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Sectors Facing Slowdown Pressures

There are sectors that are facing the heat of the slowdown and are unlikely to benefit much from what the budget has to offer


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Some sectors face adverse situations despite the state of the economy for their own unique reasons. We identified four sectors that are struggling because of their own dynamics, with most of the companies in these sectors being loss making. Some of them are consistently losing on profits with time. In the following page, check out what ails four sectors and why they are unlikely to revive soon.

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THE LISTED COMPANIES IN THE AIRLINES INDUSTRY have never made profits in the past five years. They are struggling and fighting with each other on fares, especially in the low fare segment. The three listed companies; Jet Airways, Spicejet and Kingfisher made a cumulative loss of around R10,000 crore in FY14. The major issue that plagues this sector is that of managing input cost, especially fuel. This accounts for more than 50 per cent of revenues and is not in the hands of the company. Secondly revenues have struggled due to intense competition, and the inability to pass on the rising costs to consumers. It is a structural shortcoming and this sector is expected to continue like this in the current scenario.

Airlines

CompanyMarket cap
(Rcr)
Net profit
FY14 (Rcr)
Net profit
FY13 (Rcr)
Net profit
FY12 (Rcr)
Jet Airways2868-4129-780-1420
Spicejet1009-867-255-410
Kingfisher Airlines278-4836-3311-1532

THE SUGAR SECTOR IS HIGHLY CYCLICAL IN nature, however, its down cycle is quite prolonged. The companies are either loss making or have seen their profitability fall year on year consistently. The two factors that govern the sector: revenue and input costs are both regulated by the government. For instance, the maximum sale price and quantity of export is determined by the government. Likewise, companies can't even control their main raw material, which is sugar cane, as the minimum support price that is to be paid to the farmer, is again fixed and regulated by the government. A long tern solution that could bring respite to this sector, but that is sadly not visible in the near future.

Sugar

CompanyMarket cap
(Rcr)
Net profit
FY14 (Rcr)
Net profit
FY13 (Rcr)
Net profit
FY12 (Rcr)
E.I.D. Parry3679219363527
Shree Renuka Sugars2633-1479-374-155
Balrampur Chini Mills194681610
Bajaj Hindusthan1915-1480-252-154
Bannari Amman Sugars125329142106
Triveni Engineering779-1993-117
Dhampur Sugar Mills358-782330
KCP Sugar & Industries280334129
Sakthi Sugars253-162-91-53

CURRENTLY MAJOR COMPANIES IN THE HOTEL sector have shown losses or declining profits except for a few. The sector has suffered due to slowdown and there are company specific issues hurting the companies. We think this is not a long term problem and companies operating with efficiency will come back on track. Leela and Mahindra Holidays are going through expansion and can spring back post consolidation. Indian Hotels suffered losses due to non-recurring exceptional losses on contract renewals. There are prospects of turnaround and growth.

Hotel

CompanyMarket cap
(Rcr)
Net profit
FY14 (Rcr)
Net profit
FY13 (Rcr)
Net profit
FY12 (Rcr)
Indian Hotels8701-523-39126
EIH549611847121
Mahindra Holidays27588791102
Sterling Holiday Resorts1168-16-21-41
India Tourism Dev.1158938
Hotel Leela Venture1120-442-433-393

IT EDUCATION SECTOR HAS GOT STAGNANT and the companies which went through extraordinary pace of growth during the IT boom and the pre 2009 slowdown are now struggling due to lack of room for growth. NIIT and Aptech capitalised on the booming IT needs in the 2000-10 decade, whereas Educomp and Everonn benefitted on digitisation in the education sector in the past few years. NIIT and Aptech have suffered with higher availability of trained IT graduates. On the other hand, Everonn and Educomp were in the news for miss-appropriate use of IPO funds and faced working capital crisis. The sector is facing a pause in its revenues and is making losses due to huge sunk costs in form of franchisee and real estate. As of now there is no visible respite in this sector.

IT-Education

CompanyMarket cap
(Rcr)
Net profit
FY14 (Rcr)
Net profit
FY13 (Rcr)
Net profit
FY12 (Rcr)
NIIT928-36-2562
Educomp Solutions475-386-143137
Aptech373283175
Everonn Education125-148-328-91
Compucom Software11010811


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