Where dragon’s claws have sunk...2020/06/26 · Source: Motilal Oswal Financial Services Ltd...
Transcript of Where dragon’s claws have sunk...2020/06/26 · Source: Motilal Oswal Financial Services Ltd...
HIGH TRADE DEFICIT WITH CHINA
CONSUMER DURABLES CHEMICALS
PHARMACEUTICALS
AUTOMOBILES
E-COMMERCE
14 CHENNAI FRIDAY26062020
Where dragon’s claws have sunkIndia’s border conflict with China has sparked a sentiment focused on drastically reducing dependence on Chinese imports. But that is
easier said than done as Indian value chains have deep material links with China, according to a report from financial services firm Motilal Oswal. Here’s a closer look at some key bilateral trade metrics and the sectors vulnerable to such policy changes
DEPENDENCE ON NETWORK EQUIPMENT
Telcos are dependent on Huawei and ZTE for
network access, which includes front-end telecom
sites as well as backhaul network
Huawei’s equipment is used in three of Bharti Airtel’s circles, and 7 of Vodafone India out of a
total of 22 circles
Backhaul equipment is far more deeply deployed
across India
Globally there are 4-5 major network equipment
producers and Huawei is one of the largest, along
with Ericsson, Nokia Siemens, Samsung and ZTE
HIGH REQUIREMENT FOR TELECOM EQUIPMENT
Bharti and VIL incur `100-200 billion annual capital expenditure over adding
access sites and improving backhaul – transport and
core capacity
While Bharti and VIL procure equipment from
large vendors like Huawei, Ericsson and Nokia
Siemens, RJio buys from Samsung
Telcos may find it commercially unviable to
switch their network equipment requirement for maintenance and upgrade
to a non-Chinese vendor
China is deeply entrenched in the global smartphone
supply chain. Any disruption in Chinese products may
have a major impact on 4G adoption in India
NEED TO CREATELOCAL PLAYERS
Since India has historically sourced network equipment
from foreign players, it’s difficult for Indian companies to gain
relevance
For an Indian player to become a dominant force, a
longer gestation of R&D investment and scale to
bring profitability may be required
Ajanta: ~100% of API requirement outsourced. Total import is 7-8% of raw material requirement
Alkem: ~70% of API requirement outsourced
Aurobindo: ~50% of the raw material requirement is dependant on China
Cadila Healthcare: ~45% of API requirement is outsourced
Cipla: Except in oncology and respiratory, all the API requirement is outsourced
DRRD: 40-45% of API is outsourced. High single-digit direct dependance on China
JLS: Some of the KSM for API (~7% of total sales) is directly procured from China
Strides: ~100% of API requirement is outsourced. About 35-40% of requirement is fulfilled by Indian API firm Solara
From barely any in FY00,India has ended up with a trade deficit of $48.6 billion(1.7% of GDP) with China in FY20
(in %of GDP)
(in $ bn)FY00
FY05
FY10
FY15
FY20
0.8
1.5
19.2
48.5
48.6
0.2FY00
0.2FY05
1.4FY10
2.4FY15 1.7
FY20
Chinese brands in TV and mobiles have a strong presence in Indian markets. They are looking to up
their market share in refrigerators, ACs and washing machines
Supply chain dependence on China is high. It will be hard to replace suppliers in critical components like compressors and LED chips
INDIA TV INDUSTRYmarket share of key players (in %)
INDIA MOBILE INDUSTRYmarket share of key players (in %)
Xiaomi Vivo Samsung Oppo Realme Others
Xiaomi LG Samsung Sony TCL VU Others
Share of Chinese brands in total
76%
Share of Chinese brands in total
49%
31
33
13 14 109
7
22
21 1611
13
9
27 PER CENTof total imports are
from China, with the country being a key
supplier of auto components
It would be difficult to replace Chinese
suppliers in segments such as electricals and
semi-conductors as the required scale and skill are not available
CHINA ACCOUNTS FOR OVER A QUARTER OFTOTAL AUTO COMPONENT IMPORTS
30% OF DOMESTIC CONSUMPTION OF AUTO COMPONENTS IS IMPORTED
(in %, FY19)
2France
27China
14Germany
10S Korea
14Other
countries
9Japan7
US
5Thailand
5Singapore
4Italy
3UK
(imports as % of auto components market)
20
25
30
35
FY09 FY13 FY17FY11 FY15 FY19
30.1
23.1
24
29.2
31.3
33.9 33.332.9
29.3 29.5
29.9
Ant Financial/AlibabaInvested in: Paytm, Snapdeal, Zomato, Big Basket Total investment in India: $2.7 bn
TencentInvested in: Policybazaar, Ola, Udaan, Flipkart, Byju, Dream 11, Hike, SwiggyTotal investment in India: $2 bn
Shunwei CapitalInvested in: Zomato, MeeshoTotal Indian investments: $0.13 bn
Raw material imports from China for the agrochemical industry range between
10-50 PER CENTdepending on the product portfolio, with Indian firms looking for alternatives to China
The specialty chemical sector has relatively lower dependency on China for raw materials
India-based active ingredient/intermediate manufacturers would benefit from an import ban as formulators would turn to domestic manufacturers for sourcing
We are dependent on China for
60-70 PER CENTof key raw materials for theindustry. A ban on imports could lead to supply chain disruption in the Indian pharma industry
Raw materials from China are estimated to be
20-30 PER CENTcheaper than those made in India
An import ban would
raise costs in the short-to-
medium term, but is
unlikely to result in
unavailability of APIs or
plant shutdowns
Substantial investment, time andgovernment approvals are needed to substitute
