These Indian industries could potentially gain from the Russia-Ukraine conflict

Entrepreneur India looks into what sectors can see a growth in business from the Russia-Ukraine war and how they are preparing to utilize the opportunity

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While it seemed that the pandemic is finally behind us as reported cases came down significantly since early 2022, it doesn't necessarily mark the end of the global travesties that are to befall.

After years of skirmishes between the Russia and its neighbouring country Ukraine, the former announced military invasion of the latter on February 24, 2022. The invasion included targeted bombing, airstrikes and military advances by the Russian forces, leading to devastating images of destruction.

Other than the significant damages incurred on assets in the region, the impacts of the conflict are more far reaching and are not restricted to the region only. Global financial services providers like Moody's and Goldman Sachs predict that the conflict is to dent the global economic expansion significantly in 2022. Indian economy is also positioned to feel the tremors of the collision up north.

The most significant financial impact that the world is seeing due to the conflict at the moment is the steep increase in fuel costs. As many countries imposed bans on the import of Russian oil, oil prices soared to a global high of $139 in early March per barrel before redacting to below $100. Hardeep Singh Puri, Union Minister for Petroleum and natural gases, had remarked earlier that the situation might also impact oil costs in India. "Oil prices are determined by global prices and there is a war-like situation in one part of the world and the oil companies will factor that in", he said.

Oil's most widely used by-product, petrol, has been in a state of continuous fluctuation in terms of prices in India recently, hitting record numbers in second and third quarters of 2021. With the anticipation of another increase in the prices of petrol, which reports claimed could be anywhere around INR12 to Rs 15, it is only natural for the Indian consumer to find alternatives. With electric mobility picking up in terms of favourability and infrastructure for its use, the Russia- Ukraine conflict could trigger a shift in preference of petroleum based products to electric vehicles.

Increasing fuel prices to boost Indian EV sector?

Kapil Shelke, CEO/Founder, Tork Motors, in conversation with Entrepreneur India reveals that, irrespective of the Russia-Ukraine conflict, Indians' shift in preference towards EVs has been apparent for quite a while now.

"There has been upward trajectory in fuel prices in India for quite some time now, and whenever a surge in prices happens, everybody in the electric vehicle industry sees a surge in demand. This surge stems purely from sentiment, as people obviously don't like to pay more for fuel, which as a recurring cost is getting higher and higher. This sentiment gets triggered whenever the prices go up," Shelke said.

He asserts that the Indian EV sector has seen two surges in demand in recent times. "The first surge was when multiple states increased subsidies on EVs in June 2021 and the next one was when fuel prices hit Rs. 100 per litre and upwards, in the second and third quarters of 2021. We anticipate this to be the third such surge in the EV purchase," he adds.

The public sentiment of which Tork's CEO discussed is also reflected in the number of EV registrations in India in 2021. Nitin Gadkari, Union Minister for Road Transportation and Highways, notified the Indian parliament on March 16 that the share of electric vehicles in the country grew by 163 percent in 2021. The country registered over 3.2 lakh new EVs in comparison to 2020. Shelke jokingly said that he would call someone "insane" if they opt to buy a petrol vehicle given the current climate.

"The conversation has changed from should I buy an electric vehicle to what electric vehicle I should buy," Shelke asserted.

Even though the industry is rapidly expanding, there are still some substantial challenges that the India needs to overcome in order to realise EVs full potential.

"There is a supply chain, whose smooth operation is imperative to ensure a seamless operation in an automotive business. If you double down on this and offer a PLI for EVs, like the government has, it helps. However, most startups like Tork are not eligible for the PLI scheme. These PLI schemes are more skewed towards more established companies," he adds. The prerequisite for a company to qualify for the performance linked incentives for EVs in India is to have a global net worth of Rs 1,000 crores.

Shelke informs that the supply chain for raw materials is heavily stressed ever since the COVID-19 pandemic hit. For Tork, the biggest bottleneck for expansion currently is to get all the right parts in adequate quality and quantity in for production before deadlines. Shelke feels that the same is relevant for other players in the EV space in India, especially startups. More importantly, the prices of raw materials that are involved in EV manufacturing has gone up significantly.

Utkarsh Singh, Co-founder/ CEO, BatX Energies, tells Entrepreneur India that the prices of certain metals involved in EV production have gone significantly up as a direct result of the Russia-Ukraine conflict. This in turn has burdened the supply chain for EV production, an issue which Shelke mentioned.

"Prices of Nickel has gone up by about 60 percent recently since the impositions on Russian imports started after the war began. Russia is the 12th largest exporter of Nickel in the world. Manganese and Cobalt prices have also gone up by 20-25 percent. These metals are critical components of EV batteries," Singh said.

The battery life of an EV for four wheelers is about six to seven years, whereas a two wheeler/ three wheeler battery holds good for about three to four years. Singh's BatX's primary business is to recycle the material used in these batteries so that they could be reused.

