MUMBAI: Prolonged unrest in Bangladesh can affect Indian companies for which the neighbouring country is a demand centre or production hub but the impact is likely to be minor, said a new study on Wednesday.
India’s trade with Bangladesh is relatively low, accounting for 2.5 percent of its total exports and 0.3 percent of its 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.
The analysis by Crisil Rating does not foresee any near-term impact on the credit quality of India Inc. but companies in sectors such as cotton yarn, power, footwear, soft luggage and fast moving consumer goods may see a small but manageable negative impact, while ship-breaking, jute, readymade garments should benefit. For most others, the impact will be insignificant, the report said.
For cotton yarn players, Bangladesh accounts for 8-10 percent of sales, so the revenue profile of major exporters can be hit. Their ability to compensate with sales in other geographies will be the key. But operating profit margins may not be significantly impacted because cotton-yarn spreads are already modest at present.
Companies from footwear, FMCG and soft luggage can also see some impact as they have manufacturing facilities in Bangladesh and had faced operational challenges during the initial phase of the crisis but most of them have since resumed operations.
Companies engaged in power and other projects in Bangladesh can see execution delays this fiscal as a sizeable portion of their workforce has been recalled to India for almost a month now. With only a gradual ramp-up in workforce expected, revenue booking can be lower this fiscal compared with earlier expectations.
Besides, companies supplying electricity may see delayed payments.
On the other hand, companies in the ship breaking, jute and readymade garments sectors are seeing an increase in sales inquiries from key export destinations such as the US and Europe.