ICRA appoints Ramnath Krishnan as President of Ratings

ICRA today has announced the appointment of Mr. Ramnath Krishnan as President of Ratings.

Mr. Krishnan will be responsible for driving strategy for ICRA Limited, the Group’s ratings business, continuing to strengthen ICRA’s analytical capabilities and thought leadership, and managing client relationships.

Mr. Krishnan has displayed tremendous leadership skills over his long career, holding multiple senior roles in India and abroad, successfully managing large teams and building businesses across geographies.

“We are delighted to welcome Mr. Krishnan,” said Mr. Arun Duggal, Non-Executive Chairman and an Independent Director of ICRA. “Mr. Krishnan is a highly regarded finance professional and we could not have chosen a better candidate to lead our ratings business with his deep knowledge of risk, credit and markets,” he added.

“I am excited about heading the ratings business of ICRA. Today, more than ever, market participants look to ICRA to help assess and manage increasingly complex risks to support their decision making. I look forward to providing thought leadership on traditional and emerging credit issues such as ESG, and guidance on providing best-in-class ratings and research to the markets,” Mr. Krishnan said.

Mr. Krishnan has over 33 years of experience in banking and finance. Mr. Krishnan joins ICRA from RBL Bank where he has been Chief Risk Officer since 2018, prior to which he spent 23 years with HSBC, holding senior positions at HSBC Bank in corporate credit, wholesale, private and investment banking in India and as Chief Risk Officer at HSBC Malaysia.

Shipping sector on choppy waters following Covid-19 outbreak; however, tanker segment likely to buck the trend: ICRA · The recovery in the shipping sectors will depend on the recovery in global economic activity, post abatement of the pandemic however, the timeline remains uncertain · The credit profile of Indian shipping companies is expected to remain under stress in the near-term and companies which are highly leveraged, will be adversely impacted by the downturn The shipping sector is facing a challenging time due to the Covid-19 outbreak and its impact on global trade. As per ICRA note, the near-term outlook for major shipping segments like dry bulk, containers and offshore is negative. The exceptions to this trend are oil tankers wherein the sharp drop in oil prices has led to an increase in demand - both for supply of oil and for floating storage. As a result, the tanker rates have witnessed a significant increase though the sustainability of these high rates, beyond the near term, remains to be seen. While the overall outlook is challenging, in the near-term, the impact on shipping companies with a high share of tankers should be mitigated due to the high tanker rates. Regarding the impact on the domestic shipping sector, Mr. K. Ravichandran, Senior VP and Group Head, ICRA Ratings, said, “The credit profile of Indian shipping companies is expected to remain under stress in the near-term and companies which are highly leveraged will be adversely impacted by the downturn. The implementation of the IMO-2020 norms has also led to an increase in operating costs for the sector, due to higher cost of low sulphur fuel, although the drop in crude oil prices has mitigated the impact to an extent. The coastal shipping segment, which had witnessed healthy growth in the last few years, supported by the Government’s push to increase share of transportation of this segment, will also witness some adverse impact in the near term, mainly in the container segment, whereas the impact on the bulk segment may be limited due to largely the essential nature of those commodities, which will not be impacted by the lockdown.” Although the impact of pandemic is currently evolving, most of the major economies starting with China have implemented extended lockdowns, leading to disruption in supply chains and severe slowdown in economic activities is expected in major regions. The charter rates for dry bulk and container segments have witnessed a steep moderation in the last two months. Further, the steep fall in crude oil prices, following OPEC’s inability to arrive at an agreement for production cuts, is expected to result in moderation in E&P activity at least over the next six months to one year, which is going to have an adverse impact on the offshore segment. The recovery in the global shipping sector will be contingent on the recovery in global economic activity. Commenting on the same, Mr. Sai Krishna, AVP, ICRA Ratings, further added, “The recovery in the shipping sectors like dry bulk and containers will depend on the recovery in global economic activity, post abatement of the Covid-19 outbreak, starting from China, the timeline for which remains uncertain at present as the crisis is still at an evolving stage. Further, any major changes in global industrial supply chain, during the recovery phase will also have an impact on shipping trade routes. Additionally, a supply side correction in the form of increased scrapping, should also be beneficial for the sector in the recovery phase.”

April 1, 2020

·      The recovery in the shipping sectors will depend on the recovery in global economic activity, post abatement of the pandemic however, the timeline remains uncertain

·     The credit profile of Indian shipping companies is expected to remain under stress in the near-term and companies which are highly leveraged, will be adversely impacted by the downturn

The shipping sector is facing a challenging time due to the Covid-19 outbreak and its impact on global trade. As per ICRA note,  the near-term outlook for major shipping segments like dry bulk, containers and offshore is negative. The exceptions to this trend are oil tankers wherein the sharp drop in oil prices has led to an increase in demand - both for supply of oil and for floating storage. As a result, the tanker rates have witnessed a significant increase though the sustainability of these high rates, beyond the near term, remains to be seen. While the overall outlook is challenging, in the near-term, the impact on shipping companies with a high share of tankers should be mitigated due to the high tanker rates.

