Chip shortage: Can India tap into the multi-billion-dollar opportunity?
In every adversity, there’s an opportunity. And India could be sitting on one that is literally worth billions of dollars.
As the world grapples with an acute semiconductor shortage, India could be on the cusp of an unprecedented opportunity –only if it could grab it.
The shortages have led to the world running out of semiconductor chips that power practically all our electronic products from smartphones, tablets, computers and gaming devices to even our automobiles, trains and airplanes.
Trade wars, a drought and a fire
The shortages were first caused first by the coronavirus pandemic and then a supply chain disruption after the US placed restrictions on China’s Semiconductor Manufacturing International Corp, the Asian nation’s biggest chipmaker. This prompted US companies to approach manufacturers in other countries to satiate their voracious demand for the silicon chip, blocking companies from other regions out.
A crippling drought in Taiwan and a fire at a major chip manufacturing plant in Japan, the Renesas Electronics Naka factory, took out more capacity from the market and worsened the supply shortage.
To be sure, the world was witnessing a semiconductor chip shortage even before the coronavirus pandemic hit in early 2020. But as economies began shutting down in the wake of global lockdowns, chip manufacturers began cutting back on production, anticipating a fall in demand.
However, as people took to remote work and staying at home, they began ordering laptops, computers, TVs, gaming consoles, smartphones and other electronic devices to work and to keep themselves entertained.
This boosted demand for chips, so much so that the worldwide semiconductor market is now projected to grow in double digits this year and next.
The global semiconductor market is projected to grow 25.1% in 2021 to $551 billion, accelerating from a 6.8% expansion in 2020, according to World Semiconductor Trade Statistics (WSTS). Growth will ease to 10.1% in 2022 with the market reaching $606 billion, as per the WSTS, a non-profit group of semiconductor product companies.
In 2021, all geographical regions are likely to show a double-digit growth. The Asia-Pacific region is expected to grow 27.2%, followed by Europe (26.4%), the Americas (21.5%) and Japan (17.7%), the WSTS forecasts.
On the flip side, the high demand has exacerbated the shortage of chips even further and put pressure on leading chipmakers.
More than half the world’s semiconductors are supplied by just one company—the Taiwan Semiconductor Manufacturing Co (TSMC), whose facilities have been impacted by a severe drought on the island. TSMC supplies chips not only to electronics giants such as Japan’s Sony and US-based Apple Inc but also to Intel, the world’s biggest semiconductor company.
Automakers take big hit
The chip shortage has hit manufacturing across several industries that use electronic components. A case in point is the global auto industry, which has been forced to cut back on production. In India, too, several automakers have had to cut back on production lines in August.
Maruti Suzuki India, the country’s largest carmaker, reported a 19% decline in total sales at 130,699 units in August from 162,462 units in the previous month thanks in part to lower production because of the shortage.
The Business Standard newspaper said in a recent report that Maruti is making an up to 60% cut in production this month after Bosch – oneof its largest chip suppliers – shutdown its factory in Malaysia owing to the pandemic.
Gurgaon-headquartered Maruti is not the only carmaker that has had to take a steep production cut. Mahindra & Mahindra and Bajaj Auto reported a drop of more than 23% and 8%, respectively, in August sales compared with July. Toyota reported a fall of about 2%. News reports even say car sales can drop by as much as 30% during the upcoming festival season, which generally accounts for a third of the yearly sales for most dealerships.
The semiconductor shortage could mean that dealerships would be considering a maximum of 30-day inventory during the Diwali-Navratri season this time, as against the usual 45-60 days.
Eicher managing director Siddhartha Lal has said the chip shortage is likely to hamper production for the company’s iconic Royal Enfield motorcycles for the ongoing quarter, and possibly through the rest of the year as well.
The Society of Indian Automobile Manufacturers, the industry lobby group, has asked the foreign ministry to intervene so as to ensure that when semiconductor plants do reopen, Indian manufacturers are prioritised.
