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Demonetisation

Ground Zero: Better seen than heard


December 2016

Jewellery

Cons. Durables
Cement

Automobiles
BFSI

FMCG

SECTOR

CITY
Chennai
Coimbatore

Pune
Nashik
Kolkata
Surat
Vapi

Delhi

Edelweiss Research Team


EdelPulse

ExecutiveSummary

ThegovernmentsdemonetisationmoveonNovember8hasevincedextremereactions.
We sent out 10 Edelweiss foot soldiers to 8 locations to accurately assess the impact of
demonetisationacrossselectsectorsauto,banking,consumerdurables,FMCG,retailers,
jewelleryandSMEs.Inthefirstround,wecoveredlargercitiesDelhi,Chennai,Kolkata,
among others. The rationale for choosing these urban locations was that they are
anticipated to recover earlier given higher linkages with banking and the organised
economy. Key findings of our channel checks were: (1) prevalence of regional disparity
North whining, South adapting; (2) centres/sectors exposed to the salaried segment
believethelullistransientandwillimprovewitheasingofliquiditycrunch;(3)cashdriven
SME segment has been severely impacted and it needs to push the reset button to get
back on track; and (4) journey towards a cashless economy has begun. We believe, it is
tooearlytodrawconclusivetrendsatthisjunctureand,hence,weintendtocontinueto
monitorthedevelopmentsatregularintervals.

Regionaldisparity:Wideandclear
DelhiandWest,wheretheproportionofcasheconomyisfarhigher,weremorereticenton
demandrecovery.Comparatively,Southwasfarmoreacceptingandhasquicklyadaptedto
thechanginglandscapeduetorelativelywellentrenchedbankinghabits.Ergo,whilequeues
atATMswerefarlongerinNorthandWest,theywereminimalinCoimbatore,Nashikand
Kolkata.

Businessandtrade:Jurysstilloutonimpactofdemonetisation+GST
We came across mixed reactions in our channel checks with SMEs, traders, etc. In
businessesliketextilesandchemicals,largeplayerswerebetterpreparedtoquicklyadapt
tochangesintransactingbusiness.However,smallerandunorganisedplayers,wherecashis
the predominant source of transactions, were perturbed. Most were of the view that a
lethalcombinationofdemonetisation+GSTcouldpermanentlydenttheirbusinesses.Apart
fromthis,manybusinessesalsohintedthattheymaybeforcedtorelieveafewtemporary
workersifdemandfailstorecoverinthenext23months.Fromthelongtermperspective,
job losses in the unorganised segment is a key monitorable to assess if the anticipated
consumptiondemandrecoverywillhavetobetempered.Participantsexpectthatupcoming
budgettospringapositivesurprisetoboostmoralepostdemonetisation.

Consumptiondemandrecovery:Keepingfingerscrossed
Post the initial shock and awe wherein sales plummeted 80%, normalcy is returning
gradually in consumerfacing businesses, though sales are still down 2030%. While
jewellerybusinessisdown>50%,consumerfacingbusinessesexpectsalestonormalisein1
3 months once liquidity improves, spearheaded by the salaried class. In Nashik and Vapi,
where~15%customersarefarmers,businessesareoftheviewthatoncethecashcrunch
improvesandkharifcropsalesarerealised,demandfromthesecustomerswillreturn.Our
estimated recovery sequence is: FMCG, auto, BFSI, consumer durables, cement and
jewellery.

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Embarkingonjourneytoacashlesseconomy
Customersseemtobewillingtoaltertheirtransactionhabits.Insegmentslikeauto,BFSI,
consumer durables and FMCG, people have started preferring cashless transactions. The
willingness of gold finance customers to move to cashless transactions, especially in the
South,cameasapositivesurprise.

Sweeteningofferstoeasepain
Though formal discounts have not been announced, support has emerged in the form of
extension of credit period (FMCG), target relaxation (autos, consumer durables) and
sweeteningoffinancingoptions.

GST:Highonagenda,lowonpreparedness
GST awareness seems to be high, especially post demonetisation. Having said that, most
dealers, distributors and SMEs indicated that they have not even commenced the spade
workonrelevantsystemsetc.Afewtextileandchemicalcompanieswereoftheviewthat
GSTcouldsignificantlyimpacttheirbusinessesunlesstheypushtheresetbutton.However,
largerplayersarenotmuchconcerned.

Table1:Region/sectorwiseheatmap
South West North East
Sector Chennai Coimbatore Vapi Surat Nashik Pune Delhi Kolkata
Auto
Consumerdurables
BFSI
FMCG

Paint
Jewellery
Cement
Demanddeclineupto15% 16%30% 31%50% >50%
Source:Edelweissresearch

Table2:Summaryoftouchpointscovered
Sector Chennai Coimbatore Delhi Surat Wapi Kolkata Nashik Pune Total
AutoDealer 1 2 2 1 1 5 1 2 15
Cementdealer 1 1 1 0 1 1 0 1 6
FMCGdistributor 0 0 1 2 0 1 2 1 7
Consumerdurable 1 2 1 0 0 1 1 0 6
SME 0 2 0 4 3 0 0 0 9
Mandi 0 0 0 0 0 3 0 1 4
Jeweller 0 0 2 1 0 1 0 1 5
BFSI 2 1 4 2 1 2 2 1 15
Total 5 8 11 10 6 14 6 7 67

Source:Edelweissresearch

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Contents

ExecutiveSummary..................................................................................................................1

Automobiles.............................................................................................................................4

BankingandFinancialServices................................................................................................6

Cement....................................................................................................................................9

ConsumerDurables................................................................................................................11

ConsumerGoods&Retail......................................................................................................12

RegionalTakeaways
Chennai/Coimbatore.............................................................................................................15

Delhi.......................................................................................................................................21

Kolkata...................................................................................................................................26
Nashik....................................................................................................................................31

Pune.......................................................................................................................................35

Surat/Vapi............................................................................................................................39

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AUTOMOBILES
Eicher,Marutileastaffected
IndiaEquityResearch|Automobiles

Our interactions with 2W and 4W dealers across regions (Chennai,


Coimbatore, Vapi, Surat, Nashik, Pune, Delhi and Kolkata) indicate that
thesalesdeclinehasmoderatedto~2030%YoYnowversus6070%YoY
dip immediately post demonetisation. Regional disparities are worth
notingNorth has been affected the most and South the least due to
highercard/chequepaymentsinthelatter.Mostdealersexpectdemand
tonormaliseover23months,butcashsupplyinthesystemremainskey
monitorable.Urban2Wand4Wvolumesareanticipatedtorecoverfaster
thanruralcounterpartsgiventhehighshareofsalariedclassandbanking
habitsintheformer,barringDelhi.WereturnedmostpositiveonEicher
Motors (Royal Enfield) followed by Maruti Suzuki (MSIL). Royal Enfields
order books remain steady with hardly any reduction in waiting period.
WeexpectMSILtogainmarketsharegivenstrongdemandforBalenoand
Brezza.

Postinitialshockandawedemandinrecoverymode
Post the kneejerk drop in demand (~6070% YoY) in the initial week, demand across
regions is improving gradually with the fall curtailed at 2030% YoY in the past week.
Dealers expect demand to normalise in ~23 months with faster recovery in regions
wheredemandisdrivenbythesalariedclassandhighercard/chequepayments.2Ws
demandrecoveryacrosssmallertowns(5060%cashpurchases)willhingeonpaceof
moneycirculation.Mostdealersbelievethecurrentslowdownismoreduetoliquidity
crunch rather than paying ability. Our channel checks indicate scooters (Activa) and
premiumbikes(RoyalEnfield)havebeenleastnegativelyimpactedacrosssegments.

SouthandEastoptimisticonfasterrecovery
Our dealer interactions highlight disparities in customer profile and demand outlook
acrossregions.DealersacrossSouth(Chennai,Coimbatore)andEast(Kolkata)aremore
optimistic of a faster recovery compared to West and North. Our channel checks
indicate that customers across South have a high share of salaried class and higher
bankinghabits.


Nochangeinincentives;banks/NBFCssweeteningfinancingoptions
ChiragShah
2W and 4W OEMs have not effected any change in incentive schemes to boost +912266233367
chirag.shah@edelweissfin.com
demand, though a few dealers did say that OEMs have promised extension of credit

paymenttermsandrelaxationofsalestargets.Dealersacrossregionshavesteppedup

efforts to reach out to consumers. Financing options have also been eased with KarthikSubramaniam
banks/NBFCsnowofferingeven100%LTVinsomecases(forselectcustomerprofiles). +912266203156
karthik.subramaniam@edelweissfin.com
Our checks also indicate that there was no sign of downtrading by customers. Many
dealers also hinted at postponement of demand to December given generally
heighteneddiscountsofferedbyOEMs(yearendphenomenon).

December1,2016

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Impactonearnings
WhileH2FY17volumesarelikelytobeimpacted,theextentofearningscutwillalsodepend
on the increase in customer acquisition cost as well ability to pass on the expected
commoditycostpressures.Earningsofautomobilecompaniesaremoresensitivetopricing
thanvolumes.

Table3:RoyalEnfieldleastimpacted;orderbooksaresteadyandwaitingperiodsarelargelyunchanged
South West North East
Sector Chennai Coimbatore Vapi Surat Nashik Pune Delhi Kolkata
HMCL
EicherMotors

MSIL/Hyundai
Ford/Honda
M&M
Demanddeclineupto15% 16%30% 31%50% >50%
Source:Edelweissresearch

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BFSI
GoinggetstoughforNBFCs;banksbetteroff
IndiaEquityResearch|BankingandFinancialServices

The focal point of demonetisation impact is financial institutions. Our


channelchecksindicatethatwhiletheinitialimpactwashigher,thingsare
gradually looking up: a) disbursements have bounced back to 5070% of
normal levels after virtual pause in first few days post demonetisation
announcement;andb)collectionefficiencyrevertedto6080%versus20%
initially. Nonetheless, the overall mood remains sceptical with limited
visibility. Our channel checks indicated a few nearterm trendshigher
LTV financing schemes with selective approach and a few structural
changes viz., intent to move towards cashless payments, etc. We
anticipateH2FY17earningstobeaffectedwidelywithimpactmoreacute
onNBFCs(seasonallystronghalf) thanbanks. Withthings beingsofluid,
FY18 earnings impact is hard to ascertain with certainty. We returned
positive on Vakrangee (business in branches we visited has jumped >3x
sinceNovember9).

