CRISIL Ltd. Hotel Research Reports

Domestic sales of tractor manufacturers to slow down. Critical questions that arise are:

• What is the expected demand growth for the tractor industry in India?
• Which states drive the growth in domestic sales?
• What is the state of competition in the industry?
• Information on tractor penetration in the Indian market.
• What is the expected profitability/ credit profile for the industry?

Who will benefit:

• Investment Managers
• Venture Capitalists
• Management Consultants
• Research Companies
• Private Equity Managers
• Market intermediates
• Banks
• Tractor industry participants
• Analyst
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CRISIL Research expects tea auction prices to firm up over the next 2 years. We expect production to increase at a CAGR of 2.6 per cent during 2008-10, while domestic consumption will increase at CAGR 2.9 per cent. This will result in tightening of the demand-supply situation. CRISIL Research estimates exports to increase in 2008 due to lower crop in Kenya, but decline over the next 2 years as Kenyan production returns to normal. We expect the tightened demand-supply situation to result in prices increasing by 10-12 per cent in 2008 and another 8-10 per cent in 2009. - More

CRISIL Research expects profitability of sugar companies to improve over the next 2 sugar seasons (SS 2008-09 and SS 2009-10) on account of higher sugar prices. Lower sugar production and increasing consumption will lead to a fall in inventory levels causing prices to rise. CRISIL Research forecasts sugar prices (Mumbai S-30) in SS 2008-09 to be between Rs 17,000 - 18,500 per tonne, a rise of 13 - 23 per cent over the average levels of SS 2007-08. Prices are expected to rise further in SS 2008-09 and be in the range of Rs 18,500 - 20,000 per tonne. - More

The global petrochemical industry is expected to undergo a structural shift over the next few years. Till recently, North America (NA) and Western Europe (WE) dominated demand as well as supply. By the end of the decade, demand concentration will migrate to Asia and supply will move to Middle East (ME). - More

Operating margins to remain under pressure Despite increase in prices, CRISIL Research expects the operating margins of pig iron producers to deteriorate in 2008-09 and remain under pressure in 2009-10 as well due to higher input costs. Prices to increase over next 2 years

As per CRISIL Research, prices are likely to remain at Rs 32,000-33,000 per tonne in 2008-09 and at Rs 33,000-34,000 in 2009-10. This is in comparison with average prices of Rs 15,540 per tonne and Rs 18,417 per tonne during 2006-07 and 2007-08, respectively.The rise in cost of production due to firm input costs will provide support to high pig iron prices.Demand to increase by 4.5 per cent CAGR during 2007-08 to 2012-13

Total demand for pig iron incr... - More

Profitability to remain stable in 2008-09 The operating margins of domestic aluminium players will remain stable in 2008-09 on account of the depreciating rupee offsetting lower aluminium prices. Between 2006-07 and 2007-08, the industry’s PBIT margins declined marginally from 32.8 per cent to 31.0 per cent. Declining alumina prices, though, could affect Nalco’s margins as it exports over 50 per cent of its alumina production.Average international aluminium prices are expected to range between $2,600-2,800 in 2008. However, in 2009, prices are likely to decrease to $2,500-2,700 due to lower operating rates. Global aluminium prices in the last 5 years averaged around $2,051 per tonne, and moved in the range of $1,332-3,005 per... - More

Global urea prices to dip over the medium term

Prevailing demand-supply scenario strongly influenced urea prices till 2000. Post 2000, apart from the demand-supply scenario, the input cost factor also exerted a considerable influence on the prices. However, after studying the recent global urea price trends as well as the price trends over the past 15 years, CRISIL Research believes that urea prices are more influenced by input related cost, which in turn is correlated with crude prices. CRISIL Research believes crude oil prices will fall over the medium term and therefore urea prices will also come down from the current levels, although demand-supply gap is expected to remain tight.Project economics of urea and DAP plants
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Domestic freight transportation services cover movement of goods across geographical boundaries of the country. Healthy growth in industrial production and non-oil imports reflect good freight availability across modes in the country. IIP growth, which was hovering around 11 per cent in 2006-07 and 8 per cent in 2007-08, has slowed down to 4.9 per cent in April-September 2008-09 as against 9.5 in April-September 2007-08. This indicates that there has been a slowdown in movement of goods leading to a slowdown in freight availability. However, we expect the long term growth story of India Incorporation to be healthy.CRISIL Research estimates overall freight movement to grow at a CAGR of 8.9 per cent from 2007-08 to 2012-13, resulting in a ... - More

The mobile services space has been witnessing considerable development with subscriber net additions reaching new highs, entry of competitors, modification in key regulatory policies and the slated 3G licence auctions. Given this backdrop, in this report, CRISIL Research has presented its view on the demand-supply scenario going forward, likely investments in the telecom sector, profitability outlook for existing operators as well as new entrants and the dynamics of the 3G business on a pan-India basis and in an attractive metro circle as well.We expect the expansion in the mobile subscriber base to continue, albeit at a lower pace post 2009-10. CRISIL Research expects further growth to arise from category ‘B’ and ‘C&r... - More