Jio Phone Next launch delayed
Automakers are not the only ones facing the brunt of the chip shortages. Mobile handset manufacturers have been at the receiving end as well. For instance, billionaire Mukesh Ambani’s Reliance Industries Ltd has had to defer the launch of its much-awaited Jio Phone Next smartphone because of the shortage.
The new smartphone, touted as the cheapest 4G-enabled device yet in India, was set to launch on Ganesh Chaturthi last week. However, because of a lack of chip availability, the company has had to defer introducing it by Diwali, in October. Other handset makers, too, have been under tremendous pressure to meet demand.
So, what can India do about it?
Experts say India needs to develop its own chip research and development system and industry. While India did unveil a National Policy on Electronics in 2019, little by way of developing an ecosystem has happened since. Even in countries like Taiwan, companies like TSMC have thrived only with government backing over several years.
Having said that, it is not as if nothing has been done so far. IIT Bombay professor Udayan Ganguly and Mudit Narain, the chief technology officer in the office of the principal scientific advisor to the Indian government, say that the government has indeed taken several steps in this direction.
In a piece on the news website Bloomberg Quint, the duo note that the country’s IT ministry is looking to attract global companies to make the chips in India. Moreover, they say that a recent government study has shown that human resources can be leveraged effectively in India to develop an R&D ecosystem in the country.
In the Union budget of 2017-18, the Indian government had upped the allocation for incentive schemes like the Modified Special Incentive Package Scheme (M-SPIS) as well as Electronic Development Fund (EDF) to Rs 745 crore, in a bid to help spur semiconductor manufacturing in the country. Later, the union cabinet amended the M-SIPS, increasing its allocation further to Rs 10,000 crore.
Moreover, it has also established an Electropreneur Park in Delhi University, to incubate 50 early-stage startups.
Finance minister Nirmala Sitharaman said last month that Indian industry should invest in the semiconductor manufacturing business. So, are any Indian companies looking to enter the semiconductor industry?
For one, the Tatas have said they want to. Tata Group chairman N. Chandrashekharan said last month that the conglomerate is eyeing the semiconductor manufacturing industry and has already set up a business to do so.
The Tata Group hopes that the excessive reliance on China and Taiwan, when it comes to chip manufacturing, will end in the years to come, as other countries look to become self-reliant and set up manufacturing facilities.
However, setting up a semiconductor facility is expensive. It can take anywhere from $3 billion to $6 billion to set up a semiconductor wafer fabrication facility. Will Tata Group make the pioneering move or will any other company step up? It’s too soon to say. But the time to act is now.
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Paras Defence IPO opens next week. All you need to know
Paras Defence and Space Technologies Ltd will launch its initial public offering (IPO) next week, seeking to benefit from bullish sentiment that has pushed stock markets to record highs.
The defence engineering company’s IPO will open on September 21 and close two days later. It has set a price band of Rs 165-175 a share for the IPO.
Paras is the 42nd company to float an IPO in 2021, underlining the rush among Indian firms to launch share sales this year. In addition, an equal number of companies have filed their draft red herring prospectuses (DRHPs) and are awaiting approval from the Securities and Exchange Board of India.
This IPO rush comes even as benchmark indices continue to touch new highs. The 30-stock BSE Sensex, for instance, hit another record on Friday, going past 59,700 before cooling off.
The Paras IPO comprises a fresh issue of shares worth Rs 140.6 crore and an offer for sale of up to 17.24 lakh shares by its existing shareholders including the promoters Sharad Virji Shah, Munjal Sharad Shah and Ami Munjal Shah.
The founders—chairman Sharad Virji Shah and managing director Munjal Sharad Shah—hold a 59.53% stake in Paras Defence. The total promoter and promoter group stake in the company is 79.4%.
Ahead of the IPO, Paras Defence mopped up Rs 34 crore through a pre-IPO sale.