Regarding the impact on the domestic shipping sector, Mr. K. Ravichandran, Senior VP and Group Head, ICRA Ratings, said, “The credit profile of Indian shipping companies is expected to remain under stress in the near-term and companies which are highly leveraged will be adversely impacted by the downturn. The implementation of the IMO-2020 norms has also led to an increase in operating costs for the sector, due to higher cost of low sulphur fuel, although the drop in crude oil prices has mitigated the impact to an extent. The coastal shipping segment, which had witnessed healthy growth in the last few years, supported by the Government’s push to increase share of transportation of this segment, will also witness some adverse impact in the near term, mainly in the container segment, whereas the impact on the bulk segment may be limited due to largely the essential nature of those commodities, which will not be impacted by the lockdown.”

Although the impact of pandemic is currently evolving, most of the major economies starting with China have implemented extended lockdowns, leading to disruption in supply chains and severe slowdown in economic activities is expected in major regions. The charter rates for dry bulk and container segments have witnessed a steep moderation in the last two months. Further, the steep fall in crude oil prices, following OPEC’s inability to arrive at an agreement for production cuts, is expected to result in moderation in E&P activity at least over the next six months to one year, which is going to have an adverse impact on the offshore segment.

The recovery in the global shipping sector will be contingent on the recovery in global economic activity. Commenting on the same, Mr. Sai Krishna, AVP, ICRA Ratings, further added, “The recovery in the shipping sectors like dry bulk and containers will depend on the recovery in global economic activity, post abatement of the Covid-19 outbreak, starting from China, the timeline for which remains uncertain at present as the crisis is still at an evolving stage. Further, any major changes in global industrial supply chain, during the recovery phase will also have an impact on shipping trade routes. Additionally, a supply side correction in the form of increased scrapping, should also be beneficial for the sector in the recovery phase.”

Outlook for domestic ship-breaking industry turns negative with volatile scrap prices and falling rupee: ICRA

March 31, 2020

·          The operating profitability margins is expected to remain at subdued level due to limited value-added nature of operations, stiff domestic as well as international competition, volatile scrap price, increase in cost of procurement due to depreciating rupee against USD (US Dollar)

 ·          The Ship Recycling Act enacted by GOI to give effect to the provisions of the Hong Kong Convention (HKC) [1] is a long-term positive for industry

Globally, the ship-breaking industry has been concentrated mainly in top five countries — India, Pakistan, Bangladesh, China, and Turkey. These countries have regularly shared 97–98% of the end-of-life tonnage for the last 15–20 years. At present, the South Asian yards (comprising India, Pakistan and Bangladesh) have emerged as the hub (~80% of the global ship-breaking output) aided by the natural geographical advantage, cheap manpower cost and less stringent regulations. During CY2016 to CY2018, while India scrapped the highest number of ships, Bangladesh fared better in terms of gross tonnage (GT), indicating it as the preferred destination for large vessels. However, Bangladesh overtook India’s position in CY2019 and broke the highest number of ships as well as tonnage due to high demand from its secondary steel manufacturers, leading to favourable scrap prices.

The availability of ships for recycling is inversely correlated to the freight rate of shipping vessels, which in turn is a function of the global demand for seaborne transport and supply of new vessels. A major portion of a ship breaker’s revenue comes from the sale of ferrous or mild steel (MS) scrap, the prices of which continue to remain subdued in the domestic market. The total tonnage demolished by India fell by 37% in CY2019 to ~14 lakh LDT against ~22 lakh LDT in CY2018. Further, stressing on the demand-supply dynamics, Mr. Suprio Banerjee, Vice President and Head, Mid-Corporate ratings, ICRA, said: “The ship-breaking activity remained tepid in India during CY2019 due to subdued demand and depressed scrap prices. While it gathered momentum at the start of CY2020 following the implementation of the International Maritime Organisation (IMO) regulations from January 2020, weakness in the international shipping markets further aggravated by the coronavirus, has dampened sentiments. The outbreak of coronavirus has not only exacerbated the freight market but has also placed restrictions on vessels coming in and out of virus hit nations, as well as the trade routes; and deliveries in the region, thus adding to ship owners and buyers’ woes. The outlook for the sector has accordingly turned negative. Any meaningful recovery of scrap prices in the domestic market and stable foreign exchange rates thus remain important, given that the freight markets are expected to continue to suffer leading to steady flow of tonnage for recycling in the near term.”

