10 min read
Hello, hope you are doing well!
To sum up Week 2 of September 2021, we will be reading about…
Aviation sector
Cairn receives $1 billion refund from the Indian government
Ford to shut down plants in India
Snippets of other things that happened
Wrap-up
Sky is the limit!
With lockdown restrictions easing up and the movement of people picking up pace, India’s economy has started to shine back a little. One sector that is definitely adding to this shine is the travel sector. Credit ratings agency, ICRA, on Monday (06.09.2021) said that this downward pandemic trend, accompanied by a higher capacity deployment pushed domestic air passenger traffic on the growth trajectory in August with volumes growing up to 31% to 66 lakh over the previous month. To put things into perspective, the average number of passengers per flight during Aug 2021 was 114, against an average of 106 passengers per flight in July 2021. Domestic passenger traffic on a year-on-year basis, however, spiked around 131% over August 2020 traffic of 2.83 million passengers, it said. The rating agency said that capacity deployment in August was up 99% to 57,500 departures against 28,834 departures a year ago while on a sequential basis, it was higher by around 22%.
Though the recovery continued in Aug 2021, there is continued stress on demand, driven largely by the second wave of the pandemic, limiting the demand to only necessary travel, while both leisure and business travel have been curtailed due to various state-wide restrictions, despite the decline in infections.
With such news in the backdrop, another sign of recovery has come in as low-cost carrier Indigo announced that it expects to run at full capacity (domestic routes) now. During the January-March quarter, the airline had operated at 75% of pre-Covid capacity, which dipped to 44% in April-June 2021. During the second quarter, the airline like the others was restricted to 65% capacity deployment and it provided scheduled services to 66 domestic destinations. The capacity limit was raised to 75.2% from August 12.
With such recovery signs in picture, India’s GDP can take off from the current levels and soon sustain pre-pandemic growth levels, hopefully with some minor turbulence only.
A refund worth billions!
40% of Apple’s market Cap. 60% of Solomon Island’s GDP and the most expensive house in America. The above numbers equate to $1 billion. Wait! The last option still leaves you with $500 million in hand. UK-based Cairn Energy PLC said it will drop charges to hold onto Indian properties in nations ranging from France to the US, inside several days of getting a $1 billion refund coming from the scrapping of the retrospective tax law.
Cairn will drop cases to seize diplomatic apartments in Paris and Air India planes in the US within a few days after receiving the refund, as the shareholders are on the same page with regards to the refund. (Like, who wouldn’t be!)
Trying to fix India's harmed reputation as an investment destination, the government last month instituted new enactment to drop ₹1.1 lakh crore in extraordinary cases against multinationals, for example, telecoms group Vodafone, pharma giant Sanofi and brewer SABMiller, now owned by AB InBev, and Cairn. If the firms agree to drop outstanding lawsuits, including claims for interest and punishments, the government will refund ₹8,100 crore collected from organizations under the scrapped tax provision. Of this, ₹7,900 crore is due towards Cairn.
In accepting the terms of the new legislation in India, Cairn would be required to withdraw its international arbitration award claim, interest and costs and to end all legal enforcement actions in order to be eligible for the refund.
An international arbitration tribunal had ordered the Indian government to return USD 1.2 billion plus interest and penalty that also included the value of shares seized and sold, dividend confiscated and tax refund withheld. The government initially refused to honour the award which forced Cairn to seize Indian assets worth $70 billion from Singapore to the US. The road was also paved to take Air India to a US court and seizure of assets belonging to the Indian government in Paris.
The refund comes as a sigh of relief as all litigations will be dropped by the firm.
(Can’t af)Ford no more!
American auto major Ford Motor Company is “forced” to end manufacturing operations in India and close its plants at Sanand and Chennai, due to “huge accumulated losses and lack of growth in a difficult market,” it said on 09.09.2021.
The company, which invested about $2.5bn at its Chennai (Tamil Nadu) and Sanand (Gujarat) plants, will stop the manufacture of vehicles such as the EcoSport, Figo, and Aspire which are produced from these plants, and sales of the same would cease once existing dealer stock is sold. The company aims to wind down the manufacturing of vehicles for exports in Sanand, Gujarat by the fourth quarter of 2021 and vehicle and engine manufacturing in Chennai by the second quarter of 2022. This means that going ahead, the brand is expected to sell only imported CBU models like Mustang, Mustang Mach-E, and F-150 Raptor in the country. Ford will continue to provide parts, service, and warranty support to its customers in India.
This is the second major exit of local manufacturing operations in India by a global automotive brand. US giant General Motors, which entered India just a few years before Ford, stopped selling cars in India in 2017.
Following accumulated operating losses of more than $2 billion over the past 10 years and a $0.8 billion non-operating write-down of assets in 2019, Ford is forced to do a restructuring to create a sustainably profitable business in India, the company further added. "This is a restructuring decision, where the company will shift to imported vehicles," said a person in the know of the development. Ford India said it took these restructuring actions after investigating several options, including partnerships, platform sharing, contract manufacturing with other OEMs, and the possibility of selling its manufacturing plants, which is still under consideration.
This will definitely have a huge ripple down effect on the economy as well as approximately 4,000 employees are expected to be affected by the restructuring. Ford will work closely with employees, unions, suppliers, dealers, government, and other stakeholders in Chennai and Sanand to develop a fair and balanced plan to mitigate the effects of the decision, the company added.