The company plans to use the money raised from the fresh issue to buy machinery and equipment. It also plans to fund working capital requirements, repay debts and use the money for general corporate purposes.
Paras Defence’s business
The company designs, develops, manufactures and tests a range of defence and space engineering products. It caters to four major segments—defence and space optics, defence electronics, electro-magnetic pulse (EMP) protection solutions, and heavy engineering.
It is also the sole Indian supplier of critical imaging components such as large-sized optics for space applications. It has two manufacturing facilities in Maharashtra, located at Nerul in Navi Mumbai and Ambernath in Thane.
The Nerul plant is an advanced nano-technology machining centre to produce high-quality optics and ultra -precision components. The Ambernath facility makes heavy engineering products such as flow-formed motor tubes, vacuum brazed cold plates, titanium structures and assemblies. The company is expanding the Nerul facility.
Paras gets most of its revenue from defence public-sector undertakings and government organisations involved in space research. Its customers include Bharat Electronics Ltd, Hindustan Aeronautics Ltd, Bharat Dynamics Ltd, Hindustan Shipyard Ltd, Electronic Corporation of India Ltd, Tata Consultancy Services Ltd and Solar Industries India Ltd. Its foreign customers include Advanced Mechanical and Optical Systems of Belgium and Tae Young Optics Company of South Korea.
Paras Defence’s financials
The company’s top line hasn’t grown in the last two years and its profit has fallen.
Its consolidated total income was Rs 144.6 crore for the year ended March 31, 2021, down from Rs 149 crore and Rs 1,57.17 crore for the previous two years.
Its consolidated profit after tax fell to Rs 15.78 crore in 2020-21 from Rs 19.66 crore the year before and Rs 18.97 crore in 2018-19.
The company had an order book of Rs 305 crore as of June 30, 2021.
5 Share Market Tips by Swarup Mohanty
If you study the market for a period of time, you will realise that they always move in cycles, and these transitions strongly mirror economic cycles. Markets also respond to major internal events and macro developments such as government elections and economic growth as well as external events like global crises. A near-term example here is the ongoing pandemic which sent markets into a tizzy in the initial stages. When the market goes into a nosedive, it can be very challenging to continue investing as we are, inherently, emotional and biased.
Read Now: 5 Mantras to become financially independent
Yet, there is no rule as cardinal as the need to stay invested. Through the market cycles over the last three decades, there have been a number of learnings which continue to be relevant and can guide us in our future trading and investing journey.
Guest: Mr. Swarup Mohanty, Chief Executive Officer at Mirae Asset Investment Managers (India) Pvt. Ltd. With over two decades of experience in financial services, Swarup is someone who you can truly call a market man. Swarup has seen and navigated the market through everything, right from the post-liberalisation days of the ‘90s, to the recent COVID pandemic. And today, he has very kindly agreed to share with us his top 5 learnings from the markets, through the decades.
5 Lessons to learn on Share Market
1. The ‘90s were an interesting time for India. Literally everything changed. Stories of riches and crashes from that era continue to hold fancy. Any one incident from that time that had a particularly large impact on your learnings and journey?
The ‘90s was when things began to alter in India and the major factor behind this transformation was liberalization. As students of the stock market, the first event that shocked us, and the country at large, was the Harshad Mehta scam. Suddenly, the stock market fell sharply and everything collapsed. Key learnings from this event were:
i. Where there is money, there is theft.
ii. To counter this, there is a need for strong regulations.
iii. Rules must be followed strictly.
iv. Investment and regulatory frameworks ensure discipline.
Sticking to frameworks, both personal and regulatory, will ensure success and a prime example here is American business magnate Warren Buffett.
2. The ‘90s were also the time when the true meaning of globalization revealed itself – the fact that when the globe is closely integrated, then the good and the bad impacts everyone. Lessons from that time are more relevant today than ever before.
