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Friday,21-January-2022

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Hotel occupancy rates to take a hit for 2-3 months more: ICRA

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ICRA

The resurgence of Covid-19 will adversely impact the occupancy rates of India’s hotel industry for another two-three months, ratings agency ICRA said.

The pandemic’s second wave has plunged the sequential occupancy rates of the industry.

Accordingly, the occupancy rate had sequentially dipped from 45 per cent in March 2021 to 32-34 per cent in April 2021 and further to about 25-27 per cent in May 2021.

The occupancy rate had fallen to lows of 13-15 per cent during the first few months of FY2021 and demand was largely limited to Vande Bharat repatriation travelers, medical or other frontline workers, stranded travelers and work-from-hotel guests.

After hotels reopened gradually from Q2 FY2021, demand came from staycations, drive-to-leisure and wedding ‘Meetings, Incentives, Conferences, and Exhibitions’ (MICE) and occupancies inched closer to 50 per cent in Q4 FY2021 providing a healthy dose of optimism to the industry.

As per ICRA, the recently expanded scope of ECGLS has come as a relief for larger hotel companies.

Under the expanded scope of the scheme, Centre has recently removed Rs 500 crore ceiling cap on loan outstanding for eligibility under the ECLGS 3.0, subject to a maximum assistance of Rs 200 crore or 40 per cent of the borrowings whichever is lower.

Centre had launched the ECLGS in May 2020 to protect the MSME sector from the massive economic upheaval caused by the pandemic.

“About 70 per cent of ICRA’s hospitality portfolio applied for moratorium during the first wave,” said Vinutaa S, Assistant Vice President and Sector Head, ICRA Ratings.

“Subsequently, most companies availed debt under ECLGS 1.0 and 2.0, and through other long-term debt to shore up their liquidity for meeting operational and financial commitments. Some companies also resorted to equity fund raising from investors and promoters.”

According to ICRA, the recent expansion is a welcome move and is expected to benefit larger hospitality companies.

“About 32 per cent of ICRA rated debt is incrementally eligible for loan availment because of the cap removal.”

Besides, a severe impact of the pandemic has resulted in a sharp increase in downgrades.

“About 70 per cent of the entities are on negative credit outlook, compared to 92% of the entities with stable outlook in January 2020,” ICRA said.

“The industry credit profile is expected to weaken with the second wave derailing the recovery momentum and this could result in more negative rating actions.”

Currently, ICRA expects the occupancy and ‘RevPAR’ to be adversely impacted, at least over the next two-three months because of the second wave.

“The industry ‘RevPARs’ would be tied to the pandemic timelines, although widespread vaccination rollout would ease the situation to an extent.”

“The situation is still evolving and remains a monitorable. Recovery to pre-Covid levels is still at least two years away.”

Business

Toyota launches lifestyle utility vehicle Hilux

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Automaker Toyota Kirloskar Motor (TKM) on Thursday , launched “Hilux” lifestyle utility vehicle.

According to the company, the Ex-showroom prices of the new vehicle will be announced in March 2022 before the start of the deliveries in April 2022.

“Today, as India continues to make larger economic strides, many customers are seeking a sophisticated lifestyle vehicle that delivers exceptional on and off-road prowess and fulfil their daily urban mobility needs be it work or pleasure,” said Masakazu Yoshimura, Managing Director, TKM.

As per the company, the Hilux is loaded with features like a heavy-duty turbo engine and diamond-like carbon coating on the piston rings for maximised frictional efficiency.

“The result is a whopping 500Nm of Torque which is by far the best in the segment,” the company said.

“The Variable Flow Control’ to the power steering has boosted drivability making the steering lighter at low speed in city traffic condition and heavier at higher speeds cruising on a highway.”

Besides, the Hilux comes with an unmatched water wading capacity of 700mm.

It features the same platform (body-on frame chassis construction) that underpins the Innova Crysta and Fortuner.

Globally, the Hilux sales has surpassed 20 million units.

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India’s FY23 GDP to witness ‘meaningful’ growth; to rise by 7.6%: Ind-Ra

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GDP

 India’s FY23 GDP is expected to grow 7.6 per cent year-on-year basis, said India Ratings and Research (Ind-Ra).