Summaryofchannelchecks
Gold loan financiers: The higher prepayment trend along with weaker
disbursements(currencycrunch)islikelytopulldownAUMs.Thesituationismore
aggravatedinDelhi,MaharashtraandGujarat,whereasSouthwasrelativelybetter
off.Collectionefficiencyhastakenatollandstandsat6070%.
Auto financiers: Weak customer sentiments have taken a toll on overall growth.
Financiers are trying to push sales via attractive schemes (100% LTV). However,
given the selective approach, outcome needs to be monitored. While Delhi and
NCRwererelativelymoreimpacted,KolkataandChennaiwerebetteroff.

Housing segment: Outlook not so bright with widespread anticipation of price


correction (valuers have already started applying discount to current valuations).
However, financiers anticipate lower asset quality pressure given lower LTVs.
Outlook seems challenging in the near to medium term. The situation is grim in
DelhiandNCR.Peopleacrossgeographieswerescepticalonthepremiumsegment,
butpositiveonaffordablehousing.

Micro finance: Trendseemstobechallengingforgrowthaswellasassetquality.


Though location specific, people are reluctant to prepay/repay due to uncertain
NileshParikh
outlook.
+912240635470
SME financing: Higher cash dependence means that working capital of this nilesh.parikh@edelweissfin.com

segment is stretched and so are growth and asset quality. LAP segment, which KunalShah
formsmajorchuckofthis,isunderpressuregivenconcernsonpropertyprices. +912240407579
kunal.shah@edelweissfin.com

Nonetheless,whilethesituationseemstobereturningtonormalcy,thereisstillplenty PrakharAgarwal
ofuncertainty,whichwillkeepconsumersentimentsweak,inturnleadingtosubdued +912266203076
environment.Ontheotherhand,basedonthesavingsgarnered,thegovernmentmay prakhar.agarwal@edelweissfin.com

expandbudgetarysupporttopentupconsumerdemand.Inthisbackdrop,itisdifficult

togaugethelikelyimpactonFY18earningswithreasonablecertainty.
December1,2016
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Neartermandstructuralchanges
Financiers have devised various schemes to cushion the demonetisation impact. One such
initiativeis100%LTV,albeitselectively.Customershavebeengivenmoratoriumtogivethem
more time to align with reality. On the structural changes front, there is an apparent shift
towardsonlinepayments.Moreimportantly,therewasaclearintenttomaketheshiftand
customerswerenotresistingit.Amonggeographies,customersinChennaiandGujaratwere
morereceptivetochange.However,therewereafewhurdlesinKolkataandDelhi.

Impactonearnings
Forlargepartofthesegment,H2FY17seemstobechallenging,moresoforNBFCsasH2isa
seasonallystrongquarterforthem.Banksarelikelytobebetteroffgivenloweramountof
cashdealinginthesystem.

Table4:Impactonfinanciers
Growth AssetQuality EarningsImpact Keymonitorables
GoldFinancier Loangrowthwillslowdowndue LowerLTVswillensurenomajor ThiswillputpressureonH2FY17 Anygovernmentactionspertaing
toweakerdisbursementsand riseincreditcost earnings,howevergiventhefact togoldholding
higherprepayments thatH1FY17forthesecompanies
wereverystrongtheoverall
earningsimpactwillbe
cushioned
AutoFinancier Currencychallengewillensure Creditcostwillrise.Theimpact H2FY17earningwilltakeasharp Thegovernmentstimuliwill
thatdiscretionaryspeedtakesa of100%LTVschmeneedstobe cut,aggravatedbythefactthat likelyimprovesentimentsand
backseat,whichwillimpactthe evaluated H2FY17isseasonallystrong economicactivityinlatterpartof
growth quarter.Thesubduedsentiments FY18whichwillsupportgrowth
willlikelyflowthroughinFY18
CVFinancier Disbursementshavetakenaback assetqualityfacingsignificant Earningsimpactforthemin GSTrolloutwillalsohave
seatgivencurrencychallenge headwindsascustomersegment H2FY17willinalllikelyhoodbe impactonthissegment,which
andfocusonrecovery arefacinghugechallenges aggravated,withdualimpactof mightposesomestructura
lowergrowth&higherasset challenges
qualitypressure.Thesituation
mighttakesometimeto
normaliseandweatthispoint
willawaitmoredatapointsto
ascertainimpactonFY18
earnings
HousingFinance Whileneartermsdisbursements LowerLTVswillcushionthe Inthissegmenttheplayerswho Valuershavealreadystarted
willbeloweraspeoplewaitout impactonassetquality focussedonpremiumhousing assigningdiscountonprices.The
forclarity,howeverthis segmentwilltakeaknock,while governmentsboostonaffordable
segmentsoutlookremains thosewhoarefocussedon housingneedstobeseen
challengingformediumterm affordablehousingwilllikely
givenanticipationofsharpprice scrapethrough
correction
MFI Growthimpacted,givencurrency Aggressivelenderswilllikely H2FY17earningswillbehit SteppingintoFY18any
challengeandfocuson facelargerpressure sharply.Weexpectthissegment unwarrantedculturalchanges
recoveries towitnesssomesortof (repayments)ifanywillholdkey
deleveragingandearningsforthe forthissegment
playersatthebottomofthe
pyramidwillbehitmore.
Banks Revenuetractionwillbeunder Assetqualitywilllikelybeunder Neartermearningstoget AnyactionbyRBIfurtherto
pressuregivenRBIrecent pressure.Recoverywilleffectas impacted.Structurallyitisvery manageliquidity
directive(100%CRRon focusoncurrentoperationson positiveforbanksasthe
incrementallending).Investment deposits unorgainsedsegmentwillmove
gainsexpectationwillwinddown towardsorganisedsegment

Source:Edelweissresearch

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Table5:Relativepositioningofvariousfinanciersincitiesvisited
Earnings
Delhi Chennai Kolkata Pune Nashik Surat H2FY17 FY18
Growth NA
AutoFinancier
AssetQuality NA
Growth NA
CVFinancier
AssetQuality NA
Growth
GoldFinancier
AssetQuality
Growth NA
HousingFinance
AssetQuality NA
Growth NA NA NA
MFI
AssetQuality NA NA NA
Growth NA NA NA
Banks
AssetQuality NA NA NA
Source:Edelweissresearch
Note:*Red,yellowgreenreflecttheseverityofimpact

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CEMENT
South:Adaptingtonewreality
IndiaEquityResearch|Cement

Ourchannelchecksacrossdemandcentresindicatedthefollowing:(1)dip
in daily offtake anywhere between 40% and 60% YoY. Some of this has
moderated, especially in South and East, while activity in other regions
primarily Surat, Pune and Delhi is still dull due to lack of currency in
circulation;(2)mostdealersexpectthatafterawashoutinNovemberand
December, things will normalise by March as currency availability picks
up; and (3) few dealers in the North felt recovery could be as late as
Q1FY18 as ATM queues continue to be long, which will impact spending
mindsets. However, there were a few surprises as well: (a) sand
availability in West Bengal has risen sharply and to that extent
construction activity, which had contracted, has picked up; (b) entire
Tamil Nadu distribution chain is unanimously negotiating with banks for
lower service charge as transactions move online; and (c) no perceptible
impact on prices, suggesting no fight for market shares despite demand
contraction.

Summaryofchannelchecks
Delhi: Salesvolumeintradesegmentdown3040%YoYand~20%YoYininstitutional
segment.DemandtoreturnbyMarch2018drivenbygovernmentsinfraspending.
Chennai:Volumedipinthe2030%YoYrangeandmajoritydistributorsexpectthingsto
normaliseinQ4FY17.TradersinTamilNaduarenegotiatingwithbanksforlowerservice
chargesastransactionsmoveonline.TheyhavealsocontactedTCSexecutivestoensure
that all 300 retailers get linked by digital interface with banks/transporters and
manufacturers.

Surat: Retail segment, ~60% of business, was impacted more compared to wholesale.
Nodiscountsorincentiveswereofferedbyproducerstopushvolumes.

Kolkata: Expect November sales to drop 2030% YoY with recovery anticipated in
December. Cement companies making efforts to create awareness about banking and
other noncash modes. Also, there has been a 3040% increase in the number bank
accountsatthesubdealerlevel.

Pune: Approximately, 40% of sales are via cash mode, which have been largely
impactedbydemonetisation.ExpectdemandrecoverynearQ4FY17end.

ManishSaxena
Nopricingpressuredespitesharpfallinofftake +91 22 6620 3105
Sales volumes have contracted 2040% YoY after kneejerk drop of ~6070% in initial days. manish.saxena@edelweissfin.com
The drop in demand is low in South, while contraction in North is closer to 4050% YoY.
However,despitethisweakdemand,allIndiacementpricesremainedflatat~INR312/bagin SharifHadimani
NovembercomparedtoOctober.PricesincentralandWestregionssurged1.7%and4.2%, +91 22 6620 3111

whileNorth,EastandSouthclockeddipof1.2%,0.5%and2.4%,respectively,comparedto sharif.hadimani@edelweissfin.com

thepreviousmonth.

December1,2016
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Earningsensitivityandearningscut
Cementisoneofthekeysectorstobeimpactedbydemonetisation.Asignificantportionof
volumeinretailsegmentwas beingsoldviacash,whichhasseenmajorimpactinthepast
couple of weeks. However, in the institutional segment, majority transactions are noncash
and,hence,theimpactwillberelativelylower.Overall,feedbackfromoursurveyindicates
that volumes have been weak since demonetisation and will significantly impact FY17E
volumes and earnings targets. Regionally, cement players in South may be impacted
relativelylessthanothers.AlthoughitmaybetooearlytogaugeeffectonFY18earnings,we
foreseesomespilloverimpact.

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CONSUMERDURABLES
Fingerscrossed
IndiaEquityResearch|Engineering&CapitalGoodsSector

Last week, we travelled across Kolkata, Delhi, Vapi, Surat, Nashik, Pune,
Chennai and Coimbatore to gauge the impact of demonetisation on the
electricconsumerdurablessector.Ourinteractionswithdealersindicate
modest improvement in sales post 7080% decline in light electrical and
consumer durables sales immediately post demonetisation. However,
demandforseasonalproductslikeheatersremainsfairlystrong.Regional
disparities are worth notingwhile North and East have been hit more
severely, South is better placed given the improved cash supply and
highershareoforganisedmarket.Thoughmostdealersexpectdemandto
normalise over the next 23 months, they are in no hurry to restock. So
far, no companies have introduced or extended credit facilities or
discountschemes.

