If India plays its cards well, the pandemic might benefit Indian companies on account of investments moving out of China, believes Rohit Saboo, President and CEO, National Engineering Industries (NEI)
Impact on Business and Recovery Strategy
This situation is a first-of-its-kind in the lifetime for most of us. Nobody expected what is currently happening and we are also not sure of what to expect next as the situation is changing each passing day. In the short term, our priority is to ensure employee safety and maintain social distancing. Factories will run with minimal capacity. We foresee staggered working for the coming months. Things will start to get to normal only after the vaccination for this virus is out and available. It is a trying time for everyone, both personally and professionally.
BS VI Transition
In the passenger vehicle segment, some OEMs have moved fast to adapt to BS VI and have very low BS IV inventory. Despite this, most OEMs have reported decline in sales. In the two-wheeler segment there is a lot of old inventory with the dealers. Due to the current pandemic, dealers have not been able to sell much and with limited relief from the court, the situation is not very good. Sales are going to decline this year, posing more challenges for the OEMs and dealers.
Expectations from Government
The government should come up with a major economic stimulus, else industries will suffer. Some of the countries even have 10% of the GDP earmarked for this. If significant incentives are not provided, it will lead to many companies failing and closing shop. This will have a cascading effect on banks and non-banking financial companies which are already not in the best shape.
Outlook: Present and Future
There are mixed opinions on how the demand will be impacted. One view is that people will invest in essentials first and automotive will be low on the priority list. However, a contrary view is that people might be inclined to buy vehicles to avoid taking public transport as that might expose them to some risks. It will take at least six months to ascertain which way we are heading. On the supply side, 80% of component firms utilise Tier II and III vendors. They are the ones who will be under pressure due to cash flow issues. Due to this, the supply chain will be a big problem. Another important factor to consider is the migrant workforce. After the lockdown opens up, their first priority, perhaps, would be to go to their hometowns and be with their loved ones. This would mean a sharp shortage of labour which will also impact the supply. Currently the top priority is to reduce capital expenditure and maintain cash flow.
Medium to Long Term Impact
The industry will take some time to come to terms with the situation. The GDP is already predicted to be a very low number which might be revised further based on the prevailing circumstances. In the medium term, we might see a pent-up demand which will lead to a sharp rise in the GDP. With the current trade position where many companies are planning to move base out of China, India is placed rightly to benefit from it. There will be some challenges related to the supply chain and workforce which, if resolved, would provide India a major boost.