As per the ratings agency, after a gap of two years, the Indian economy will show a “meaningful expansion”, as the real GDP in FY23 will be 9.1 per cent higher than the FY20 (pre-Covid) GDP level.

“However, the size of the Indian economy in FY23 will be 10.2 per cent lower than the FY23 GDP trend value,” the agency said.

“A continued weakness in private consumption and investment demand is estimated to contribute 43.4 per cent and 21.0 per cent, respectively, to this shortfall.”

However, it pointed out that if the impact of Omicron on 4QFY22 growth turns out to be greater than the estimate then there could be some upside to the FY23 growth originating from the base effect.

“Nonetheless, there are risks to the ongoing recovery.”

Notably, the agency cited that National Statistical Organisation’s (NSO) advanced estimate (AE) of FY22 showed that private final consumption expenditure (PFCE), grew by only 6.9 per cent YoY in FY22, despite a low base and sales data of many consumer durables showing robust growth.

“This indicates that the consumption demand is still weak and not broad based. In fact, the slowdown in PFCE had begun even before the Covid-19 pandemic had hit the Indian economy.”

“Robust PFCE growth is a must for a sustained growth recovery.”

Besides, it said that wage growth both in the rural and urban areas is facing significant headwinds and has been declining since mid-2020.

“More importantly, real (inflation-adjusted) wages are indicating an erosion of household’s purchasing power. Another factor that has impaired the consumption demand lately is an abrupt rise in the health expenditure of households.”

“These trends may be cyclical in nature, but the picture even at the structural level is not healthy for households.”

Consequently, household savings have declined and their leverage has gone up significantly since FY12, the agency said.

In addition, it estimated that investments, as measured by gross fixed capital formation (GFCF), to grow 8.7 per cent YoY in FY23.

“However, private investments have been down and out over the past several years and Ind-Ra believes the revival of private investment demand will be a slow and drawn-out process.”

“The two developments that can, however, hasten this process are merchandise exports which have shown a surprise turnaround in FY22 and the Production-Linked Incentive Scheme announced by the union government in April 2020.”

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Business

Higher standard deduction for salaried may be part of tinkering

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The Union Budget 2022 may include a higher standard deduction for salaried taxpayers and tax incentives related to affordable housing.

Emkay Global Financial Services said in a report that on the revenue front, gross tax/GDP ratio is expected to increase to 10.7 per cent amid healthy tax buoyancy across segments. Though we do not see any major changes in taxes, we do not rule out minor tinkering in the form of higher standard deduction for salaried taxpayers; tax incentives related to affordable housing; or marginally higher customs duties on PLI-related finished/semi-finished products. Separately, lower non-tax revenue will be led by lower RBI dividends.

The spending focus will likely be on welfare, rural, health and MSMEs. We will also watch for financial sector initiatives (resolutions, higher FPI limits to facilitate divestment in select PSBs on sale, etc.), which could improve the efficacy of the financial sector’s ability to fund the recovery better, the report said.

Amid various push and pull, FY22 GFD/GDP could just about balance at 6.8 per cent. Positive buffers such as bumper RBI surplus, robust tax collection, and higher nominal GDP could get offset by higher payouts than budgeted on food, fertiliser subsidy, health, NREGA, Air India SPV; and possible miss on ambitious divestment targets (despite possible mega LIC IPO in March 2022).

Asset-sale execution will undeniably become the key balancing aspect, especially with a healthy NMP pipeline. We pencil in a modest divestment of Rs 800 billion, and do not account for any major 5G spectrum windfall amid limited clarity on the reserve price, the report said.

The upcoming Budget faces acute policy trade-offs between nurturing a nascent growth recovery and diminishing fiscal space with challenging debt dynamics. The uneven recovery post the pandemic raises questions about the sustainability of demand, especially as the labour market is also potentially divided. For targeted policy responses, fiscal policy tends to be more effective than monetary policy. Thus, a delicate balance needs to be maintained, ensuring the fiscal impulse is maximized to boost potential growth, even as policy adherence to medium-term fiscal sustainability is signalled, the report said.

This would require the expenditure-to-GDP ratio remaining healthy, front-loaded investment-focused stimulus, especially amid its larger multiplier effect on growth and employment. This necessitates innovative reforms, better resource allocation, and possible fiscal funding by aggressive asset sales in the form of existing functional infrastructure monetisation, disinvestments, and strategic sales, among others.

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