Candemonetisationsetthehouseinorder?Juryisstillout
After the demonetisation announcement, demand in the consumer durables sector
plummeted~7080%intheinitialweekinakneejerkreaction.However,itisgradually
improving across regions with decline of 4050% YoY in the past week. We note that
North and East were impacted more compared to West and South markets as cash
saleswerehigherat~60%intheformerversus40%inSouth.Dealersareoftheview
thatdemonetisationdrivewillusherinlongtermpositivesasthemarketwillnowbe
more skewed towards the organised segment, nearterm growth challenges
notwithstanding.

Nofinancing/discountingschemesasyetbycompanies
Broadly,sofar,companieshavenotofficiallyintroducedorextendedcreditfacilitiesor
discountschemes.However,financingoptionshavebeeneasedwithprivatebanksnow
offering even 100% LTV in some cases. Havells, in particular, has retained targets for
dealers, except that the weightage for rewards calculation for sales in November has
beenincreasedto1.5x.Dealersarecloselymonitoringtheirinventorylevelsandarein
no hurry to restock. This can lead to production cuts by companies as inventory piles
up,impactingtheirworkingcapital.

Impactonearnings
OurchannelchecksindicateaweakerH2FY17formostelectrical(fans,geysers,cables
AmitMahawar
etc)andconsumerdurables(ACs,kitchenappliancesetc)companies,implyingYoYdip +912240407451
acrossourcoverageuniverse.However,asustainedslowdownwouldimplycompanies amit.mahawar@edelweissfin.com
resorting to discounts/aggressive promotional schemes to push dealers for higher
volumes given higher sensitivity of volumes to earnings, apart from select production SwarnimMaheshwari
+912240407418
cuts. swarnim.maheshwari@edelweissfin.com


December1,2016

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3

FMCG&RETAIL
Timesareachanging
IndiaEquityResearch|ConsumerGoods

Demonetisation has impacted consumption and demand, and it is


likelytopersistforafewmonthsuntilsupplyofnewcurrencynotes
normalises. While it may be a tad early to conclusively deduce
changes in consumer patterns, volume forecasts for Q3FY17 and
Q4FY17arelikelytobepruned(biggerimpactinnorth,centraland
eastIndia;southleastimpacted).Weperceivethisasahiccupand
not a structural negative. Within discretionary consumption, there
couldbelongerdeferralinspending.Whilethemoveisnegativein
theshortterm,demonetisationcoupledwithGSTwillleadtoshift
fromunorganisedtoorganisedsegment,whichwillyieldlongterm
benefitsforFMCGandretailcompanies.

Demandlimpingbacktonormalcy;FMCGcompanieslendsupport
Our field visits and channel checks indicate that in the initial days sales of consumer
staples dipped 6070%. However, with increasing currency in circulation, overall sales
are likely to dip ~3040%, indicating gradual improvement. The impact is higher in
North, central and East India compared to other parts as cash circulation in these
geographiesishigher.Ourinteractionssuggestthatstaplessuchasgrocery,edibleoil,
etc., are likely to see minimum impact; products such as soaps, toothpaste, etc., are
likelytoseemediumimpact;anddeosprays,chocolates,skincreams,etc.,arelikelyto
seethemaximumimpact.Withadearthofconsumerdemand,distributorshavestarted
destocking inventories to align with demand. Lack of demand has also resulted in
wholesalersandretailersseekingextensionofcreditfromdistributors.Inordertohelp
distributors tide over this situation, FMCG companies are offering credit period of
anywherebetween7and10daystodistributors.

Jewellerylosessheen;paintvolumestobounceback
Jewellerysalesweregoodininitialdays.However,subsequently,demand plummeted

~7080%. Further, in light of rising fears of income tax scrutiny, etc., consumers are
deferring purchases of jewellery and many shops downed shutters initially. For paint
companies,highinvolvementofcashmayleadtotemporaryvolumecuts;however,we

expectthemtobouncebackgradually.
AbneeshRoy
+912266203141
abneesh.roy@edelweissfin.com
Visibleshiftinbusinesspractices
Many retailers are realising that this is the opportune time to adopt digital payment TanmaySharma,CFA
modessuchasPaytm,PoS,etc.Retailersaswellaswholesalersareselectivelyoffering +912240407586
tanmay.sharma@edelweissfin.com
customers options of digital payment. In order to embark on this proposed changing
purchasingpatternwhilealsotryingtoretaintheirsalesaPepsidistributorstatedthat, AlokShah
+912266203040
PepsiIndiaisconsideringonenablingretailerswithdigitalpaymentacceptancemodes alok.shah@edelweissfin.com.com
such as Paytm, etc., which will ensure shift in payment methodology throughout the
valuechain.

December1,2016
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Changeincustomerhabitsmaybeshortterm
Our channel checks indicate that distributors are seeing some downtrading. Most of it in
urbanareasisprimarilylimitedtoovercomingtemporarycashcrunchandshouldfadeonce
thereissufficientcurrencyincirculation.

Whencanweseelightattheendofthetunnel?
Albeitsubjective,thebroadconsensusamongdistributors/retailers,forconsumerstaplesor
discretionary,wasthatrecoveryshouldstartasearlyasmidDecembertoearlyJanuarywith
someexpectingitbyMarch(inGujaratbelt).

ImplementationofGST
Most distributors have not been given GST training and have not even started registering
themselvesforaGSTnumber.However,theywereawarethatwithitsimplementationmany
businesseswhichwereotherwisebeingcarriedoutincashwillmovetotheformalbanking
channel. So now, GST and demonetisation will work in tandem, which will engineer a shift
fromunorganisedtoorganisedsegment.

In case of jewellery, GST implementation may not be much of a challenge for company
ownedstores.

Earningssensitivityandearningscut
Undeniably,staplesaswellasdiscretionarycompaniesareboundtoseeearningscutdueto
volumedecline(weestimate~2530%volumedipsinceimplementationofdemonetisation).
However, owing to limited demand, FMCG companies areparallely cutting on A&P spends,
whichwillprotectmarginstosomeextent.TheseA&Pspendsarelikelytoresumeonlyonce
theyseesomeconsumerdemandperkingup.Promotions,however, maycontinuethrough
DecemberorearlyJanuary.

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RegionalTakeaways

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Chennai/Coimbatore:Readytoadapt
Our channel checks in Chennai/Coimbatore indicate much resilience withvisible recovery
in past 57 days. Most dealers indicated that these markets in general have higher
proportionofcardusersversusotherregions.However,mostdealers(cars,2W,consumer
durables) hinted at lower restocking levels over the next 24 months owing to nearterm
impact of demonetisation and GST uncertainty. Most companies/dealers are resorting to
schemesmostlytoadvanceDecemberdemandwithonetimeschemeswithoutresortingto
creditextensionordiscounts.

Anecdotes
AnelectricalgoodsretailerinCoimbatore:
AHerodealerinCoimbatore:50%
50%customersaresalariedclass
businessincashandbalanceis

financed





Saleshavefallenby50%,butare Thoughheseesitasakneejerkreaction
nowrecoveringgradually.Not withinitialweeksalesdipping50%,hedoes
worriedaboutneartermpainas notexpectthesouthernmarkettoget
believes2Wisanecessity impactedmuchasitismoreorganisedin
naturethanotherpartsofIndia

Aprominentwhitegoods/kitchen
appliancesdealerinCoimbatore:~28%sales
Amultiproduct(paints,electricalgoods,tiles)
incash
retailerinChennaisresidentialCrompetarea:
Caterstonicheclass

Demonetisationisatemporaryworry.
Footfallsintheshowroomaredownfrom150
However,summerof2017couldbe
180/dayto8090.Pickupexpectedaheadof
challengingforTamilNaduduetoveryhigh
Pongalseasonwithsalesexpectedtobeflat
base(200%growthin2016).Wouldliketo
duringNovemberMarch(YoY)
avoidrestocking

15 EdelweissSecuritiesLimited
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Chennai
Autofinancecompanies
Demandoutlook
Dip of 5070% over the past 3 weeks. They deal a lot in used car market. Customer profile
includespeoplewhohavetakenloansearlier.Requirementforfundingcommercialvehicles
hasseenahugedrop.However,forretail,theslowdownismuchlower.

Recoveryprospects
Unsurehowlongthepainwilllastanduncertainaboutrecoveryoverthenext68months.

Customerprofile
Whilesalariedcustomersaccountfor50%ofbusiness,balancearetraders/businessmen.

Anychangeindoingbusiness
Earlier, they looked at Cibil score only when the loan value exceeded INR500K and at
propertypapers&Aadharcardforloanslowerthanthat.Theirlendingrateaveraged2022%
as they used to deal with people who do not get loans from the banking channel.
Demonetisationhasforcedthemtoreevaluatetheirbusinessstrategy.

Homefinancecompanies
Impactonvolumesinneartomediumterm
A30%dropinbusiness,partlydrivenbythecompanybecomingmoreriskaverseasithascut
LTV of property from 80% of value to 60%. And partly this was driven by demonetisation
givenlimitofwithdrawalofINR24Kperweek.Hence,acustomerisdrawingonly20%ofthis
approved value in order to avoid paying interest on the entire amount. Expect things to
normaliseinthenext36months.

ImpactonFY18andbeyond
Though demand for housing loans from selfemployed may drop, that from salaried group
couldpickup.Theremaybeabasereadjustment,i.e.,pushbackofdemandbyayear.

2Wdealer:HeroMotoCorp
Impactonvolumesinneartomediumterm
Sellsabout175200vehiclespermonth;thishasdroppedby2030%inthepast15days.Of
sales,only10%incash,6070%financedandbalancepaidbycheque/RTGS.Whilefootfalls
havedropped,conversionratiohasshotup.Currently,banksaregiving98%fundingversus
90%earlier.

Anychangeindoingbusiness
ExpectcompaniestopassonGSTbenefits(ifany)toendconsumersandbelievesGSTwillnot
impacttheorganisedsectormajorlyversussmallindustries.

ImpactonFY18andbeyond
Still unclear about demand in Q4FY17 and FY18. Will monitor customer feedback before
buildinginventory.

16 EdelweissSecuritiesLimited
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Paints/lighting/cables/electricals/tilesdealer
Demandoutlook
Dailysalesaredown65%comparedtonormal.Around95%salesareviacards.Footfallshave
fallenfrom150180/daytoaround8090.Currently,keeps1.5monthsinventoryandisnot
keenonrestocking.