India’s hospitality industry has enjoyed robust growth for the past few years buoyed by growing business and leisure travel owing to a favourable economic atmosphere. The premium segment hotel market size has grown at an impressive 27 per cent CAGR from approximately Rs 43 billion in 2003-04 to Rs 112 billion in 2007-08. At present, the premium segment accounts for around 60 per cent of the hotel industry’s revenues. However, the astronomical growth rates seen in select business destinations are now a thing of the past. Lower corporate travel expenditures and the fallout of the financial crisis emanating from the US will trigger a downward spiral in RevPARs across business destinations. A large number of rooms poised to ente... - More

The domestic steel industry (especially the non-integrated players) is likely to face pressure on margins in 2008-09 due to increasing input costs on one hand and the curtailed pricing flexibility on account of government actions on the other. The raw material price rise will also start getting reflected fully only from the second quarter of 2008-09. However, in 2009-10 and beyond, if the domestic market pricing is devoid of influence from the government, profitability of the domestic steel industry is expected to remain healthy. The extent of profitability will also be a function of share of exports in the product portfolio of players.According to CRISIL Research, global steel prices will remain firm in the foreseeable future at around ... - More

This report is divided into three sections - The first section covers estimates, forecasts and elaborates on the factors, which have impacted the two-wheeler industry. It also takes a look at the key drivers of growth in the future. The second section evaluates the structural characteristics affecting the two-wheeler industry by covering player profile and reviews in order to understand their market share and hence their competitive position, future strategies, expansion plans and financial profile. Further, the second section provides a crisp coverage of cost structure in the industry, supply scenario, government policies and global market profile. The third section provides factual data on the player and segment-wise volumes, productio... - More

Domestic caustic soda consumption expected to remain strong.

Caustic soda demand is expected to grow by 4.9 per cent (CAGR) from 2007-08 to 2012-13, with consumption likely to touch 2,890.7 thousand tonnes in 2012-13. This compares favourably with the historical 5-year CAGR of 6.0 per cent achieved during 2003-04 to 2007-08. We expect the alumina and pharmaceutical sectors to be the key drivers of caustic soda demand going forward. Alumina production is likely to double from 2,904 thousand tonnes in 2007-08 to 5,984 thousand tonnes in 2012-13, whereas demand for caustic soda from the pharmaceutical industry is forecast to increase by 9.2 per cent (CAGR) to 208.4 thousand tonnes during the same period on the back of better export... - More

Supply mix to shift in favour of private players.

In 2008-09, firm natural gas supply available in India was estimated at 93.2 million metric standard cubic metres per day (mmscmd), of which around 74.4 mmscmd (80 per cent) was gas from domestic fields and the balance 18.8 mmscmd (20 per cent) firm LNG imports. Of the total gas supply in 2008-09, the share of Oil and Natural Gas Corporation Ltd (ONGC) and Oil India Ltd (OIL) gas was estimated at 56.1 mmscmd (60 per cent). In 2013-14, the supply of natural gas is expected to increase considerably, registering a CAGR of 18 per cent, to 215.2 mmscmd, primarily driven by gas supply from Reliance Industries Ltd (RIL)’s new discoveries. Conversely, supply of gas from ONGC’... - More

Domestic CV goods segment to bounce back in next 5 years The commercial vehicles (CV) industry had a challenging time in 2008-09, with significant degrowth across all segments. However, better performance of the light commercial vehicles (LCV) segment (decline of 7.6 per cent) against the medium and heavy commercial vehicles (MHCV) segment (plunge of 36.5 per cent) protected the CV industry from a much higher fall. Degrowth witnessed in 2008-09 in the MHCV goods segment is expected to continue till 2009-10, post which, we expect positive growth for the sector. CRISIL Research estimates the domestic CV goods segment to grow at a CAGR of 8-10 per cent in the next 5 years. The LCV segment is estimated to grow at a CAGR of 10-12 per cent, p... - More

State roads contribution to road investments expected to be higher than national highways With the government’s continued focus on road development, CRISIL Research estimates the potential investment in the road sector, over the next 5 years (2009-10 to 2013-14), will be to the tune of Rs 5,216 billion. Out of the total investments, state roads share would be 39 per cent followed by national highways share at around 36 per cent and rural roads would constitute remaining 25 per cent of the total investment. The state government’s focus on improving state roads and several initiatives taken by them has led to an increase in state road investments since 2006-07; consequently, share of state highways in road investments has incr... - More

CRISIL Research is of the view that hospital projects represent long term investment opportunities. The attractive returns earned by such projects coupled with the shortage of hospital beds in the country support our view. We have computed the project internal rate of return’s (IRR) of a multi-speciality, tertiary care hospital under three scenarios with differing assumptions on occupancy rates, land costs, escalation rate of revenue per patient and land costs in each scenario. In our base case scenario, an investment in a tertiary care, multi-speciality hospital would have a project IRR of 16.4 per cent. Even in our bearish case the project IRR remains relatively healthy at 11.6 per cent, while in our optimistic case it rises to a... - More

