Positive Outlook for Manufacturing in Q4FY18: FICCI Survey | CORPORATE ETHOS

Positive Outlook for Manufacturing in Q4FY18: FICCI Survey

By: | March 12, 2018
Mar 12: FICCI’s latest quarterly survey on Manufacturing expect positive outlook for the manufacturing sector in Q-4 (January-March 2017-18) as the percentage of respondents reporting higher production in fourth quarter has increased significantly vis-a-vis previous quarter of 2017-18. The proportion of respondents reporting higher output growth during the Q-4 2017-18 has increased significantly to 55% from 47% in Q-3.
This positive outlook is notable as Q-4 2017-18 witnessed the highest percentage of respondents (55%) expecting higher production since Q-2 of 2016-17, observed FICCI Survey. The percentage of respondents reporting low production has also come down to 11% in fourth quarter from 15% in Q-3 of 2017-18.

FICCI’s latest quarterly survey assessed the expectations of manufacturers for Q-4 (January-March 2017-18) for twelve major sectors namely automotive, capital goods, cement and ceramics, chemicals and pharmaceuticals, electronics & electricals, food products, leather and footwear, machine tools, metal & metal products, paper products, textiles and textiles machinery.

Responses have been drawn from over 300 manufacturing units from both large and SME segments with a combined annual turnover of over Rs 3 lac crore.

In terms of order books, 51% of the respondents in Q-4 (January-March, 2017-18) are expecting higher number of orders as against 42% of Q3 2017-18 which again is a sign of revival.

Capacity Addition & Utilization
Though capital good has shown visible signs of revival, the future investment outlook remains pessimistic as 64% respondents in Q-3 2017-18 reported that they are not planning any capacity additions for the next six months. High raw material prices, low domestic and export demand, exchange rate appreciation, increasing imports, excess capacities and shortage of working capital finance are some of the major constraints which are affecting expansion plans of the respondents.
Overall capacity utilization in manufacturing remains low.

The average capacity utilization for the manufacturing sector is about 77% for Q-3 2017-18 as reported in the survey which is similar to that of Q-2 2017-18. In some sectors like electronics & electricals, automotive, capital goods, textiles, textiles machinery, leather & footwear, metal & metal products and machine tools, average capacity utilization has either increased or remained almost same in Q-3 of 2017-18.

Inventory scenario has not changed much in 2017-18. In third quarter, 90% of the respondents have reported that they have maintained either more or same level of inventory which is similar to that of previous quarters.

The outlook for exports seems marginally positive as 47% of the participants are expecting a rise in the exports for Q-4 and 34% are expecting the exports to continue on same path as that of same quarter last year.

Rupee appreciation has also affected exports during Q-3 2017-18 as 80% of the respondents reported that the exports were affected by upto 5% due to rupee appreciation.

Hiring outlook for the sector remains subdued though better than last quarters, in near future as 70% of the respondents mentioned that they are not likely to hire additional workforce in next three months. This proportion has declined as compared to the previous quarter where 85% of the respondents were not in favour of hiring additional workforce.

Interest Rate
Average interest rate paid by the manufacturers has remained same as that of previous quarter standing at 11% p.a. but the highest rate continues to be as high as 16% (increased by 1% over previous quarter).

Sectoral Growth
Based on expectations in different sectors, it is noted that high growth is expected in Automotive and Capital Goods for Q-4 2017-18. Moderate growth is expected in Cement and Ceramics, Chemicals & Pharmaceuticals, Leather & Footwear, Paper, Machine Tools, Metals and Metal Products,Electronics & Electricals and Food Products in Q-4 2017-18 whereas low growth is expected in Textile Machinery and Textiles sector.
Production Cost
The cost of production as a percentage of sales for manufacturers in the survey has risen significantly for 62% respondents in Q-3 2017-18. This is primarily due to increase in cost of raw materials, increased wages, power cost and higher GST rates on certain products.