Recoveryexpectations
Recoveryseeninpast57daysandexpectsdemandtorecoverto80%bymidDecemberto
January.ExpectsflatsalesoverNovemberMarch(YoY)forelectricalgoods,paintsandtiles.

Discounts/schemes
No discounts/credit extension provided to customers by the dealer. However, companies
haveinformallyallowedcreditperiodof810daysfortheshortterm.Also,selectelectrical
companies have rolled out shortterm schemes to ensure advancement of restocking by
dealers.Currentlygettingcreditperiodof2130daysforpaints/lighting&electricalproducts.

Changeinbusinessmodel
60%ofhiscustomersaresalariedclassand40%traders/businessmen.Around60%oftotal
salesincash.Postdemonetisation,cardsaleswillstructurallyriseandbe5060%ofsales.

Cement
Impactonvolumesinneartomediumterm
SaleshitinChennaianywherebetween20%and30%.ForChennai,distributorsbelievethat
things could normalise in Q4. Sales in cash are currently at 3040%, which have been
impacted;but,agoodamountgettingconvertedintocreditcards.

Changesinwayofdoingbusiness
Dealershaverepresentedtoallmajorbankstocutservicetaxfrom1.4%tolessthan0.5%;a
fewlargestateownedbanksandAxisBankfavourablyinclinedtodoso.Theyhavecalledall
TCS executives to ensure that all 300 retailers get linked by digital interface with
banks/transporters and manufacturers. Post gazette notification for collection of 1% tax at
source (TCS), cement dealers have started preparing their books of account accordingly. A
fewofthemarepayingsomepenaltiesforQ1.

StructuralimpactonFY18andbeyond
We were surprised that cement distributors believe that demand contraction, if at all, in
Q4FY17 will be more to do with impact of drought as monsoon was poor. Contraction in
realtysectorislowasspeculatorsinthemarketaredowntoaminimallevel.


17 EdelweissSecuritiesLimited
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Coimbatore
2Wdealer:HeroMotoCorp
Demandoutlook
Salesdownto600units/dayversus1,200earlier.ExpectsgradualrecoveryaheadofPongal
season.However,droughtmayhavesomeimpactthisyear.50%ofhisbusinesswasincash,
whichhasdippedto10%now.

Recoveryexpectations
Footfallshaveimprovedoverthepastfewdays.ExpectsdemandtopickupoverDecember
January. However, will miss FY17 estimates. In FY18E, 2W demand to grow and will be
sustainable.

Discounts/schemes
Not offering discounts to customers. However, verbal commitment from OEMs of credit
periodextension.

Changeinbusinessmodel
Nomaterialchangeinbusinessmodel.

Goldfinancecompany
Demandoutlook
Businesslevelsfornew/renewabledown50%/30%.Dailywalkinsdroppedfrom20/dayto1
2 on November 9, 10 and1 1; have improved to 1214 in the past 57 days. Collection
efficiency has dipped from 90% (preNovember 8) to 75% currently. 60% customers are
shopkeepersandtraders,whohavebeenworsthit.

Recoveryexpectations
While footfalls have improved over the past 57 days, next 23 months are likely to see
gradualrecoveryasthecashcrunchissueisresolved.

Discounts/schemes
Offering 10 days moratorium to customers after due date. Interest rate band of 1224%
acrosscustomersremainsunchanged.Tomanagecashflows,doing20%cashand80%online
disbursements.

Changeinbusinessmodel
Customers seem to accepting online disbursements. The share of online disbursals has
jumpedfrom5%to30%currently.


18 EdelweissSecuritiesLimited
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Electricalitems,cables&wiresretailer
Demandoutlook
Sales down 5060% immediately post demonetisation, but recovering now. Caters to niche
customersandhas40%cardcustomers.

Recoveryexpectations
Expectsgradualrecoveryoverthenext34monthsandestimatesFY17salestomisstargetby
20%. However, is hopeful of recovery in FY18 as demand returns. Was not too keen on
restockingforacoupleofmonthsandcurrentlymaintains1.5monthsinventory.

Discounts/schemes
NoneofhislargedealersforHavellsIndia,Crompton,Finolexetc.,haveextendedpayment
termsasyet.

Changeinbusinessmodel
Cardsalesforhimhigherat40%;expectedtoremainat>50%overthemediumterm.South
marketforelectricalgoods,cablesandwiresisdominatedbytheorganisedsectorversusrest
ofIndia.

Whitegoodsandkitchenappliancesdealer
Demandoutlook
Sawsharpdropforfirst23days,butisdownonly2530%overthepast3weeks.Dealsin
national as well as South brands for white goods and kitchen appliances. Has higher 50%
proportion of salaried class as customers and nonsalaried customers volumes have been
impacted.Salesmixwas28%cash,whichislessthan5%now.

Recoveryexpectations
Hasseenreasonablerecoveryinthepast2weeksandexpectsFY17salestodip10%YoYonly
versus earlier expectation of >15% growth. Maintained 30% higher inventory in past 3
months and will go for lower restocking for the MarchMay season as he wants to keep a
conservativeapproachpreGST.

Discounts/schemes
No additional discount or financing schemes rolled out by companies for sales push and
abovenormalschemes.

Changeinbusinessmodel
Sees demonetisation as a structural derating for cash transactions and expects cashless
transactionstogainprominence.


19 EdelweissSecuritiesLimited
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4Wdealer:Ford
Demandoutlook
Salesplummeted~50%.Expectsgradualpickupindemand.HasloweredFY17targetby25%.
Witnessedpickupininquiriesof710/dayversus12/dayduringNovember9,10and11.

Recoveryexpectations
Outlookremainssubduedduetonegativewealtheffect.However,otherdealerslikeMaruti
andHyundaimayhaveabetteroutlook.

Discounts/schemes
AshisOEMhadweakerrolloutofnewmodelsversuscompetition,thedealerisdrivinghis
own schemes to push sales as he has INR5,0006,000/cars dealer cushion. To boost
Novembersales,helaunchedadealerlevelschemeWhytowaitforDecemberwherehe
giftedgoldcoins/washingmachines,etc.,andbagged89additionalbookings(3dayoffer).

SMEfeedback:Cottonspinningmill
CottonspinningmillatTirupurwithINR5bnsales;95%salestolocalknittingcompanies.

No major impact on volumes post demonetisation. Has 4,000 employees + contract


labourers.70%havebankaccounts;targeting100%bankaccountsnow.

Dealsincheque/RTGSmostlyforrawmaterialandsales.Hence,nobusinessimpact.

GST:Hasonly5%VAT.ExpectslowerGSTratefortextiles.MostsmallplayersinTirupur
are unorganised and will be covered under GST. Earlier, when excise was levied on
garments,therewasalotofhueandcry,butplayersadjustedtoit;itwillbethesame
withGST.

Tirupur caters to 6070% of India's total knitting requirement. There are 2,0002,500
plants in Tirupur (small + big); most players have not seen any major impact post
demonetisation.

Lorrymovementiswellmanagedandnormal.
AlocalpartyhadcalledforaBandhonNovember23.But,peoplewerenotinterested
and,hence,itwasafailure.

20 EdelweissSecuritiesLimited
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Delhi:Cashisking,butdethroned

Cashtrapped:Thecapitalcitywasamongsttheworsthitinoursampleset.Thiscouldbe
attributed to preponderance of cash transactions in the region. Salaried versus
business:The salaried class is in conservation mode (job security is the prime objective).
Hence, discretionary spending cuts are likely to extend till March. The business class,
scarredbyfearpsychosis,istreadingcaution.AspirationalproductslikeRoyalEnfieldcould
seefasterrecovery.However,giventhecutindiscretionaryspending,4Wsalesarelikelyto
be subdued till FY17 end. Cashless economy needs to cover distance: Cash is the
predominant medium of transactions across segments. But, the trend has shifted to
cashless transactions post November 9. However, given preponderance of cash
transactions, significant transformation is still some time away. Financierschanging tack:
BanksandNBFCs,hitbythedelugeofliquidityandflaggingdemand,arehardpressedto
changetackoffering100%financing(selectively)against7580%earlier.

Anecdotes
Agoldloanbranchintheheartof
AprimeHondadealershipinDwarka:
KarolBagh:Ablendofbusinessand
HometomanyMNCemployees
unorganisedworkingclass





Digitalblessings:Ahitinongoing

marriageseason

Ifthesituationcontinuestodrag,job
securitywilltakeprecedence;peoplewillgo
inconservationmodeandpostpone
Disbursementshavecometoa
discretionaryspends.Decembersaleswill
halt.Peoplearenotwillingtotake
recoverasdiscountswillincrease
onlinepaymentsgiventhe
withdrawallimits

ValkrangeeKendra,outskirtsofDelhi: Autofinancier:MMFSbranch60%of
Dominatedbyfarmersandsmallbusinesses customersarecommercial(Ola/Uberowners)

Undisputedbeneficiary:Businessup3xon Financinghitasreplacementsegmentdentedsince
dealersnotacceptingoldvehiclesasmargin
depositmobilisation
money.Hasstartedofferinghigherfinancing(95%
exshowroom) selectivelyagainst7075%earlier

21 EdelweissSecuritiesLimited
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2Wdealer:RoyalEnfield
Demandoutlook
Not much worried on demand as it has been outstripping supply. For instance, in October,
salesstoodat270unitsandcouldhavedelivered300units(ifsupplyfromthecompanywas
higher).However,maymissNovembertargetevenasdemandisexpectedtonormalisefrom
January2017,giventhat2Wisanaspirationalproduct.

Customerprofile
Around 60% of the dealers customers are self employed with balance being salaried class.
Around 35% of bikes are financed and balance outright purchases. Around 60% of outright
purchasesareviacash.

Discountsandincentives
No increase in discounts in November. However, expects big discounts in December as
dealers/companies would like to clear inventory. December is generally high on discounts
everyyear.

Changeinbusinessmodel
ExpectsleveloffinancingtoimproveasHDFCBankisoffering100%LTVversus75%earlier.
This is being offered to government employees. However, OEMs are asking financiers to
extendtheschemetoothercustomersegmentsaswell.

Others
In Delhi RTO, car registrations are done via banking channels. These have slowed down. In
Gurugram,RTOregistrationshavevirtuallystoppedastheyweresolelydoneviacash.

Automobiledealer:HondaCars
Demandoutlook
InNovember,steadysalesareexpectedtodrop20%QoQpoststrongDiwalisales.However,
duetodemonetisation,salesareexpectedtoplummet4550%.Footfallswerevirtuallynon
existentfromNovember915.