The first lesson during the ‘90s came during the 1997 Asian market crash. Even though the crisis occurred outside the country, Indian markets went down 20-30%. However, over the longer term, India and China benefited from the crash as the global money flow shifted from the impacted countries to emerging markets. Lessons from this time period include:
i. Realizing that we were not alone – global events would have an impact on India, especially as the country was opening up. When anything major happens on a global scale, your country will feel the tremors.
ii. We should not be caught by surprise when global events impact us.
iii. The impact could be both positive and negative.
3. Many of us would remember the turn of the century and the expected Y2K destruction. While, thankfully, that didn’t pan out, technology ensured that we started the century with a crash! Can you enlighten us on what crash this could have been and how you navigated that period?
What we went through in 2000 changed perspectives, perpetually, for asset management representatives in the market. Stock markets were clearly led by the technology boom and funds were being sold like never before. Realizing that fund NAVs could fall to 20-25% of the principal value was a shocking lesson from the period. People give fiduciary agents their money with the intention of growing it. From that perspective, it is important to understand that while the mutual fund business looks like a return generation business, it is, in fact, the business of risk management.
i. Focus on risk. The crisis made everybody assess risk better.
ii. There is a risk to investing and also to not investing in the markets.
iii. How a person should be investing depends on individual risk profiles.
iv. Every person’s risk profile is unique and consistently changing. It is about controlling the controllable aspects.
4. So far, the two decades of this century have been fairly eventful. Barely had we recovered from one crisis than the next was upon us. What are the two periods in this century that have impacted your thought process and urged you to reimagine the way you invest and even live your life?
The events that unfolded in 2008 were unbelievable. The top 5 entities crashed and global markets reacted in an unprecedented manner. Every fund was correcting itself, making people realise that markets are not under our control. The thing we can control is asset allocation. Volatile markets create great opportunities and it is imperative that we learn from past crises. When COVID-19 happened, we incorporated previous learnings into asset management and these include:
i. Never stop your SIPs during a crisis as volatility is the best time for investments and rebalancing portfolios.
ii. Every crisis has a start and end date and the world will move on.
iii. Sharp market corrections at the beginning of a crisis is an opportunity.
iv. It is necessary to build a strong emergency fund and have sufficient health insurance.
v. During a crisis, and even otherwise, transition from a straight-line financial plan to a glide path financial plan. This means that you need to rebalance in response to a change in your personal circumstance and the market environment and also systematically shift money from risky assets to safer assets as you near your goal as it ensures a safer landing.
vi. You cannot control the market. But, you can control how you react to the markets during a crisis.
vii. Never repeat your mistakes, rather, apply lessons from the previous crisis to the next one.
5. What is your advice to investors out there?
i. Frameworks, rules and regulations need to be followed
ii. Asset allocation and following the glide path financial plan is of utmost importance.
iii. Allocations should be based on unique circumstances. Rebalance to ensure these circumstances are reflected in your portfolio.
iv. Never stop your SIPs as the market fall is the best time to continue.
v. When you are investing, remember that volatility is your best friend. Accept and build it in your portfolio. If there was no volatility, there would be no opportunity.
vi. Before beginning your investment journey, ask yourself why you are investing. If you know why you are investing, you can easily figure out where to invest.
Things to know before investing in Glenmark Pharma
If you are looking to invest in Glenmark Pharma, then here is all you need to know about the company, its business, and its growth prospects.
About Glenmark Pharma
Incorporated in 1977, Glenmark Pharma is a research-based, global pharmaceutical company headquartered in Mumbai, India. It is a leader in the discovery of new molecules and is focused on inflammation and metabolic disorders. The company is into formulation across dermatology, internal medicine, respiratory, diabetes, paediatrics, gynaecology, ENT and oncology. They have generic drugs and formulation interests across 85 countries including India, USA, Europe, Latin America, Russia, Asia and Africa.
