MS Unnikrishnan, managing director, Thermax told CNBC-TV18 that though the October IIP numbers are at highest in 16 months, the situation on the ground level has not changed.
India's industrial production index rose at a better-than-expected rate of 8.2 percent, its fastest annual pace in nearly a year in October after unexpectedly contracting in September, helped by a statistical spurt in infrastructure-related output.
MS Unnikrishnan, managing director, Thermax told CNBC-TV18 that though the October IIP numbers are at highest in 16 months, the situation on the ground level has not changed. "From manufacturing per se in the last two-three months has been retardation rather than an improvement," he added.
Analysts polled by CNBC-TV18 had expected a rise of 4.5 percent in October output. Revised government figures released on Wednesday showed September output growth was revised down to a contraction of 0.7 percent from a contraction of 0.4 percent.
Below is the edited transcript of MS Unnikrishnan’s interview with CNBC-TV18.
Q: This is a surprise number we have. Is the sentiment on the ground in sync with what the number is indicating that things are troughing out?
A: Certainly no, even I was quite surprised. From whatever numbers I have got, there is a surprise element in the number. I would certainly want to analyse it a little more to reconfirm because on the ground level I have not seen any change.
To the extent that it should have turned like a hockey stick. If it is a marginal improvement, gradual improvement one would say that it is improving, but it is a sporadic change. Virtually we are seeing it as if nothing has gone wrong.
Q: If the number was 4 percent would you think it is in sync with reality? Is there any improvement in reality?
A: No because in comparison to 0.4 or 0.1 percent numbers, we were less than 1 percent in past couple of months. It has not reached a 4 percent number; I would certainly not believe that number.
On the ground level, I am not talking about capital goods indices for the moment, I am talking about manufacturing per se in the last two-three months has been retardation rather than an improvement.
However, we are expecting things may pick up moving forward gradually, not a sporadic change, certainly not. I am not expecting that to happen.
Q: What about input prices at this point in time because we have got the consumer price index (CPI) inflation data but that’s more on the consumer side which is still at around 9.9 percent. But since you did say there is some amount of retardation in terms of order execution at this point, how are input prices panning out for you? Is there some softening or is it still at hardened levels?
A: There are two things, which I would like to point; one is the enquiry levels have started picking up, which means that the Indian industry is planning for some investment. Secondly, the existing orders which are under execution, I have seen a delay in execution from the customer’s side.
Payment and credit availability in the market has come down rather than improving in the past two-three months. On one side the future is looking like the enquiries coming in, May order finalization can pick up. But the existing order execution is not showing such a positivity that market is flooded with money and people are pushing to deliver the equipment.
On the contrary, I know that in the capital goods industry, a good number of companies are carrying higher finished good inventory levels than what they had in the past. So, that is contradictory at this point of time. I would expect the credit to be improving, interest rates to be coming down where the off take will catch up and on the other side, order finalisation to catch up may be by Q1 of next year.
Q: It is a little serious that you are telling us, you actually see retardation? November was worse than October in your estimate?
A: In terms of off take yes. Because in capital goods industry there are two things, one is in terms of the fresh orders for the future and current orders how they are getting executed is an indicator, the customer’s confidence of his cash flows.
Q: And that saw a decline according to you in November, may be December as well?
A: Absolutely. December may be because at the quarter ending everybody will push for it.
Q: At the moment it is still in a fairly damp state you would think?
A: Absolutely right.
Q: What is your sense on pricing, are you noticing people drop prices because of this retardation that you are talking about?
A: Continuing to be, the prices are at quite lower level because the weaker of the companies in the market who have got loans to be repaid and have debt on the balance sheet are under compulsion to be picking orders given lower margins.