Recoveryexpectations
RecoveryexpectedonlytowardsMarch2017.Goingbyprevailingsentimentsandnewsflow,
people are preferring to conserve cash; in the salaried class, job security has taken
precedenceovercarpurchase.NewCity,whichwastobelaunchedinJanuary2017,maysee
subduedresponse.

Discounts
Discounts did not increase in November. However, expects big discounts in December as
dealers/companieswilllooktoclearinventory.Decemberisgenerallyhighondiscountsevery
year.

Changeinbusinessmodel
Manycustomersusedtomakedownpaymentthroughcash.Thisisnowslowlychangingto
paymentsviadebit/creditcards.

22 EdelweissSecuritiesLimited
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Consumerdurabledealer
Demandoutlook
Saleshadjumped2025%inOctober,buoyedbyDiwali.Hence,inventorywasstockedupin
anticipationofimprovingdemandoutlook.Currently,salesaredown4050%YoY.OEMs,in
order to prop up off take, have retained targets for dealers, except that the weightage for
rewardscalculationforsalesexecutedinNovemberhasbeenincreasedto1.5x.Demandfor
seasonalproductslikeheatersisintact,butthatforotherappliancesistepid.

Changeinbusinessmodel
Mostpurchasesaredoneincash,withverylowuseofcredit/debitcards.Demonetisationhas
impacted spending psychologywholesalers/retailers have started enquiring about PoS
machines.

Recoveryexpectations
Recoveryindemandhingesonimprovementinavailabilityofcashaswellasfasteradaption
tonewmodesofpayment.

Discounts
As of now, the dealer has not increased discounts. However, in a bid to clear inventory,
incentivesarebeingofferedoncertainproducts.


Cementdealer
Demandoutlook
While retail trade volume is down 35% YoY, institutional business has dropped 20% YoY.
Within institutional, real estate has seen maximum decline, excluding which the fall is ~10
15%.DemandisexpectedrevivebyMarch2017drivenbyinfraspendingbythegovernment.
Revenuemixis70%retailandbalanceinstitutional.

Changeinbusinessmodel
Currently,90%oftradeisincash,whichisexpectedtochangeto60:40,whichwillhavesome
impactondemand.However,itwillbecomethenewnormalandpeoplewillgetusedtoit.

Microfinance
Demandoutlook
Collectionsaredownto55%;initially,theyhaddroppedto20%,whichhavenowimprovedto
55%. Disbursements have completely stopped. There is no distress among borrowers, but
difficultyseeninservicingduetocashcrunch.

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Changeinbusinessmodel
The company proposes to issue prepaid cards. Currently, almost 4050% customers have
bank accounts, but they are not keen on accepting disbursements via cheques/online
paymentsastheywillstillhavetogotobankstowithdraw.Thecompanyaimstomovethem
toprepaidcardsinthelongrun.

Others
ThereisconfusionatthegroundlevelfollowingnewsonloanwaiveraswellasRBIsrecent
announcementofextendingNPArecognitionperiodby60days.

Goldfinancecompany:ManappuramFinance
Demandoutlook
Collection is down to 30% (had dropped to 70%). Disbursements are now almost at a
standstill;customersarenotkeentotakepaymentsviachequesastheywillhavetodeposit
andthenwithdrawthesame,whichwillbecumbersomeinlightoflimitsonwithdrawals.

Customerprofile
Thebusinessclassaccountsfor30%(averageticketsize:INR200K),withbalancecomprising
unorganised(averageticketsize:INR3050k).

Changeinbusinessmodel
The company has shifted targets to tonnage from absolute amount. Earlier, 2 of 20
customers used to accept money via online, which has now improved to 8 of 20.
Disbursements above INR100K are now happening through NEFT/RTGS. Mannapuram has
introducedonlineproducts;however,theyhavenottakenoffinameaningfully.

NBFC:MahindraFinance
Demandoutlook
Saleshavedippedbymorethan5055%.Earlier,oldvehiclesconstitutedmarginmoneyand
~30% sales were executed in this manner. This has now stopped as it is a completely cash
business as: 1) commercial vehicle customers have postponed their buying decisions; 2)
replacementmarkethascometoastandstill;and3)someimprovementexpectedonlyfrom
April2016.

Customerprofile
Around 60% of customers are drivers, 1012% salaried. Current customer profile is due to
CIBIL related issue as well as faster approval. Migrants comprise a high share of customers
andtheyhavelimitedaddressproof.Thecompanyusesitswidereachacrossstatestocarry
checks on customers home towns before disbursal. All customers will have bankaccounts.
However,80%ofcollectionisviabanksand20%throughcash.

24 EdelweissSecuritiesLimited
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Others
NodiscountsofferedinNovember.TargetssetbyOEMsnolongervalidforthemonth.
However,therehavebeennocancellations.

RTOregistrationswerestuckintheinitial710daysasoldnoteswerenotacceptedfor
cashpayments.

100%exshowroomfinancingtoselectcustomerswithbetterprofile.

FMCGdistributor
Demandoutlook
Initial57dayswereadrag.Thingshave,however,pickedupinthelastweek.Monthlysales:
INR15/17.5mn against target of INR25mn. Sales are expected to recover shortly. Retail
businesswasdown20%.Targetshavebeenprunedforcalculationofincentives.

GSTimpact
Earlier, tax avoidance was due to complicated tax requirements. With GST, things are
expectedtoimproveandresultinbettercompliance.

Changeinbusinessmodel
Wholesalers have started urging retailers to install PoS and allow Paytm payments rather
thanrelyingoncash.

Jewellery
Demandoutlook
Saleshavedeclined4050%.Peakseason(marriage)salesaffected.

Customerprofile
Around 6070% payments are via cash, with 3040% made via cheque/old jewellery/debit
cards.

Changeinbusinessmodel
Believesproportionofcashtransactionswillfallsharply.

25 EdelweissSecuritiesLimited
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Kolkata:SurprisinglyKool

Contrarytoourbeliefthattherewillbewidespreadchaosduetounavailabilityofcash,we
were pleasantly surprised to see that people were more accommodating and complaints
were few. However, we observed that impact on the textile sector and jewellery business
wasmuchhigher(down4060%),whileotherbusinessesweredown2030%.Also,thereis
emerging acceptance that gradually the shift has to be made to noncash modes of
transactionandevensmallervendorswill havetostartaccepting paymentsthroughPaytm
andothermodesiftheyhavetocontinuetodobusiness.

Anecdotes


Unorganised


MatiyaBridge(Asiaslargest

readymademarket)hadsporadic

clientsversuslongqueuespre

demonetisation

Organised

ItwasbusinessasusualatBurra ParkStreet:Aroadside MannapuramFinance:Footfallshave


Bazarinspiteofdemonetisation eaterywassufferingasthe recoveredfromsharp8090%dipto
peopleweregivingchangefor ownerdidnothaveenough 3040%now
INR2,000notesaswell change


26 EdelweissSecuritiesLimited
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Cement
Demandoutlook

ExpectNovembersalestodecline25%YoY.However,demandinDecemberisestimatedto
bestrong.Thereisnoformalcommunicationonproductioncuts,butgoingbycementprices
itappearsthatproductionmayhavebeencut.Buildershaverepaiddebt,therebycleaningup
their balance sheets and have also cut prices after a long time (already down 20%).
Construction activity was already low due to unavailability of sand and, hence, incremental
impactofdemonetisationlookslimitedasofnow.

Changeinbusinessmodel
Cementcompaniesarespendingmoneyandtimeoncreatingawarenessaboutbankingand
othernoncashmodes,alongwithimpartingtrainingforrolloutofGST.Peoplehavestarted
openingbankaccounts3040%increaseinnewbankaccountsatthesubdealerlevel.

Consumerdurables
Demandoutlook
Salesandfootfallshavedeclined40%YoY.NovembersaleswillbelowerYoYandtherewas
noincreaseindiscountsduringthemonth.Nochangeinproductmixduetodemonetisation.
ExpectdiscountschemesinDecember,whichwillbecomeacrucialmonthtogaugegrowth
potential.

Mostpeopleaskforbillsasthey Changeinbusinessmodel
wantguaranteecards.Hence,not
muchimpactonelectronicsin Cashbasedsalesusedtoaccountfor60%ofsales,whichhavedroppedto40%.Expectshift
urbancentres tocreditcards/loansasastructuralshift.HasenoughPoS/swipemachinestofacilitatehigher
cashlesstransactions.

Readymadegarmentmanufacturer
Demandoutlook
Sales have plunged 90% YoY as almost entire business is via cash due to labour intensive
nature of the segment. However, retailers are able to sell their produce hence stocks at
retailer level are falling. High involvement of cash in daytoday running of business,
paymentstolabourandshortageofmoneysupplyareaffectingtheabilitytomanufacture.

Changeinbusinessmodel
Thesegmentisunlikelytoseeanymajorchangeinitsbusinessmodelaswagestolabourers
andportersneedtobepaidincash.
Oneshopkeepermentionedthat
usuallyby9a.m.hesellsmorethan GST
INR50Kgoods.But,hehasnotbeen ImpactofGSTwillbenegativeandresultinjoblossesasonly23%oflargecustomerswillbe
abletoopenhisaccounttill10a.m. abletocomplywiththerequirements,asofnow.
as98%clientswhocomebuy
throughcashonly

27 EdelweissSecuritiesLimited
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Spicemanufactureranddepartmentalstore
Demandoutlook
For spice manufacturer, sales declined 2030% due to drop in collections by 4050% or
customerswereofferingoldcurrencynotes.Also,stockbuildupbystockistsisatanalltime
lowduetodemonetisation.

Fordepartmentalstores,seeingstrongdemandandexpectgrowtheveninNovember.Does
notseeactualimpactonconsumption.

GST
Marginswillfallsharply.Playersarealreadyworkingon<2%marginsandifcompliancegoes
up,itwillbecomedifficulttomakemoney.

Changeinbusinessmodel
Shifttowardscashlesstransactionhasstarted.Around10%chequepaymentsnowversus1%
earlier.Peopleareopeningbankaccountsatafasterpace.

Grainsupplier
Demandoutlook
Salesfell10%astheyarereducingsalesoncredittoretailers.Earlierretailersusedtobuild
inventory; however, currently, they are procuring only to the extent of requirement.
Collectionsaregettingdelayedby78daysorbeingofferedinoldcurrency.Theyexpectthis
yearsstockingtofallandhencecommoditypriceswillremainlow.

