of non-cash collection will be continued, the cash collection process would undergo a change. For the short term future, cash will continue to be collected from the customers and deposited in their accounts supported by authorization letters along with assisting customer deposit cash and then customer issuing DD/ Cheque against their loan accounts. For the long term the company will implement use of modern tech in the form of POS machines and swipe in debit cards. Impact on cash collections would continue to Q3 and Q4. On Home Equity/ Loans, Cash collection forms just 2% of the collection and hence the company does not see any major impact on collection or on security valuation. Disbursements – 68% cash for Vehicle Finance and 32% for Home Finance will see short term impact as the long term strategy remains on digitization of funding. Drop in Home Sales, Impact in funding the margin money etc. are some of the pain points the company will continue to witness until the end of the financial year.
Real Estate – General:Nila Infrastructure No impact on business there is no cash payment to contractors and subcontractors. However, they in turn would be paying people in cash. Initial hit coming from labours. Don’t see any immediate effect of demonetization. Our Order book contains projects which have already been sold by the government to the beneficiaries. Expect reduction in interest cost and input cost. Foresee improvement on the EBITDA levels.
Postponed collection for the first three days during demonetization
Collections resumed from 14-Nov
Avg. Collection at Pan India level stood at 61% (9th Nov – 19th Nov)
Provided 7-10 days extension for women towards loan repayments
Disbursed Rs. 170 crores (9th Nov – 19th Nov). Cash disbursements is about 60%
Expect situation will ease by end of December
Do not see a significant danger for MFIs
No issues on obligations – good in terms of liquidity to meet all commitments till December and beyond (Rs. 540 crores sanction from NABARD and Rs. 300 crores sanction from SIDBI)
Repayment efficiency – New Delhi and Uttar Pradesh (35% to 40%) have lower rates than the national average. States in the West are doing quite well including Goa, Gujarat and Maharashtra. AUM contribution from 4 states (Karnataka, West Bengal, Tamil Nadu and Maharashtra) is close to 56%
Don’t expect collections to be suspended considering UP is up for elections within the next three months
People are not able to access money in the big cities. While people in big cities have to stand up to 12 plus hours to get the money, in the semi urban areas maximum waiting period is approximately 3 hours.
Do not see a serious adverse situation unless the situation prolongs which then could be a problem
Do not see the MFI customer base actually becoming much worse than anyone else.
We are not collecting the old notes, we are not deloused with the old notes and if we have collected the old notes, all we could have done it is to return it to the bank. We are only getting in legal tender which we can recycle immediately.
Do not think chit funds will get affected by this
Auto Manufacturers:VECV – Volvo Eicher Commercial Vehicle In an interview with CNBC TV18, Vinod Aggarwal, CEO-VE Commercial Vehicles, Eicher Motors said: A good move that will help curb the parallel economy. However in the short term there will be tremendous pain. Transportation severe has felt the severe impact of this. Drivers are used to meeting all route expenses in cash. Delhi to Bangalore trip which takes 8-10 days required 20-25k in cash. In the absence of this cash, there has been a severe impact on transportation of goods while at the same time transporters face a difficulty in managing day to day operations. Impact on sales of new trucks will be short term in nature. Difficult to give a drop in sales of trucks which can be determined only by month end. Dealer information on the foot falls last week has been very minimal as buyers are currently focussed on managing their day to day operations and are not concentrating on purchasing new vehicles. Majority of the sales happen during the last week of the month. Dealers are not able to convert customers into sales (of orders booked last month). DIfficult to access current impact which will be identified only by month end. Auto Dealerships:Hero MotoCorp, Honda, Royal Enfield, TVS Motors
Jasodha Auto – authorised dealership of Hero MotoCorp – We used to sell 20 vehicles per day earlier, and since the demonetisation move, sales have fallen to 2-3 units per day. The footfalls for enquiry have also drastically dropped.
Representative of a Honda Motorcycle dealership – It may be a good move in the long term, but for now sales have stopped. Close to 95% of our customers pay by cash, and only a handful use other means such as credit cards. With only Rs 2,400 in their hand, it is not surprising that they aren’t buying two-wheelers.
Representative of a TVS Motor dealership – Managed to sell only one vehicle in the first two days after demonetisation came into effect. Average daily volume was around 8-10 units per day before the government’s latest move to fight black money. After sales works such as repairs and servicing – decline is nearly 60%.
Aman Automobiles – authorised dealership of Royal Enfield – We have seen a drop in sales volumes, yes, but the number hasn’t been drastic. Against daily sales of around 3-4 units, the number has fallen to roughly 2-3 units a day.
Representative of a Harley-Davidson dealership – Sales have fallen to almost nothing over the past week. This month has been the worst in the year so far. The few customers that did turn up, brought with them bundles of notes of Rs 500 and Rs 1,000 denomination which we could not accept. The very few sales that we did manage to make were all via alternate sources of payment such as debit cards.