Ford India will maintain parts depots in Delhi, Chennai, Mumbai, Sanand, and Kolkata and also maintain a smaller network of suppliers to support engine manufacturing for exports and will work closely with other suppliers to ensure a smooth wind-down of vehicle manufacturing.
Ford has been a loss-making local entity burdened further by the COVID-19 disruption, and a dated product portfolio. As of July, Ford was operating at just around 20% of the installed capacity of 450,000 units that it has across both the plants, as per data shared by the Society of Indian Automobile Manufacturers (SIAM).
Had the pandemic not disrupted the sector, there was a high possibility of a Rs 1,400 crore JV between M&M and Ford. Discussions went on for 2 years but in January 2021 both companies decided against going ahead with the partnership driven by the disruption caused by the pandemic. Instead of infusing funds for the JV, M&M routed the investment towards its own electric mobility program.
What else happened?
Lockdown in auto sector might continue: With Onam last month, the festive season has indeed kicked in and the semi-conductor shortage is likely to hit car sales in this season as the industry fears it may not be able to maintain production schedules which will affect the inventory with the dealers this month. Original equipment manufacturers (OEMs) are, however, confident that the current crisis will blow over by the first quarter of next year. Supplies have also started trickling in as the lockdowns ease in Malaysia and other Southeast Asian manufacturing hubs. However, the festive season this year might just see a supply crunch. The country's largest car manufacturer, Maruti Suzuki India Ltd. (which hiked prices across products by 1.9%), has been forced to cut down its production volume to 40% of its capacity in September; it will probably not be able to build up stocks. Maruti’s Executive Director said, “Not just chips, spiraling commodity prices, too are dampening demand as prices of cars shoot up.” The chip crisis is affecting the production of top-end variants that use a lot of supercomputers.
Dutiful decisions: The commerce ministry's investigation arm Directorate General of Trade Remedies (DGTR) has recommended the imposition of anti-dumping duty on Vitamin C, used by pharmaceutical firms for medicine production, from China to guard domestic manufacturers from cheap imports. The DGTR has concluded in its probe that the imports from China are entering the domestic market at price below the level of the selling price, and even the cost of sales. The imposition of anti-dumping duty is permissible under the World Trade Organisation (WTO) regime. India and China are members of this Geneva-based organization, which deals with global trade norms. The duty is aimed at ensuring fair trading practices and creating a level-playing field for domestic producers vis-a-vis foreign producers and exporters. The DGTR has recommended $3.2 per kg and $3.55 per kg duty on imports. The finance ministry takes the final decision to impose the duty.
(Un)fuelling: Jio-BP, the fuels and mobility joint venture between Reliance Industries Ltd and UK's BP, on Thursday (09.09.2021), announced a partnership with BluSmart - India's first and largest all-electric ride-hailing platform - to set up a network of commercial large-scale EV charging stations. As part of the partnership, Jio-BP will set up these stations for passenger electric vehicles and fleets across the country, the company said in a statement. "Through this partnership, both companies will collaborate in planning, development and operation of EV charging infrastructure, at suitable locations across cities where BluSmart operates," it said
To wrap it up…
On the market’s front, Nifty 50 and Sensex continued to scale newer highs as they ended up +15.75/+54.81 points above before closing at 17,369.25/58,305.07 on Friday (10.09.21). They inched merely 0.30 percent on a weekly basis as mid and small caps outperformed the indices. The 9% deficit in the monsoon has not hindered the Kharif sowing process as it recorded 101% of normal levels on September 3, 2021. The V-shaped recovery in the first quarter along with strong GDP numbers (Although on a low base effect) has proven the mettle of the Indian economy. The industrial output grew by 11.5% in July as manufacturing, electricity and mining activity recorded double-digit growth. If the trend in sustained in the coming months, it can definitely breach the pre-pandemic levels recorded in 2019.
Also, this is the second time in this financial year that the last date for filing ITR has been extended to December 31, 2021. (The Government wants us to party like a responsible citizen on NYE!). The technical glitch has left the government with no other option but to extend the deadline as scores of taxpayers are unable to pay taxes.
Week 2 | LESSON #2: Keep learning!
To conclude, we are immensely grateful to our readers, family, friends and all those who have showered their love and care to FinWeek. We would like to wish everyone a very Happy Ganesh Chaturthi!
We are filled with joy and happiness as we celebrate our anniversary month along with the birth of the elephant-headed deity Ganesha, the God of prosperity and wisdom. Our financial virtue would also be based around Gajanana.
Once the goal has been set, you must seek knowledge with an open mind. Wise investment decisions is the guiding phenomenon to wealth creation or to achieve the ultimate goal set. Look at all the options at hand and study them carefully. Options, be it financial or not, do decay with time and are equally volatile. Weigh them closely. Monitoring their results under different scenarios and then reach a conclusion. A well-diversified strategic portfolio will help build a secure future.
At FinWeek, we have always strived to share news that will have a significant financial impact. We hope to continue this endeavour and create awareness around financial well-being for many years to come.
May this Ganesh Chaturthi fill the year ahead with prosperity and wisdom for you and your loved ones!
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That brings us to the end of this weekly wrap-up.
See you next weekend. Stay safe!
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Sources: Moneycontrol, The Signal, The Boring News Co., Business standard, Upstox Daily, and Motilal Oswal.
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