GST
A lowmargin business, but has no qualms to shift to 100% cashless dealings in a bid to
reduceinterferencefromgovernmentagencies.

Changesinbusinessmodel
Bank accounts are being opened at a faster clip. Some clients have even started making
cheque payments. Farmers are happy that they will directly sell their produce to large
formatswithGSTinplaceandmiddlemengettingeliminated.

Goldfinancecompany
Demandoutlook
Footfallsdeclined90%,buthavesincerecoveredto50%.Collectionstoofellto80%from95%.
There are no indications from customers of defaults as no intentional delinquencies have
beenwitnessedasyet.

Changeinbusinessmodel
With most customers having bank accounts, disbursements and receipts will shift to online
mode now onwards. A lot of repayments are being made in new currency and people are
taking away their gold. The company is helping customers to transition to banking/online
transactions.

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NBFC:Vehiclefinancier
Demandoutlook
Collectionshaddippedto20%;nowbackto80%.Stilltogaugeimpactontractorsasithasa
quarterlycollectioncycle.HopespinnedonDecembercollectionsduetoharvesting.Working
capitalcyclewillriseby2030%.NotmuchimpactseenonMarutivehicles,butotherbrands
havewitnessedmassiveimpact.

Changesinbusinessmodel
There is rising acceptance of cheque payments. Earlier, only 10% payments were made via
cheques;now30%.

Automobiledealer:Cars
AnNBFCmentionedithasnotseen
Demandoutlook
anyfallindemandforMaruticar
financinganditdoesnotperceive Salesfell80%ofnormal,butarecurrentlydownonly20%.Expectsnormalcytoreturnsoon.
significantsalesimpact;butsalesof WhileNovembertargetof20%growthwillbemissed,normalcywillreturninDecemberor
otherbrandshavenosedived January.

Incentivesandworkingcapital
Novemberdid notseeanychangeinincentiveschemes,though incentivesareexpectedto
riseinDecember(anannualfeature).Workingcapitalcycleisgettingimpactedduetosharp
slowdowninusedcarbusiness(receivedaspartofexchangescheme).

GST
NomajorcommunicationfromOEMregardingitspreparednessforGST.

2Wdealers
Demandoutlook
A2Wdealermentionedheisnot Footfalls dropped to 10% of normal sales, but now at 80%. Expect normalcy to return by
thatworriedaboutdemand,but January 2017. December is expected to remain weak due to seasonality issue. For Royal
apprehensiveaboutofpettycashas Enfield, no major impact seen on demand and waiting period. Similarly, no impact seen on
heneedsittopaycashforloading
demand for scooters (Honda Activa) as demand is driven by women and salaried class
andunloadingofbikesandother
customers.
miscellaneousexpenses

Incentives
Nomajorincentivesoffered.But,banksareoffering100%financingagainst80%earlier.

Changeinbusinessmodel
Nomajorchangeinbusinessmodelasdownpaymentwasviacards/cheques.



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Jewellers
Demandoutlook
Footfallsaredown40%versusnormaldemand.Somebuyingishappeningduetomarriage
season.Mediareportsarealsokeepingcustomersawayfrombigticketitems.Ratioofgold
andjewelleryremainsunchanged.Nochangesinincentivesgiveninmakingchargesasyet.
ExpectsdemandnormalcypostMarch2018.

Marriageseasonhasbeentheonly Changeinbusinessmodel
solaceforjewelers,elsesaleswould
Earlier 60% of sales were in cash; the ratio has now reversed and the trend is expected to
haveplummeted7080%
continue.

FMCGdistributor
Demandoutlook
November sales were 30% down from normal levels. While there was no impact on edible
products,winterproductsalesfellsignificantly.

Changeinbusinessmodel
Clientsareopeningbankaccountsatafasterpace.Earlier,95%ofbusinesswasdoneviacash,
butnowdownto80%.Theratioisexpectedtodeclinefurther.

30 EdelweissSecuritiesLimited
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Nashik:Optimismstillafloat

InthecourseofourNashikchannelchecks,wevisitedFMCGdistributors(GCPL,Pepsi),a
gold finance company branch, a consumer durables dealer and an automobile dealer.
Nashikhasbeennegativelyimpactedbydemonetisationduetohigherinvolvementofcash
owing to larger presence of agriculture and business community. Hence, the
aforementionedsegmentsdidseedeepdropinvolumesintheinitialweek.However,the
subsequent week not only witnessed some recovery in cash transactions, but also the
proportionofchequeusage/digitalpaymentsjumped.Wemostlyvisitedorganisedplayers
whoarehopefulthatGSTanddemonetisationwillbringaboutashiftfromunorganisedto
organised segment, thereby benefiting them. While all the players that we met were
hopefulofarecoverybymidDecembertoearlyJanuary,therewasanunderlyingfearof
economicrecoverybeingprolongedresultinginjobloss,etc.

Anecdotes

Marutishowroom:Businessdown;120122cars
PepsidistributorforNashikandAurangabad:
soldtillNovember25againstrunrateof200cars Thedistributorhasprunedorderingfrom1.5
permonth.Ifcurrentsituationpersistspost
load/dayto1loadinevery3days.Ownfleet
December,chancesoflayoffswillincrease
utilisationofLCVsdownfrom5560%to2025%


Manappurambranch:Walkinsdown,
disbursementsseverelyhit,butrepayments
highduetoinnovativewaysofrepayment FMCGdistributor:Lowinventorypickup;
allowingpaymentbythirdpartyinlieuof incrementalcredittowholesalersand
authoritsationletter retailers

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Consumerdurables
Demandoutlook
Fromanaverageof~500600(withpeakof1,500duringthefestiveseason),salesweredown
to 25% during the first week after demonetisation. Most of the impact was on cash sales
(>90% of sales were in cash, predemonetisation). In the second week, demand recovered
slightly and was down 4050% with some customers open to card payments. The dealer
expectsdemandtorecoverfrommidDecemberoncecurrencycirculationimproves.

Changeinbusinessmodel
Customers have started shifting towards debit/credit cards. The company is optimistic of a
shiftfromunorganisedtoorganisedsegment.

Discountsandinventorylevel
NomajorincreaseindiscountsbyOEMs.OrdersfromOEMshavebeenlowerby25%inorder
tomanageinventory.Overallstockinghasbeenreducedfrom3weeksinventoryto1week.

GST
NoclaritysofaronhowGSTwillbeimplemented.Willdoassuggestedbyconsultant.

FMCGdistributor:GCPL,Hamdard,ViccoandCavinkare
Demandoutlook
Salesdown90%intheinitialweek;however,subsequentlybusinessrecoveredandbetween
November 17 and 25, sales dip improved to 3040%. If FMCG companies do not come out
with some incentives/promotions by December, there could be an overall impact on sales.
Withrespecttocustomerbehaviourpatterns,downtradingisvisiblewithslowdownseenin
products such as deos sprays, highend creams, etc. Distributors did not comment on
expectedrecoverytimeline.

Customerprofile
Mix of wholesalers (50% cheque and 50% cash) and retailers (40% cheque and 60% cash).
Expects wholesalers and retailers transacting in cash to move to cheque mode, but it may
take some time. Wholesalers and retailers have been asking for more credit. FMCG
companieshaveaccommodateddistributorsrequestandhaveextendedcreditby710days
withaconditiontocontinuetoliftstock.

GST
No communication from companies on GST. Does not have software that is critical for GST
transition.

Goldfinancecompanies
Demandoutlook
Businessforfreshdisbursements/newloanshasbeenseverelyimpacted.Customerswantto
take loans in cash whereas branches are short of it. However, lately, some customers are
understandingthenewchange(adding57newcustomerseverydayagainstarunrateof20
25 before demonetisation) and hence taking disbursements through NEFT/RTGS, etc. An
interestingtrendwasthatrepaymentspikedintheinitial10days.

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Customerprofile
Majorityofthecustomers(>75%)arefromthebusinessclassandbalanceareeitherfarmers
orcustomerswithagriculturelinkedincomes.

Changeinbusinessmodel
Manappuramhasrelaxedtargetsformostbranches.Earlier,~10%ofcustomersweretaking
disbursementsincheque,nowthatproportionhasincreased.

Automobiledealer:MarutiSuzuki
Demandoutlook
Overallfootfallsweredown40%immediatelypostNovember8andhaveremainedatthose
levelseversince.Againstarunrateofselling200carsp.m.,thedealerhasbeenabletosell
only120122tillNovember25.Salariedclassmaycomebackandwillmostlikelyonlydefer
itsneeds,providedthereisnofearofjobloss.Farmersareskepticalofbuyingusingtheirtax
exempt money. If there are no job layoffs and there is adequate currency in circulation,
demandshouldreturnbymidDecember.

Discounts
NoincreaseindiscountsinNovember.ThedealerishopingthatOEMswillintroducesome
schemestolurecustomersin December.Decemberisusuallyahighdiscountmonth(year
endphenomenon).

Customerprofile
Customer mix40% salaried either private or government, 30% farmers and 30% self
employed. Demand deferral / demand loss may happen within farmers and the self
employedcategory.

Changeinbusinessmodel
70% of sales are through finance, of which ~30% used to make down payments through
credit cards and ~70% through cash. This proportion may see some shift. Any increase in
transactionsinresalemarketmayleadtopermanentlossofdemandfornewcars.

Others
IntheNashikregionaltransportoffice(RTO),carregistrationsaredoneonlyviathebanking
channel.Ifthedealerssalesdonotrevive,thereisariskofjoblosses.

FMCGdistributor:PepsiandGCPL
Demandoutlook
Typicalbusinessmixwascheque35%andcash65%.Immediateimpactwaschequebusiness
dropping by 5% and cash business dropping to 510%. However, after a week, the cash
business recovered and is now down to ~4045%. To illustrate the demand decline, a
distributorwhousedtoorder1.5loads(1loadequalsto7.5tonnes)perdayhasreduceditto
1loadin3days.Further,distributorsvehicleutilisationhasalsodroppedfrom5060%(pre
November8)to2025%.ExpectsthingstonormalisefromJanuary.

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Customerprofile
Credit period given by distributor to wholesalers has increased from ~15 days to ~30 days
now.TheFMCGcompanyhasnotreduceddistributorstarget,butisreadytoextendcredit
sothathecantideoveranyimmediatecashcrunch.

Changeinbusinessmodel
Thedistributorishopefulthatunlicensedwholesalerswhodealonlyincashwillmoveoutof
the value chain. Further, PoS and digital payment methods will evolve even at the retailer
level.Fore.g.,PepsihasstarteddiscussionwithPaytmtoinstallthemachineatitsretailers.