- Over the last 2-3 years, the company has underperformed as compared to the broader health sector due to concerns of high debt, not enough cash flows, and increased spending on innovation and Research & Development (R&D). However, management has indicated that it intends on keeping a tight control on R&D and capital spends so that they can improve their cash flows and reduce their debt.
- Management aims to reduce approximately 50% of their debt with proceeds from the Glenmark Life Sciences IPO and internal cash. R&D and capex expenditure has also been curtailed. Glenmark also plans to divest its drug development arm, Ichnos. This was expected to happen in the second half of 2021 but has been delayed. In the meantime, Glenmark plans to target licencing deals for a couple of it’s auto-immune assets.
- Although overall volumes have been lower due to COVID-19 disruptions, Glenmark’s India volumes have done fairly well, specifically in cardiac products, raspatory franchise, diabetes, and anti-infectives. In addition to this, Glenmark is undergoing final trials for a Nitric Oxide Nasal Spray (licenced in India and other Asian markets) for the treatment of COVID-19. It is expected to launch early next year.
- Abroad, specifically the US, the company’s sales have remained fairly flat over the last 3 years. However, this year the dermatology division in the US is expected to deliver higher revenue due to new launches. Next year, there are a couple of niche, limited-competition products launching which also look promising for growth in revenue.
- It is worthwhile to note that Glenmark Life Sciences went public in July 2021 at a price of Rs. 750. This is the API arm of Glenmark Pharma. API is an active pharmaceutical ingredient contained in the medicine. Glenmark Life Science’s IPO was very well received and over-subscribed 14 times by retail investors. Today the stock is trading at Rs. 688.
Glenmark Pharma share
Glenmark Pharma’s stock is trading at about Rs. 514. The stock price had been falling from 2015 (Rs. 1200) until when the pandemic hit in March 2020 (Rs. 200). The stock has performed well since then. It is a stock worth adding to your portfolio to have some exposure in the pharma sector. It is a strong company that is tackling their problems and cleaning up the financial concerns that investors have had for a while. Fundamentally, this may be a good price to add to your portfolio.
Investing in mid-caps? Here are 10 stocks where FIIs have upped stake
Indian stock markets have hit a new high with a renewed flush of money moving towards large-cap counters as investors are looking at some comfort factor rather than bet on high-beta mid- and small-cap stocks.
Foreign portfolio investors (FPIs) or foreign institutional investors (FIIs) had become more cautious about investing in India but they did pump in more money into a clutch of mid-cap stocks for the last few months.
Quarterly shareholding data shows they pushed up their holding in as many as 83 listed companies that have a valuation of $1 billion or more. More than half of these companies are in the mid-cap pack.
A sector-wise analysis shows a vast spread but some sectors like chemicals and pharmaceuticals stand out. Around one in five of the mid-caps where FIIs increased their holding during the April-June quarter are in the pharmaceuticals sector.
Among others, financial services, technology and engineering sectors also saw multiple mid-caps attract fresh money flow from FIIs.
Top mid-caps where FIIs bet
Navin Fluorine, one of the largest fluorochemicals makers in the country, was among the largest mid-caps that saw offshore portfolio investors turn bullish during the three months ended June 30, 2021.
Vinati Organics, a producer of speciality organic intermediates, monomers and polymers including prime raw material for the manufacture of the vital bulk drug ibuprofen, was another favourite.
FIIs also increased their stake in GMR Infrastructure, the parent of the company that operates the New Delhi international airport as lower rates of Covid-19 infections prompts authorities to ease curbs and air traffic improves.
FIIs also bought shares of drugmakers JB Chemicals & Pharmaceuticals Ltd as well as Glenmark Pharmaceuticals. In the broader healthcare sector, the investors bet more on diagnostics chain Metropolis Healthcare.
In the financial services sector, offshore investors bought shares of Computer Age Management Services, underlining demand for shares of the mutual fund transfer agency as more and more Indians invest in capital markets.
