Imagine being trapped in a car for three days without food or water as a fire rages in your city. This harrowing experience happened to thousands of families caught in the recent wildfires in the Hawaiian island of Maui. The lucky ones reached safety with singed hair and faces blackened by soot. By the time the fire receded, over a 100 people were dead and around 850 are still missing. 

Just a month ago, Rhode Island in Greece saw its biggest-ever fire evacuation, relocating nearly 30,000 people to safety. And last week, people were being evacuated from wildfires across British Columbia in Canada.

The mercury is rising like never before - Southern Europe saw unusual summer heat, US states have suffered historic droughts. At an Iran airport, the heat index reportedly hit 66 degrees celsius. In the critical trade route that is the Panama Canal, which moves half a billion tons of cargo every year, low water levels are forcing ships to load only partially, and wait for four days or more (and 20 days in some cases) to cross the waterway. In India, we endured our hottest February ever, followed by unseasonal rains. 

Such extreme climate events are threatening human lives and affecting world economies. UN Secretary General António Guterres described these changes as a ‘crisis multiplier’, and its effects are becoming increasingly undeniable. Indian CEOs say that it is beginning to impact businesses and balance sheets.  

In this week’s Analyticks:

• Nature’s fury hits certain pockets of the economy and industry in India
• Screener: Growth outperformers in sectors affected by climate change in India

Let’s get into it.

Climate change unnerves Indian farmers, consumers and companies in 2023

Among this year’s bestsellers is Jeff Goodell’s The Heat Will Kill You First, which looks at our rapidly heating planet. He provides some sobering numbers: land animals are moving upwards one mile every year to cooler regions. 489,000 people are dying every year from extreme heat - nearly double the number killed by firearms annually. And global agricultural production has fallen by 21% in the last two decades due to rising heat and drought. 

The average global temperature change consistently exceeded one degree Celsius every year from 2015-2020. Humans are now seeing temperatures never experienced before in our history.

The increase in mean temperatures is resulting in heatwaves, erratic rainfall patterns, and water shortages everywhere.

Global heat escalates throughout the 21st century

India is not spared from these impacts. It experienced extreme weather events for 84 out of the 120 days in the first four months of 2023, according to ITC’s chairman Sanjiv Puri. El Nino has adversely impacted the monsoon season as well. As Indian companies grapple with this severe weather, the effects are turning up in their financials.

India's rainfall is uneven and deficient so far, threatening agri yields 

Ritesh Tiwari, CFO at Hindustan Unilever, pointed out an interesting fact in the recent earnings call: “Quantity, timing and placement of the rain - all three have to work to ensure that the monsoon supports agricultural growth and rural growth.” And all three factors have been disrupted this season. 

The monsoons began late in 2023 and have been below average in August. Karnataka faced a challenging situation in June, as  water levels in the Krishna and Kaveri river basins were significantly low, impacting coarse cereal production. The state is still running in a rainfall deficiency. 

Below-average rainfall persists, and state-wise distribution remains uneven

Uttar Pradesh, India’s largest food grains producer, is also experiencing a rainfall deficit. This is likely to impact the yields of kharif crops like paddy, maize and millets. Unexpected flooding in states like Punjab and Haryana, major rice producers, is raising concerns about this season's rice output as well. 

To control rising prices, the Indian government banned white rice exports in July. Since India is the world’s largest rice exporter, this has raised food insecurity risks for importing countries. 

India dominates global rice exports with over one-third market share

The sugar output for the current marketing season ending September 30 is also expected to decline, due to poor rainfall in cane-producing states like Maharashtra and Uttar Pradesh. 

Sugar production and exports set to fall

Retail inflation in India spikes as food prices climb

The RBI’s efforts to tame retail inflation through a series of interest rate hikes, and the decline in global commodity prices had paid off for a while. However, the erratic weather events of 2023 have again put pressure on the Central Bank. 

India’s retail inflation spikes again

Consumer price inflation has crossed the 7% mark for the first time since September 2022. This is owing to the rise in prices of key vegetables, cereals and pulses.