GST
NotpreparedandwilldoasdirectedbyhisCharteredAccountant.

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Pune:Winsome,losesome

Theimpactofdemonetisationhasbeenfeltinvaryingdegreesdependingontheconsumer
profilemeaningful impact on gold finance, which is highly cash dependent and little on
midsegmentcars,whichtypicallyroutetransactionsviabankingchannels.Unavailabilityof
cash is a major pain point amongst consumers as well, which was apparent with most
ATMsbeingclosedandlongqueuesoutsidethosedispensingcash.Banksarealsorunning
shortofcashandaredolingoutlessamountsthanwhatcustomersareentitledto.High
value transactions in mandis have slowed down considerably due to cash shortage. For
highvaluetransactions,consumersareincreasinglymovingtowardsbankingchannels.

Anecdotes

Footfallsinmandisstilldownandhigh Noimpactonshortdistancelogistics;
valuetransactionshavedeclined logisticscompaniesaretakingorders
meaningfully asusual

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2Wdealer:HeroMotoCorp
Demandoutlook
Sales per day have reduced to 220 units from 320 earlier. Footfalls have recovered from
decline50%YoYto2025%declineYoY.ExpectssaleslostinNovembertobepostponedto
December.ExpectssalestonormalisebyMarch2017.

Customerprofile
Customerbaseislargelysalariedclassandhardlyanyfarmers.

Changeinbusinessmodel/customerhabits
100% financing has been extended, but adoption by consumers is not meaningful as the
schemeisavailabletocustomersofselectprofile.Purchasesareneedbasedandhencethe
dealerdoesnotexpecttheimpacttobelonglasting;hasnotseenanydowntrading.

GST
NoclarityonGSTimplementationsofar.

4Wdealer:HyundaiMotor
Demandoutlook
Footfalls were down 2030%, but have recovered; November is a slow month as potential
consumers buy in Diwali (which was in October) or wait for more discounts in December.
Expects demand to normalise by December. Used car market has been impacted
meaningfullyassubstantialportionofthedealshappenincash.

Customerprofile
The dealer does not expect meaningful impact on sales as the typical customer base is
salariedclass(IT)professionals.~55%salesarefinanced;only23%salesare100%financed;
100%financingisnotpreferredbyconsumersaswell.

Changeinbusinessmodel/customerhabits
Cashproportionislow,someconsumerspaybookingamount(INR2050k)incash,butnow
theyhaveshiftedtochequepayments.

GST
GST implementation will be done with support from automotive companies. No
communicationasofnow.

Cementdealer
Demandoutlook
Overall volumes declined 2025% YoY. Demand recovery is dependent on recovery in real
estate, which is uncertain; real estate prices were under pressure even prior to
demonetisation.Impactduetodemonetisationislikelytofadewhencashisavailable,which
is expected in the next couple of months. There has been no impact on shortdistance
logistics and hence there are no supplyside issues; issues are on demand side; logistics
companiesaretakingordersasusual.

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Discounts
Cementpriceshavenotchangedduetodemonetisation;therehasbeennoincentive/credit
fromcompanies.

GST
GST implementation will be challenging in terms of manpower requirements for monthly
reconciliation;expectssupportfromcompanies.Asofnow,nomajorcommunicationforGST
implementationfromcompanies.

FMCGdistributor:Marico
Demandoutlook
Business was down 2030% in last week, recovering from low of 5060%. ~50% of the
business is transacted in cash, which has been impacted. Order size has dipped, but not
meaningfully;someofthedistributors(acrossbrands)arestillacceptingcashandarebagging
goodorders/marketshare.Retailerssalesarehitastheconsumersarepostponingpurchases.
Consumers are fearful and are hence hoarding cash; expects situation to normalise by
December.

Changeinbusinessmodel
Thecompanyhadextendedcreditperiodfor5days,whichhasbeenextendedtoretailers.
Paytmadoptionnotmaterial.Incrementally,morepaymentsarehappeningthroughcheque.

GST
DoesnotperceivematerialchallengestoGSTadoption.

Goldfinance
Demandoutlook
Walkinshavedippedto~50%ascashdisbursementhasstopped;banksdonothavecashfor
disbursementgetting ~INR4k versus entitled INR50k from current account. Overall
collections have increased as consumers are buying gold from gold financers by depositing
cash(oldnotes)intheiraccountsandthentransferring it.Normalcywillreturnoncebanks
startdispensingsufficientcash,timelineofwhichisdifficulttoforecast.

Changeinbusinessmodel
As all disbursements/collections are routed through banks it is impacting disbursements;
consumersrequirecashforgeneralbusinesspurpose,whichisgettingimpacted.Thereisno
relaxationinLTVsincedemonetisation.

Discounts
HasintroducedproductOGL(onlinegoldloan;smartphoneappbased)whichitispromoting.
Althoughresponseisslow,expectstopickupinthemediumterm.

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Jewellery:Tanishq
Demandoutlook
Golddemandhasdippedasfootfallshavedeclined.Notsureofrecoverytimeline.Willwait
tillmonthendtotakeacallonbusinessoutlook.

Changeinbusinessmodel
Mostofthepurchasesarehappeningviacard/cheques.Goldenharvestpaymenthasshifted
tocards;noimpactoncardpaymentsforthesame.

GST
DoesnotexpectGSTrollouttobechallengingforcompanyoutlets.


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Surat/Vapi:Higherunorganisedsharespoilsthepie

The Gujarat region has been negatively impacted by demonetisation due to significant
involvementoftheunorganisedsegment.InindustrialbeltsofSuratandVapi,wecovered
many small scale industries (unorganised and organised) across different value chains.
While organised players envisage demonetisation along with GST to bring economic
benefits and a longterm positive, unorganised players (we visited textile, chemical,
engineering products players, among others) foresee 2030% permanent wealth
destruction.Consequently,thiscommunityisalsoscepticalofthejobscenariointhenear
termfortheunorganisedlabourmarket.

Feedback from channel checks with various participants across the value chain covering
auto,jewellery,realestate,cementandfinancierswasmixed.Theimpactwassignificantly
higher on real estate (flowing to business activity in cement segment) and jewellery
segments. After initial hiccups, FMCG and auto segments have recovered gradually with
improvingoutlook.Withinthefinanciersegment,trendswerebroadlyimproving(withthe
exception of gold financiers, where outlook is still uncertain). Among players, Vakrangee
seemstobemajorbeneficiary(businessup>3xpostdemonetisation).

Anecdotes

Unorganised

Workatlargeorganisedplayerscontinued
withmarginalimpact;unorganised
segmentsoperationswereimpacted

Organised





Variousincentivesintroducedby FootfallsatRoyalEnfield Completelullinbusinessatlocal


dealerstopushsales showroomrobustasever textileretailmarket

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SME:Unorganised
Demandoutlook
Business was severely impacted in the first week (>70% decline in business activity); but
graduallyimproving.However,somepainisstillleft.Somebusinesseshavestartedtoexplore
exportsoption.

Bartersystemseemstobemakingacomeback.Peopleareuncertainaboutthegovernments
actions(INR2,000validity,fakeINR500notes,nextstep,peopleholdingoldcurrencyhoping
demonetisationdecisionwillberolledback).

GST+realimpactofdemonetisationwillfollowoneafteranotherandthushasthepotential
toimpactbusinessesoverthelongterm.

Businesspractice
Cashsalarytoworkers:Thoughemployeeshavebankaccounts,salariescontinuetobepaid
Anunorganisedchemical
bycash.Onlinetrendhasstarted,butinternetconnectivityhasitsownsetofproblems.
companysoperationsimpacted

Changeinbusinessmodel
Permanent impact on 2030% of business; sceptical about job situation for nonskilled
workersinthenearterm.

GST
UnorganisedsegmentstillnotreadyforGST.

SME:Organised
Demandoutlook
Bulk(>75%)ofbusinesstransactionsarebycheque;therefore,minimalimpactofcashcrunch
postannouncementofdemonetisation.

Impact limited to only ~20% of business, which will also get normalised in a few months.
Largetextilecompaniessellproductstowholesalers,whothensellthemtoretailers.Retail
saleshitduetodemonetisation(cashtransactions),whichwillhavea23monthsimpacton
theentirevaluechain.Therefore,companiesexpectsomeweaknessinneartermsales(25
30%impactinNovember).

Businessasusualatanorganised Businesspractice
textileprocessingcompany Demonetisationwillhelpcreatealevelplayingfield. Cashleakageswillbepluggedandthe
systemwillbemuchmoreefficient.

Cashsalarytoworkersistheonlyneartermconcern.Companieswillopenbankaccountsfor
allemployeesandsalarieswillbecrediteddirectlytotheseaccounts.

Companies have extended the credit period to wholesalers by further 30 days from 4060
daysearlier.Thiswillbeapplicableonlyforthenext23months.


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Changeinbusinessmodel
Generally,organisedplayersratethemovetobeverygoodandexpectthatovernextyearor
sothingswillmateriallyimproveastheentirevaluechainwillbemuchmoreefficient(lower
cashleakageswithamovetowardscashlesssociety).

GST
ReadyforGSTrollout;everythingisinplacefortimelyrollout.

Autofinanciers
Demandoutlook
Disbursementshadinitiallydeclined,butarenowgraduallyrecovering.Novembertargetwill
bemissed,thoughnomaterialimpact;confidentofachievingDecembertarget(salespushin
theformofvariousschemeswilldrivegrowth).

Someriseindelinquencyrate(up57%),ontheotherhand,thereisnomaterialimpactdue
toRBIschangeinNPLrecognitionnorm(peopleareunawareofanyRBImove).

Customerprofile
Salariedcustomersaccountfor3035%ofloanbook,farmers1015%andbalanceaccounted
forbythebusinessclass.Around70%ofAUMsareforcarsandlightcommercialvehicles.

Changeinbusinessmodel
All customers will have bank accounts. While 100% disbursements are by cheques, 6065%
collectionsarethroughchequesandbalanceincash.Expecttheratiotoimproveinfavourof
cheques.

Discountsandincentives
No major incentives offered, except for 100% financing scheme for select customers.
However,therewerenotmanyenquiriesforsuchproductsgiventhehigherfiltercriteria.

Goldfinancecompanies
Demandoutlook
Initially,businesswasclosedforafewdays.However,sincethenbusinessactivityhasbeen
graduallypickingup.Theimpactasofnowis30%ofsales.ThereisnochangeinLTV.Every
disbursementfor>INR50Khastomandatorilyshowpancard.