He informs that interest in the sector has gone up significantly since the war, as the industry looks for viable ways to bring down the production costs. "Demand for our recycled Cobalt and Nickel has gone up significantly due to the price increase. It is a tough stretch ahead for the EV industry as the basic costs of the metals involved in the battery production are on the rise. The batteries account for about half the production costs of an electric vehicle and the industry is looking for viable ways to bring down this cost. Utilising recycled nickel is one of the best bets to cut down on the expenditure," he said.

Russia's withdrawal from the Aerospace business: A long-term push for India's rocket companies?

Arguably one of the biggest players in the aerospace industry, Russia asserts a very commanding position when it comes to space. Prior to the conflict, Russian rockets were utilised by global clients to position their satellites in outer space. However, since a lot of countries implemented trade sanctions on the country, Roscosmos, which is the Russian body responsible for space flights, has also imposed restriction on global commercial clients. This serves as a window for other players to come in to the aerospace market.

Yashas Karanam, Director and COO, Bellatrix Aerospace, believes that there is a chance for gains for the Indian aerospace industry from the events, as they have unfolded, in Russia. Karanam identifies two angles other aerospace businesses could explore at the moment.

"Russia has been a leader in terms of taking foreign satellites to space. As a result, Roscosmos and their Soyuz rockets dominated the market for commercial launch. With Roscosmos imposing restrictions on the same, it creates a void which could be explored. Indian companies have a competitive advantage that could be leveraged in exploring the same. We can use this opportunity to boost exports at a lower cost and a better quality, something India has the resources to do," Karanam said, adding that Bellatrix is also looking at some potential opportunities arising from the conflict.

The other angle that could be explored at the moment is the business of export of various materials required in production of rockets.

"Both Russia and Ukraine export a lot of small components involved in production of rockets. Hence, there is also a void here, as both countries have largely stopped exporting material. This would also be an opportunity to fill in the gap. India again is in a position of advantage in terms of cost," he said.

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Karanam, however, foresees a long term gain from the conflict rather than an immediate turnaround for Indian aerospace companies. He believes that for Indian companies to establish themselves as leaders in the aerospace industry, it will require sometime. "In the current scenario, Indian aerospace industry is not completely ready to overtake other more established competitors in the market, like US and China. On a long term, the conflict may put a competitor in Russia out, but India has a long road ahead if it wants to establish itself in the aerospace space," he foresees.

Taiwan's ban on semiconductor export to Russia: Does Indian industry benefit from it?

The Indian semiconductor industry, like many other industries, could see a mix in terms of impact. In a short term, the supply chain could get affected as Ukraine and Russia are prominent importers of certain metals used in the manufacturing of semiconductors. However, according to Parag Naik, CEO and Co-founder, Saankhya Labs, the positives may outweigh the negatives in the longer run.

"I believe the growth of Indian semiconductor industry may get a tailwind of the Russia-Ukraine conflict. We can expect more products and services to come out of India. There might be marginal benefits in semiconductor trade on a short-term basis," Naik asserts. Naik further explains that there has been a void created in the Russian market for semiconductors because of the international trade sanctions.

Russia largely depended on Taiwan for its semiconductor requirement. Taiwan was one of the first countries to impose trade sanctions on Russia. "There is an immediate opportunity for expansion in the semiconductor trade with Russia at the moment. However, the capitalisation of Indian industry on this opportunity might be tricky because of a few factors," Naik opines.

Although India has a large pool of VLSI designers and other human resources to expand semiconductor production, the industry is still on the come up. Naik explains that there are no indigenous semiconductor fabrication and chip designing companies at the moment and companies like Saankhya Labs have to outsource their requirements.

However, things are picking up, with the Central Government recently announcing the Design Linked Incentive scheme to boost the semiconductor ecosystem. Naik hopes that more companies might come up soon. "What I hope is that private investment groups and venture capitalists identify the potential in the industry and make investments. Currently, no VC has ventured into semiconductors in India. I believe there is a dearth in the knowledge that prohibits investments, but that might not be the case for long, as I believe positive things are in store for the industry soon," Naik said.

Indian Pharma might see an immediate gain in Russian business

According to a recent ANI report, the Russian ambassador to New Delhi Denis Alipov has expressed that Indian pharmaceuticals might replace the western manufacturers leaving Moscow.

Nikkhil K Masurkar, Executive Director, ENTOD Pharmaceuticals, in conversation with Entrepreneur India, explains that India's Pharma exports to Russia have always been prominent and growing at a rapid pace in recent times.

"In the current war scenario, a lot of western-based Pharma companies are pulling out of their business in Russia, GSK being the most prominent of the. They have reduced their supplies to Russia to conform to the sanctions imposed. However, the Indian government has encouraged the country's pharma industry to boost their supplies to Russia and Ukraine, serving a great opportunity for us to grow," he said.

Masurkar further added that the pharma exports to Russia were worth around $600 million till now. This number is poised to grow, as Russia has shown that they want Indian companies to meet their pharmaceutical requirements.

"In a short to medium time frame, I see a fast track in the process of medicine registration in Russia, which will allow Indian companies to push their exports. I also foresee that Russia will prefer India to supply medicines rather than rely on the West in the future," Masurkar adds.

He confirms that an actual increase in business will be seen in the coming two to three months.