Even as the recent developments in Bangladesh have had no significant impact on India’s trade, CRISIL Ratings said that a prolonged disruption can affect the revenue profiles and working capital cycles of some export-oriented industries for which Bangladesh is either a demand centre or a production hub. In a report, CRISIL Ratings said, “We do not foresee any near-term impact on the credit quality of India Inc either,” while maintaining that the effect will vary on industry/sector-specific nuances and exposure.
In terms of sectors, CRISIL stated, cotton yarn, power, footwear, soft luggage, fast moving consumer goods (FMCG) may see a small but manageable negative impact, while ship breaking, jute, readymade garments (RMG) should benefit. For most others, it added, the impact will remain insignificant.
India’s trade with Bangladesh accounted for 2.5 per cent of its total exports and 0.3 per cent of total imports last fiscal. Merchandise exports mainly comprise cotton and cotton yarn, petroleum products, electric energy, etc., while imports largely consist of vegetable fat oils, marine products and apparel.
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Bangladesh accounts for 8-10 per cent of sales for cotton yarn players, which could affect the revenue profile of major exporters and their ability to compensate sales in other geographies will be an important monitorable, per CRISIL. However, their operating profit margins may not be significantly impacted because cotton-yarn spreads are already modest at present.
Companies in sectors like footwear, FMCG and soft luggage could also see some impact because of manufacturing facilities located in Bangladesh. While these facilities faced operational challenges during the initial phase of the crisis, most have since commenced operations, though a full ramp-up and the ability to maintain their supply chain will be critical.
Further, engineering, procurement and construction companies engaged in power and other projects in Bangladesh could see execution delays this fiscal as a sizeable portion of their workforce has been recalled to India for almost a month now. A gradual ramp-up in workforce is expected, which would keep the revenue booking this fiscal lower than earlier expectations. Besides, companies supplying electricity could see delayed payment of dues.
On the back of these factors, CRISIL said, “Debtor risk for most sectors may increase with major transactions being carried out through letters of credit (LCs), which could be invoked in the event of non-payment, leading to dependence on Bangladesh banks for settlement. Besides, forex issues are also rising due to the depreciation of taka versus the rupee and other currencies.”
On the other hand, companies in the ship breaking, jute and RMG sectors are seeing an increase in sales inquiries from key export destinations such as the US and Europe.