Thereweresomeheavyrepaymentsearlier,butthingsarestabilisingnow.

Changeinbusinessmodel
Customers are still insisting on cash disbursements, though there is clear intent seen on
shiftingtoonlinechannels.

Cashbasedtransactionsformed60%whichhavenowdippedto20%.Itisencouragingtosee
thatpeoplearemorereceptivetotheideaofmovingtotheonlinemode.

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Discountsandincentives
Customers are not aware of RBIs dispensation. A small section of customers is asking for
somesortofmoratorium,butnodispensationisbeingprovided.Ifinterestpaymentisdue
andcustomersarenotpaying,thentherewillbepenalty.Ifprincipalrepaymentisdue,the
companysuggestsrenewingoftheloansothatcustomersgetadditional3monthstime.

Vakrangee
Demandoutlook
30 account openings now versus run rate of 10 earlier (initially, they were not allowed to
openaccountsfor4daysfearingfakeaccountopenings).Therunrateexpectedtotouch50
accounts/day,butthenetconnectionandserverproblemsneedstobetakencareof.

Changeinbusinessmodel
ThebusinessthroughAmazonhasseengoodtraction(ofoverallsalesinGujaratofINR55mn,
theSuratbranchwevisiteddidINR16mn).

AccountsopeningatVakrangee:
Hugetractioninthemoneytransferschemeaswell;startedwithINR50,000100,000/dayto
BusinessataVakrangeeKendrain
Suratup3xandthisisjustthe INR250,000350,000perday.
beginning
FMCGdistributor
Demandoutlook
As retailers sales fell >50%, dealers sales also dipped in November (50% miss on target).
However,thesituationisnowimprovingandcompletenormalcyisexpectedbyMarch2017.

Cash:chequeratioat60:40.

Incentivesandinventory
Companieshaveextendedthecreditperiodforalldistributors(wholesalers)by1014days.

Insomepockets,incentivesforpharmacompaniesonachievingtargetshavebeenincreased
topushsales(pharmacompaniescanacceptoldcurrency).

Changeinbusinessmodel
Cash transactions accounted for ~50% of sales earlier; post demonetization, the share has
reduced to 20%. Going ahead, does expect lower contribution of cash transactions versus
earlier,oncebusinessnormalises.

GST
GSTwillbeextremelydifficulttoimplementatretailerlevel.

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Autodealer:HyundaiMotor
Demandoutlook
Salesprofile:Cash(30%),financing(70%).

Aftertheinitialcollapse,sales/enquiriesarerecoveringandnormalcyisexpectedin2months.

Enquirieshavefallen33%andconversionshavealsobeenimpacted.Novemberenquiriesfell
to500fromtheusual800900.Largestimpacthasbeenonsalestowalkincustomerswhere
conversions dipped from 25% to 15% in November. Activity has improved since mid
November.

Waitingperiodhasreduced.Forexample,waitingperiodof4monthsforCretahasreduced
to1.5monthsnow.Dealerhasreducedinventorytobalancelowerdemand.

Incentivesandinventory
Thedealerhasnotofferedanydiscountsforpushingsales,buthasincreasedsales/marketing
effortsinamorecentralisedmanner.

Autofinanciersextendingschemes HyundaihasnotrelaxedanytargetsforNovember/December.However,tohelpdealers,itis
tolurecustomers
offering easy financing schemes having tied up with auto financiers (MMFS, HDFC, ICICI)
including100%financingschemeandincreasingtenurefrom57yearsto8years.

2Wdealer:RoyalEnfield
Demandoutlook
Aftertheinitialcollapse,saleshaverecoveredandnormalcyisexpectedbyDecember.

InNovember,bookingsmissedtargetby15%,whichisalsoanticipatedtobebackontrackin
December.

Changeinbusinessmodel
Sales profile: Before November 8, cash was 60%, financing was 20% and cheque/DD 20%.
Now,itisfinancing60%andcheque40%.
Afterinitialshockandawe,business
activityreturnedtonormalatRoyal AllbusinessismandatedthroughPANcard.
Enfield
Paymentstoworkerswillnowbeviabankdeposits(mandated)versuscashpaymentearlier.

Incentivesandinventory
Strongdemandandwaitingperiodhasbeenmaintained.Everymonth,bookingsarehigher
thansales.

Thedealerhasnotofferedanydiscountsforpushingsales,buthasincreasedsales/marketing
effortscoldcalling,morefollowupsandtargetingreferrals.

Eicher Motors has not relaxed any targets for November/December. However, to help
dealers, it is extending easy financing schemes by tying up with auto financiers (HDFC) like
100%financingscheme,nochargesonswipe(1.5%feeleviedearlier).

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GST
Currently, levied 15% tax (12.5% excise + 2.5% VAT). Post GST, if covered under luxury
segment(HarleyDavidson),taxwillincreaseto27%,else1520%.

Positives:Lessernumberofdocumentation,forms,checknakas,interstatetransport.

Realestate
Demandoutlook
Walkinshavefallenby7080%.Around80%dealingsareincash.Intermsofconsumption,
50% was investment demand and 50% was for consumption. The 50% investment demand
willseehugepullback.

Changeinbusinessmodel
Therewillbestructuralchangeinconsumerpreference.Peoplewillnowprefersmaller1/2
BHKflats.Priceimpactwillbeonthepremiumhousingsegment(expectpricestocorrectby
>30%).Similarly,theimpactwillbehighonlanddeals(>4050%correctionanticipated).
Many builders have reduced debt taken from the market. So, currently there is not much
pressure,butifpricesfallthentheywillcomeunderpressure.

Cementdealer
Demandoutlook
60% of business is contributed by retail and balance wholesale. Retail segment demand
affected as transactions are largely done in cash. In the builder segment, 90% business is
done via cheques. However, demand off take from the builder segment has reduced
significantly,especiallyfromthepremiumsegment.Nomajorimprovementindemandinthe
past1week.

Inventoryandincentives
Cement prices have not corrected and no discounts are being offered. Credit cycles have
increasedby78days.H2isaseasonallystronghalf(>60%ofbusinessisdoneinthisperiod)
andhencepricingtrendwillbemorerelevanttoobservegoingahead,especiallyifdemand
remainssubdued.

Retailsegment
Demandoutlook
Salesaredown~50%asentirebusinessisdoneincash.Significantneartermchallengesseen
intermsofdemandrecovery.Forjewellers,saleshavedroppedsubstantiallyandtheydonot
expectrevivalanytimesoonascustomersareafraidofsharingPANcardnumber(compulsory
fortransactionsof>INR200K).

GST
Registration papers sent out for GST and timely roll out anticipated. Does not expect
jewellery demand to shift to organised players due to GST as sales are driven by: a)
relationships;b)Largeplayersrangeisnotthatgoodandnewdesignscomewithalag;andc)
bargainingpowerislowfortheseplayers.

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EdelweissSecuritiesLimited,EdelweissHouse,offC.S.T.Road,Kalina,Mumbai400098.
Board:(9122)40094400,Email:research@edelweissfin.com

ManojBahety
DeputyHeadResearch
manoj.bahety@edelweissfin.com

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46 EdelweissSecuritiesLimited
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mayhavereceivedcompensationforinvestmentbankingormerchantbankingorbrokerageservicesfromthesubjectcompanyin
the past 12 months. ESL or its associates may have received any compensation for products or services other than investment
bankingormerchantbankingorbrokerageservicesfromthesubjectcompanyinthepast12months.ESLoritsassociateshave
notreceivedanycompensationorotherbenefitsfromtheSubjectCompanyorthirdpartyinconnectionwiththeresearchreport.
Researchanalystorhis/herrelativeorESLsassociatesmayhavefinancialinterestinthesubjectcompany.ESLand/oritsGroup
Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise in the
Securities/Currencies and other investment products mentioned in this report. ESL, its associates, research analyst and his/her
relativemayhaveotherpotential/materialconflictofinterestwithrespecttoanyrecommendationandrelatedinformationand
opinionsatthetimeofpublicationofresearchreportoratthetimeofpublicappearance.
Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange
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factors,includingworldandnationaleconomic,politicalandregulatoryevents,eventsinequityanddebtmarketsandchangesin
interestrates;and(iii)currenciesmaybesubjecttodevaluationorgovernmentimposedexchangecontrolswhichcouldaffectthe
valueofthecurrency.InvestorsinsecuritiessuchasADRsandCurrencyDerivatives,whosevaluesareaffectedbythecurrencyof
anunderlyingsecurity,effectivelyassumecurrencyrisk.
Researchanalysthasservedasanofficer,directororemployeeofsubjectCompany:No
ESLhasfinancialinterestinthesubjectcompanies:No
ESLsAssociatesmayhaveactual/beneficialownershipof1%ormoresecuritiesofthesubjectcompanyattheendofthemonth
immediatelyprecedingthedateofpublicationofresearchreport.
Researchanalystorhis/herrelativehasactual/beneficialownershipof1%ormoresecuritiesofthesubjectcompanyattheendof
themonthimmediatelyprecedingthedateofpublicationofresearchreport:No
ESL has actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately
precedingthedateofpublicationofresearchreport:No
Subjectcompanymayhavebeenclientduringtwelvemonthsprecedingthedateofdistributionoftheresearchreport.
There were no instances of noncompliance by ESL on any matter related to the capital markets, resulting in significant and
materialdisciplinaryactionduringthelastthreeyearsexceptthatESLhadsubmittedanofferofsettlementwithSecuritiesand
Exchangecommission,USA(SEC)andthesamehasbeenacceptedbySECwithoutadmittingordenyingthefindingsinrelationto
theirchargesofnonregistrationasabrokerdealer.
Agraphofdailyclosingpricesofthesecuritiesisalsoavailableatwww.nseindia.com
AnalystCertification:
Theanalystforthisreportcertifiesthatalloftheviewsexpressedinthisreportaccuratelyreflecthisorherpersonalviewsabout
thesubjectcompanyorcompaniesanditsortheirsecurities,andnopartofhisorhercompensationwas,isorwillbe,directlyor
indirectlyrelatedtospecificrecommendationsorviewsexpressedinthisreport.

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IntheUnitedKingdom,thisresearchreportisbeingdistributedonlytoandisdirectedonlyat(a)personswhohaveprofessional
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ThisreportisintendedfordistributionbyESLonlyto"PermittedClients"(asdefinedinNationalInstrument31103("NI31103"))
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