High Time to Ponder Over Measures to Combat COVID-19 Impact on Industry

COVID-19, a global and unprecedented pandemic, is going to thrash the Indian economy, which is already struggling for growth in a big way with the impact lingering to almost all the sectors of the economy with down-sizing ranging from 5% going up to 50 to 70% in the short term. The impact is going to be worst for some of the sectors like aviation, retail, travel, hospitality, and discretionary consumer spends, which would be badly impacted on account of unprecedented lockdown.

Though there are already measures which have been announced by the government of India (and RBI) and some are likely to get announced depending upon the period of lockdown and impact thereof, we are trying to figure out what additional measures can be taken by the industry to mitigate the impact of COVID-19 post lockdown and, through this article, we are trying to summarize these measures to avoid any significant dent to their businesses and cash flows.

Though the impact of COVID-19 would need to be analyzed on case to case basis to suggest the corrective measures to be taken post lockdown, considering COVID-19 is a global pandemic, there are some of the measures which would be applicable to almost all the sectors including the ones which are hardly hit by this pandemic. We have broken down the entire industry, for this purpose, into three baskets; a) Industry having significant Impact, b) Industries having a marginal impact, c) Industry having a mild impact. Further, we have considered companies in both the start-up phase and matured phase so that measures can be suitably be taken post lockdown to lower the impact.

a) Industry having a substantial impact of COVID-19 (Aviation, Retail, Travel, Hospitality, Construction, Real Estate, etc.)

• Cost-cutting measures to be taken on discretionary spending for the transition period as there could be a sharp drop in revenue post lockdown. Since all these are businesses that are consumption-driven, the revival of which could take more than a year in some cases post lockdown, the current revenue expenditure on marketing, administration, etc. and capital expenditure needs to be rationalized in line with expected demand.
• Since the lockdown is expected to be released partially across India, companies need to formulate strategy in line with the government opening of various sectors and cities. For those companies which are having global business revenue need to monitor regularly the updates on COVID-19 in the countries where their major cash flows come from and need to assess risk factors accordingly;
• Work from Home has become one of the viable options for some of the industries where there are less critical jobs that can be done from home without any hassles and can help in the reduction of overheads and help in improving the cash flows for the transition period. This would be very useful for start-ups as most of the start-up generally operate out of shared facilities;
• Extensive usage of technology would help to bring down the overheads, including travels and admin. This would be very useful for both start-ups and matured companies;
• Educational measures to be initiated post lockdown as to the current situation of the business, for both the employees and customers, to ensure continuity in operations and communication need to be improved with the customers so that fresh business can be secured and to ensure no client is lost to competitors on account of disruption in operations;
• Since the lockdown was announced without much prior notice, there can be a lot of good receivables which can be recovered and can be used to make part payment to vendors to secure the inventories during the transition period effectively;
• Mobilization of construction workers could be critical factors in metros and tier-II cities with recent migration of workers in large numbers from big cities to small towns. This could even result in a disruption despite having no change in order book or business dynamics.
• Since financing would be a major challenge for most of the industry players impacted by COVID-19, the companies need to evaluate the cash flow position on a monthly basis to ensure that there is adequate working capital in the business. The government, through various schemes, is giving financial assistance to multiple startups and SMEs to help them bridge the gap in funding during the transition period. Awareness and timely drawing of benefits of these schemes can help in bridging the funding gap.

b) Industry having Marginal impact of COVID-19 (Industrial products manufacturing companies, non-essential goods manufacturing companies, IT Companies, etc.)

• Industrial goods manufacturing companies will see revival in growth over a slightly longer period of time with an expected recovery in the economy. Cost-cutting measures may not help much for these companies, however, there could be overheads that could be saved by bringing efficiency in operations and integrating operations of various plants to save the running cost. Any planned capital expenditure needs to be postponed till the time economy rebounds. In case of exiting surplus capacity, there could be outsourcing options with other players which are running on full capacity or are into trading activities can be explored, to reduce the overheads;
• For IT companies, it has come out that more than 50% of the activities are non-critical and can be done by the employees from home. This can be explored to reduce overheads and overall cost. Since there would be exports of services which would get impacted, the ratio of on-site and off-site employees need to be re-examined  and mix of industries and geographies in revenue mix need to be evaluated in the current on-going COVID-19 situation of the respective country;
• There could be a change in strategy and business model for some of these industries to keep them floating in the transition period. There could be cascading impact on some of these sectors which can be avoided by certain preventive measures like the release of advances to vendors which are dependent upon one company for their major cash flows;
• Since most of the companies could face a major drop in their sales for a bit longer period of time, there could be an addition of product which would need lesser investment and may generate higher return like shift of perfumes companies to sanitizers and shift of automotive companies to ventilators manufacturing, etc. though these could be short term measure, there could be a shift in demand for some of these products for a longer period.

 c) Industry having a mild impact of COVID-19 (pharma companies, hospitals, Energy companies, FMCGs, and essential goods manufacturing companies, education companies, etc.)

• For many of these sector companies, there could be a disruption for a smaller period of time till the lockdown gets lifted. However, there will be the different set of challenges post lockdown related to supply of manpower to supply of raw material as many of these companies may depend upon their raw material requirement on domestic and international companies which may be in a bad position to restart their operation post lockdown, resulting in slower recovery for these companies. Again, cost-cutting measures may not help much for these companies, however, there could be overheads that could be saved by bringing efficiency in operations and integrating operations of various plants to save the running cost till the operations get normalized. For any capital expenditure, there is a need to do reassessment of the product mix as demand for some of the products like sanitizer and soaps/detergents could increase for a longer period of time on account of change in habits of the consumer due to COVID-19.
• For start-up companies in these sectors, it may need rethinking on their business model to factor in the risk of these eventualities and to better prepare them for any such future event so that the cash flows impact can be minimized and there could be less disruption.
• Since most of these companies operate in essential goods space and there could be an increase in the cost of operation and delivery which could be difficult to pass on to the consumer, these companies need to look at an innovative mode of saving their cost of operation and delivery by using a mix of traditional and non-traditional means and using the alternative channel of distribution and tie-up with other organization (including NGOs) to combat the situation of lack of manpower.

In nutshell, these measures can help the industry combat the impact of this global pandemic, however, if the lockdown continues for a period longer than expected then these measures would not be enough for survival and there could be support required, both financially and otherwise, from Central as well as State government to absorb the impact over a period of time.  Further, for those industries which are highly vulnerable to COVID-19 as mentioned above, the measure suggested above may help in bridging the gap to an extent but the support from government would be key for faster revival and sustainability of operations.

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