Cement sector has witnessed an impressive run over the past few years, with an improvement seen across key operational parameters such as operating rates, prices and profitability. Housing sector is the single largest consumer of cement in India. Over the last 5 years, India has witnessed a real estate boom, especially in the metros and tier I cities. This has been the primary driver for cement demand, which has grown at a healthy CAGR of 9.3 per cent over the past 5 years. Going forward, CRISIL Research expects cement demand growth from housing segment to slow down. However, this will be offset to an extent by an increase in cement consumption from the infrastructure sector. In addition, an increase in independent housing projects in se... - More

Export growth rate to remain flat in 2009-10 After registering healthy growth for several years, the estimated export growth rate for the IT services sector moderated to around 12 per cent y-o-y in 2008-09 and is expected to further dip in 2009-10. Indian IT service players continue to face the brunt of a slowdown in the key markets of US and UK and the key vertical of banking, financial services and insurance (BFSI). Clients across the board are cutting down IT budgets and seeking concessions on billing rates from their vendors. This does not augur well for Indian IT services players in the near term. CRISIL Research expects the decline in global IT spends, weakening demand, delay in decision making and weak sentiments due to the prote... - More

International operations to grow at a faster rate as compared to domestic operations Demand, as defined by passenger kilometres (pax-km) of Indian carriers on international operations, is expected to grow at a CAGR of 13.8 per cent from 2009-10 to 2013-14 while domestic demand is expected to grow at a CAGR of 12.5 per cent in the same period.

Supply, as defined by available seats kilometres (ASKM) of Indian carriers on international operations, is expected to grow at a CAGR of 11 per cent from 2009-10 to 2013-14; domestic supply is expected to grow at a CAGR of 9.5 per cent during the same period. Supply is likely to grow at a faster rate on international operations driven by better profitability and less competitive internati... - More

Pricing pressure over the medium term as supply will outstrip demand growth The hotel industry in India witnessed robust growth from 2003-04 to 2007-08, with ARRs registering a CAGR of 24 per cent. The slowdown in the economy and high room rates caused a dip in occupancy rates in some destinations such as Mumbai and NCR, and demand swayed towards mid-market hotels. Consequently, ARRs have started to decline from the second half of 2008-09.

Going forward, despite an expected revival in demand by 2010-11, players will not be able to hike ARRs significantly, as the expected additions to room inventory will intensify competition, compelling hoteliers to focus on volumes to propel growth. Business destinations are poised to see hig... - More

Passenger and cargo growth to moderate but remain healthy CRISIL Research expects a moderation in the growth of both passenger traffic and cargo tonnage due to relatively slower economic growth as compared to the past and the high base effect because of structural shifts in the industry with the arrival of LCCs. Overall passenger traffic is still expected to grow at a healthy CAGR of 11.4 per cent from 108.7 million in 2008-09 to 187 million by 2013-14, on the back of benign ticket prices and the improved economic environment, which is expected to lead to an increase in business and leisure travel. The cargo tonnage is likely to grow at a CAGR of 7.9 per cent from 1.7 million tonnes in 2008-09 to 2.5 million tonnes by 2013-14. Also, wi... - More

Simultaneous lower production in India, Kenya and Sri Lanka pushing up prices India, Kenya and Sri Lanka are the largest producers and exporters of black tea. In the first half of 2009, production had declined by 3 per cent in India, 12 per cent in Kenya and 24 per cent in Sri Lanka compared to the first half of 2008. For the full year, production in these countries is expected to be lower in 2009 as compared to 2008, due to unfavourable weather, while consumption continues to grow at a steady pace. This has resulted in a tightening of the global demand-supply scenario and is pushing up tea prices.

Production to be lower in 2009, but increase over the next two years CRISIL Research expects tea production in India to be lower ... - More

Investments in irrigation to grow 1.8 times during next 5 years Irrigation infrastructure investments are likely to grow 1.8 times during next 5 years. Continuous thrust of state governments to improve agricultural productivity and its indirect benefits on the economy is expected to drive growth in investments into irrigation. Growth, however, is likely to slow down due to economic slowdown causing a strain on state finances. Total investments in irrigation sector are expected to grow to Rs 2,474 billion during 2008-09 to 2012-13 from Rs 1,361 billion during 2003-04 to 2007-08 (at 2008-09 prices). - More

Deficit situation in the domestic market to continue over the next two sugar seasons leading to historic sugar imports

CRISIL Research expects the downturn in sugar production witnessed in 2008-09 Sugar Season (SS) to continue into the next two years (2009-10 SS and 2010-11 SS) as production is expected to be significantly lower than consumption leading to the possibility of historic sugar imports to meet domestic demand. This will be the first time in more than a decade that India will see imports for three years in a row (2008-09 SS to 2010-11 SS).Domestic sugar production witnessed a drastic decline in SS 2008-09 with total production falling to 15 million tonnes (from 26.4 million tonnes in SS 2007-08), which was significant... - More