The Government of India ratified the Hong Kong Convention (HKC) in November 2019 and the Ship Recycling Act was enacted in India to give effect to the provisions of the HKC in December 2019. The implementation of this Act will streamline existing ship-recycling norms and help in the restriction/proper treatment of hazardous materials on board and the waste produced, post recycling. It will raise the profile of the Indian ship-recycling industry as being environment-friendly, and safety conscious and will go a long way in establishing India’s position as the market leader.

Regarding the financials, the operating profit margin for the Indian ship breakers has remained low (average 1-2%) during the past few years because of the low value addition, stiff competition from the domestic as well as the competing countries’ players and volatile scrap prices. The margin is also vulnerable to foreign exchange rate fluctuations as purchase transactions are denominated in the USD. Purchase of ships is generally backed by a Letter of Credit (LC) in India. Tightening of banking norms for issuance of LCs to purchase ships, is further adding up to the challenges faced by the Indian ship recyclers. Reflecting on the same Mr. Mayank Agrawal, Assistant Vice President, ICRA, added “The industry players are facing turbulent times currently with volatile scrap/steel plates prices, unfavourable foreign exchange rates and restriction on beaching of vessels, which will lead to increase in the procurement cost. This coupled with unsettling sales/scrap prices, the margins for ship breakers are expected to remain under pressure in the near term. However, enactment of the Ship Recycling Act, has proved to be a silver lining. In the near to medium term, the compliance and capex cost for recyclers to comply with the HKC may increase, but the same is expected to be neutralised by higher volumes and competitive procurement costs in the long term.”

ICRA: Emerging Landscape post the New Tariff Order; some shift in subscriber base towards DTH observed

October 03, 2019

A perceptible shift seems to be happening in the subscribers’ base which has moved from multi-system operators (MSOs) to direct-to-home (DTH) players. As per ICRA note, during H1 CY2019, the three MSOs – SITI Networks Limited (SITI), Hathway Digital Private Limited (Hathway) and GTPL Hathway Limited (GTPL Hathway) – reported a cumulative decline of 5.0 million subscribers, whereas the listed DTH players (including Dish TV (India) Limited (Dish TV) and Bharti Airtel Limited (Airtel) reported a subscriber addition of 1.3 million during the same period. The reasons behind this shift include de-activation of subscribers amid confusion regarding implementation of the New Tariff Order (NTO) due to deferment of deadlines and; increase in cable bills as well as implementation of auto-dunning (prepaid billing model) by MSOs.

According to Ms. Sakshi Suneja, Assistant Vice President, ICRA, ‘‘The NTO has brought a level playing field between the DTH operators and the digital cable operators; and thus, quality of service has become an important differentiator for customer acquisition. Most of the digital cable operators consider the churn reported in subscriber base as transient and expect it to normalise, once the systems and processes are established. Nonetheless, some shift in subscribers from digital cable to DTH cannot be ruled out, especially with the rise in cable bills.’’

As for the past subscriber trends, ICRA notes that the annual net subscriber additions for Dish TV and Airtel, which had steadily increased during FY2014 to FY2016, averaging around 4.2 million subscribers per annum, declined to an average of 2.4 million subscribers per annum during FY2017-FY2019. On the other hand, the annual subscriber additions by the top-four MSOs remained healthy during FY2015-FY2017, averaging around 5.72 million subscribers per annum. The subscriber additions, however, tapered drastically to 2.9 million in FY2018 as the digitisation of Phase-III markets neared its completion and remained almost negligible till 9M FY2019, reflecting limited penetration in Phase-IV markets. These operators reported a cumulative decline of 5.1 million subscribers in Q4 FY2019, amid the then on-going implementation of the NTO.

The tables could, however turn, in MSOs favour over the next one year as the new entrant, Reliance Jio (which was commercially launched in September 2019) gains ground. While its prices of broadband are largely in line with peers (of wired broadband), Reliance Jio has an edge over its competitors (especially Bharat Sanchar Nigam Limited) by virtue of its bundled offerings, high data speed, as well as the advantage of having ready customer support through the respective teams of the acquired MSOs - Den, Hathway and GTPL Hathway (in which Reliance Jio acquired controlling stakes in CY2018). The acquisition of pure cable / DTH subscribers may, however, be challenging for Reliance Jio given the former’s low average revenue per user (Rs. 200-250 per month) vis-a-vis a minimum tariff of Rs. 700 of the latter.

Adds Ms. Suneja, “As of March 2019, of the 197 million TV Households (HH), DTH has digitised ~55% of HH. Within this, private players have accounted for 36% and DD Freedish, a subscription-free DTH service owned by the public service broadcaster, has accounted for the balance 15%. Digital cable, on the other hand, digitised around 34% of the total TV HH as of March 2019. The balance 11% is still on analogue mode. Digitisation of cable TV services has required significant capital investments by the industry. Till March 31, 2019, the DTH players^[1] have invested ~Rs. 29,500 crore, while the major (top-four) digital cable players have invested ~Rs. 8,400 crore.”