imports from China in the supply chain
BULK DRUG AND DRUG INTERMEDIARIES
IMPORTS (in $ mn)
2018 2019 Q1, 2020
China Rest of the world
1,10
92,
385
2,35
21,1
36
228
534
SOURCING OF RAW MATERIALS FROM CHINA, BY COMPANY(API: active pharmaceutical ingredient; KSM: key starting material)
TELECOM
Chinese companies have high investment exposure to some key
start-ups in India. With the pre-
screening of Chinese investments, some
Indian tech start-ups could face a supply
crunch in funds
KEY CHINESE INVESTMENTS
IN INDIAN START-UPS
Hillhouse Capital:Invested in: Swiggy, Udaan, CredTotal investment in India: $0.16 bn
TR CapitalInvested in: Flipkart, Lenskart, Urban Ladder, Big BasketTotal investment in India: $0.11 bn
Sun: ~45% of API requirement isoutsourced
TRP: ~70% of API requirement is outsourced Source: Motilal Oswal Financial Services Ltd
FRAGILE ECOSYSTEM
PARIS: Scientists have found bits of polystyrene in the guts of tiny, soil-dwelling organisms in the Antarctic, raising concern that microplastics pollution has already “deeply” en-tered the world’s most remote land-based food systems.
While the infiltration of micro-plastics throughout the oceans is well-known, researchers said their findings provided the first evidence of contamination in the Antarctic terrestrial food chain.
“Plastics have therefore entered even some of the most remote soil food webs on the planet, with poten-tial risks for the whole biota and eco-systems,” said authors of the study.
They warned this could also be a new stressor for fragile polar ecosys-tems already facing threats from cli-mate change.
Scientists focused on collembolan
Cryptopygus antarcticus — small or-ganisms commonly known as spring-tails that can jump in a similar way to fleas, although they are not classed as insects.
They are among the few organisms adapted to survive in the harsh Ant-arctic conditions and are “often the dominant species” in the few areas
of the region not covered by ice, the study said. They mainly eat micro-algae and lichens.
Researchers, led by scientists from Italy’s University of Siena, collected the creatures from a chunk of poly-styrene foam covered in a green layer of micro-algae, moss and lichens on King George Island in the South Shetland Islands.
Human activity in the area includ-ing scientific research stations, air-port and military facilities, and tour-ism have acted to make it “one of the most contaminated regions of Antarctica”.
By examining the collembola us-ing an imaging technique with infra-red and comparing the images to fragments of the polystyrene, the re-searchers “unequivocally” detected traces of the plastic in their guts. The authors said they believed the creatures ate the plastic fragments while grazing on their usual food.
COVID-19 IMPACT
The Covid-19 pandemic may lead to 95,000 addi-
tional tuberculosis (TB) deaths in India in five years due to disruptions to health services, and delays to diag-nosis and treatment, ac-cording to new estimates published in the European Respiratory Journal. Re-searchers in the United Kingdom estimated addi-tional TB deaths and cases in China, India and South Africa over the next five years. They examined the impact of various reduc-tions in social contacts and impacts on health services due to Covid-19.
TECH HUB
Software giant Atlassian will build the world’s
tallest “hybrid timber” building for its new head-quarters in Sydney, the com-pany said. The 40-storey structure, coming in at 180 metres, will be constructed with timber mass and will feature a glass and steel fa-cade, topped by outdoor gar-dens. The Atlassian build-ing will operate on 100% renewable energy. It will use Mass Timber Construc-tion, a technique that fuses softwoods, which Atlassian described as a key technol-ogy to lower the building’s carbon footprint.
Timber-based tower in Oz
FACT OF THE MATTER
95K more TB deaths in 5 yrs
Researchers collected samples from a chunk of polystyrene foam in the Antarctic
SUPERNOVA
PARIS:A mysterious object roughly 800 million light years from Earth detected using gravita-tional wave sensors is either one of the smallest black holes or one of the largest neutron stars so far discovered, scientists said on Wednesday.
The Advanced Virgo detector at the European Gravitational Observatory (EGO) in Italy and two wave observatories in the US discovered the object last year and calculated it to weigh around 2.6 times our own Sun.
That places it in the Universe’s “mass gap”, referring to the virtually complete lack of ob-served objects between 2.6-5 solar masses. They said the object formed when another unknown body merged with a large black hole around 800 million years ago, in doing so emitting a huge gravitational wave detectable on Earth.
Both neutron stars and black holes form when massive stars burn through their nuclear fuel and explode in phenomena known as supernovae.
Stars with lighter cores tend to form neutron stars. Heavier ones however collapse into black holes, whose mass is so condensed its gravity sucks in dust and gas from surrounding galaxies.
The team behind the research, published in The Astrophysical Journal Letters, said there were several possible explanations for the ob-ject’s unique nature.
Mystery space object could be the smallest known black hole
1st evidence of plastic pollution in Antarctic