Demonetization does not affect the company as only Pharma Corporates and MNCs i.e. B2B form its customer base and transactions have never been in cash.
Short term impact of the credit crunch. Good opportunity for long term
Demonetization has affected businesses like glass, ceramics, electroplating etc. with products they are going into consumer market alone
Auto Parts:Setco Automotive Temporarily aberration. Demonetization is going to impact all kinds of business and everywhere because it will take people a month or two to straighten things. Mr. Harish Sheth – Chairman and Managing Director of Setco went on to say: If there is a crop, crop has to move, it cannot remain on the field. Similarly, cement and steel if there is a housing demand that has to move. So to move all that trucks will have to move. So the truck user will not wait for the cash or a cheque and everything he will go ahead and buy that. So profitability and other things he will have to start looking into it, but that is not what everybody is doing right now. So much of impact is there and we Indians have a generally very interesting fertile mind. So let us see what comes of it. Specialty Finance:Canfin Homes Canfin Homes Chief SK Hota was interviewed, and also in an exchange release, Can fin said that:
88% of loans are to individuals
Of the rest, 6% are LAP
Possible downward correction in housing prices of 15% to 20%
80% are salaried class borrowers
Banking channels only, so cash impact very low
Credit Services: Bajaj Finance In its presentation has stated that it will have short term impact on Consumer finance (lifestyle finance, digital product finance etc.) and rural finance. Whereas segments like personal loans, Business loans are supposed to be having low impact. Other segments which include corporate finance have been put forth as segments, which are not having any impact. But on the positive side the firm has disclosed that finance penetration will increase in rural areas along with positive uptick in the medium term. Also a likely interest rate cut might help in significant demand in medium term Drug Manufacturers – Major:Natco Pharma Mr. Rajeev Nannapaneni – Vice Chairman & CEO, Natco Pharma Limited said:
Sale has dropped dramatically in the retail market
Overall billing in the trade has dropped dramatically
Overall domestic consumption has been impacted severally
If the demonetization chaos continue to December, we will probably have slightly lower sales than anticipated in the domestic market
Not seeing any problems in the supply chain currently. All we see is fall in demand at consumer level
Export business is not affected. Only Pharmacos with huge retail presence will have an impact.
Textile Manufacturing:SP Apparels Mr. P. Sundararajan – Chairman/Managing Directorsaid:
Very little impact in the last two three days. Impact more on the unorganized retail businesses
50% business is on the retail direct from customers and another 50% through distributors – no cash dealings
Luckily demonetization has come after Diwali which garners maximum sales.
Walk Ins are generally lower after Diwali and pickup only during Christmas and New Year.
No effect of demonetization on the export receivables
Distribution will take longer from the current 60-70 days to 80-90 days.
Collection delays by 15-20 days and not beyond
Business Services: Karvy – Multiple Industries Sectors where there is higher component of Cash dealings such as Real Estate and Gold may have larger impact. Unorganized players who deal in cash (not necessarily unaccounted; but the regular course of their client base) are the most impacted one. Auto & Ancillaries
Expect at least 3-4 months for automobile industry to come back to normal
Two wheeler industry would be worst impacted – Rural India (50% consumption) has higher proportion of cash transactions
Limited impact on tractor sales
Reduce cost of borrowing for banks and simultaneously reduces the cost of lending
May further worsen NPA situation
Housing Finance Sector and Loan Against Property – likely to face significant headwinds as they are linked to the real estate business
Visas, MasterCard are expected to be the biggest beneficiaries followed by banks and online payment websites such as Paytm, Freecharge, MobiKwik
Microfinance segment impacted as most of the transactions are in cash
Slow down in the basic building materials business i.e. tiles, sanitary-ware, paints.
Market share of the organized sector is about 60%. Opportunities would improve for the organized players
Considerable transactions happen through cash
Housing and Irrigation impacted along with slowdown in monetization of land
Dispatches affected due to transportation/ logistics
Expected to hurt sales in this segment in near term
Demand for apparels, white goods could witness near term impact
Pace of construction activities impacted due to delay in receivables
Raw Material availability issues due to transportation/ logistics
Reduced industry demand for movement of goods
Cash on Delivery transactions expected to reduce by 25%
Big negative impact with price correction in Property Market
Auto Manufacturers:Mahindra & Mahindra Welcoming the demonetization effort, M&M believes this would be very beneficial from a long term point of view. Yes, there will demand pressures due to liquidity but that will be short lived. M&M hopes demand impacted in Q3 has a potential to get compensated in Q4. Engineering & Construction:Skipper Limited Mr. Devesh Bansal – Directorsaid:
Positive impact of the demonetization. Bullish on achieving top-line as well as bottom-line growth in the quarters to come.
40-50% of the players in Polymer business are from unorganized sector. Due to the difficulties, business will move to organized sector