Indian Bank and IIFL Wealth Management were the other financial services stocks that attracted FIIs.
In the IT sector, Firstsource Solutions saw buying from offshore investors.
Other favourite mid-caps
A number of mid-caps that command a market value between Rs 10,000 and less than Rs 20,000 crore also saw buying interest from FIIs. These include drugmakers Suven Pharmaceuticals and Eris Lifesciences.
Other companies in this list are Chambal Fertilisers, Welspun India, Affle (India), Amara Raja Batteries, Indigo Paints, Graphite India, Lux Industries, CG Power, Zensar Technologies, Tanla Platforms, Sterlite Technologies and PNB Housing Finance.
If we ignore the market value of the companies, a different list emerges of mid-cap stocks where FIIs bought a stake of 2% or more last quarter.
These include active pharmaceutical ingredients maker Solara Active, digital gaming venture Nazara Technologies, Great Eastern Shipping, Graphite India, Burger King India and HLE Glascoat. Of these, Nazara and Burger King have gone public over the past year while HLE Glascoat’s stock has jumped fourfold.
Adani move sizzles media stocks. Is it Zee or NDTV on the radar?
The Adani Group has hired a new chief for its entry into the media sector, pushing media stocks higher to hit circuit breakers on Monday and fuelling speculation of an acquisition move by the Gujarat-based conglomerate.
The billionaire Gautam Adani-led group named journalist Sanjay Pugalia, until recently the president at Quint Digital Media, as the CEO and editor-in-chief of its media vertical during the weekend.
The group said Pugalia will lead its media initiatives and support the corporate communication team. He will report to group scion Pranav Adani and will work closely with Sudipta Bhattacharya, CTO of the group and CEO of its US operations.
Pugalia comes with experience working in digital, television and print. Prior to Quint, he led the CNBC-Awaaz Hindi television channel that’s part of the TV18 group controlled by billionaire Mukesh Ambani, India’s richest man.
The Adani Group has been diversifying aggressively in the last five-seven years partly via an inorganic growth strategy. A senior appointment in a sector it has not been involved directly fuelled rumours that it is looking at some of the existing media houses as an entry point.
Zee or NDTV?
Two news media organisations saw their stock prices hit circuit breakers on Monday. New Delhi Television Ltd (NDTV) and Zee Media Corporation were the counters that saw their shares hitting the upper circuit.
Zee Media is the news business arm of the Essel Group, which is known for a string of TV channels including its flagship Zee Entertainment Enterprises Ltd.
NDTV’s share price rocketed nearly 10% to Rs 79.65 a share, valuing the company at Rs 513 crore. Zee Media’s share price rose about 5% to Rs 11.78 apiece, giving it a market capitalisation of Rs 737 crore.
NDTV had in the past faced heat over alleged tax evasion that the company denied. Zee’s parent Essel has been facing a financial crunch. Essel’s flagship firm Zee Entertainment, which houses its entertainment channels, has been facing shareholder activism over strategy and corporate governance.
The Essel group’s debt woes have meant it has been losing a grip on the listed companies. The promoter stake in Zee Media itself has shrunk from over 55% to under 15% in the last two years. This makes it a prime target given its brand recall and need for cash infusion to sustain its operations.
NDTV, which is still majority owned by its founders Prannoy and Radhika Roy, has been in the rumour mills for being a takeover target for several years now.
Ambani vs Adani in the making?
The impending move to enter the media business could also pitch Gautam Adani against Mukesh Ambani, who controls Network18 and TV18 with news channels like ETV and CNBC-TV18 among several others.
Mukesh Ambani-led Reliance Industries had acquired control of Network18 after converting into equity the debt instruments it used to back its erstwhile promoter Raghav Bahl.
Bahl, who now runs Quint Digital, has a partnership with Bloomberg for its digital publication but has been unsuccessful in securing government approval to enter the TV news business.