Tomatoes, a staple in Indian cooking, reached Rs 250/kg in some regions, prompting some tomato sellers to hire security guards, and quick-service restaurants like Burger King and McDonalds to omit it from their burgers. 

Vegetables contribute the most towards July CPI food inflation

With uneven monsoons threatening the yield of kharif crops as well, this inflation spike does not look like an isolated event. The increase in prices could also dampen rural demand, which had just started to recover for FMCG players. 

Unpredictable weather hits FMCG, white goods and agrochemical makers

This summer season has had unexpected twists. Product categories and segments that flourished in previous summers due to heatwaves found themselves in a downturn this year, thanks to unseasonal rains. Demand for fruit beverages, carbonated drinks, ice creams, cooling hair oils, ACs, fans and coolers declined YoY between April and June. 

Commenting on this, Mohit Malhotra, CEO at Dabur, said, “When it rains, people tend to stay indoors, impacting the sales of eating and drinking outlets. This affects our beverage portfolio.” Notably, the company gets 30% of its beverage demand from out-of-home consumption. 

FMCG players are seeing underperformance in the food and beverages business

Brands like Glucon-D, Real Fruit Juice and Tropicana saw lower sales growth in Q1. These are manufactured by Zydus Wellness, Dabur and Varun Beverages respectively. Among consumer durable makers, Blue Star’s AC segment faced sluggish revenue growth. Voltas and Havells did better due to market share gains.

Havells and Voltas see healthy growth in the AC business

Domestic agrochemical players were already going through a rough patch. Unseasonal rainfall resulting in a delayed kharif season has only amplified their woes.

India needs to step up as climate change intensifies

According to the World Meteorological Organization, there is a high chance of temperature rise exceeding 1.5 degrees in the next five years. And with this, the climate goals in the Paris Agreement may become very difficult to achieve. 

India’s faraway target of achieving net zero emissions by 2070 might come with a heavy cost to its GDP by 2050. The agricultural sector will also face consequences. According to India’s agriculture ministry, climate change may reduce wheat and rice yields by over 19% by 2050. Poor farm incomes will hurt livelihoods, and hit FMCG and auto sectors. 

India’s 2070 goal is not sufficient to counter climate change

Scientists’ repeated warnings about the dire effects of climate change are now becoming a reality. Humans are notoriously bad at paying attention to warnings for events that might happen far in the future - but as climate change accelerates, the world as we know it is immediately at risk. Governments need to move quickly with incentives and investments, to change the course that we are on. 

Screener: Stocks outperforming their sectors’ revenue and net profit growth - Climate change special

Bikaji Foods leads in net profit growth outperformance 

 
In this edition, we take a look at outperformers in sectors where revenue and net profit growth were affected by extreme climate change in Q1FY24. This screener shows companies that have outperformed their climate-impacted sectors in terms of net profit growth and revenue growth.

The sectors include FMCG, food & beverages, consumer durables and chemicals & petrochemicals (agrochemicals industry mainly). 

Major stocks that appear in the screener are Bikaji Foods International, Kaynes Technology India, Jyothi Labs, Emami, Polycab India and United Spirits.

Bikaji Foods’ revenue and net profit outperformed the FMCG sector by close to 13 and 146 percentage points respectively in Q1FY24. Revenue growth was aided by increased sales volumes in ethnic snacks, packaged sweets and western snacks. Net profit growth was helped by the reduction in input and finance costs.

Kaynes Technology saw its revenue and net profit outperform the consumer durables sector by 37 and 119 percentage points respectively in Q1FY24. Its revenue rose due to higher demand from the industrial, railways, automotive, aerospace and IT segments. The company is a contract manufacturer for electronics and is not exposed to the B2C segment. 

United Spirits beat the food & beverages sector in terms of revenue and net profit growth by nearly 133 and 68 percentage points, respectively, during the quarter. The spirits maker’s revenue increased on the back of healthy volume growth and the initiation of IPL’s five-year media rights. 

You can find some popular screeners here.