- Work out a plan for sustaining business at decreased levels of cash flow.
- It is imperative for capital goods manufacturers and SMEs to realign the production line to manufacture other goods.
- The post-demonetisation slowdown would be overcome as the country aligns to the clean-up process of the economy leading to increased consumption again.
Sen Group of Companies is renowned for being the only Indian manufacturer who offers complete vacuum impregnation solutions. The Sen brothers, Saibal Sen and Probal Sen are leading the group from the forefront as Managing Director and co-Managing Director, respectively. Saibal Sen and Probal Sen are pioneering technocrats and the only Indians to be the global leaders in manufacturing vacuum impregnation machines and provide allied products and services.
Now, they are faced with the challenge to resume their business, since Pune has been declared as a hotspot of Coronavirus (COVID 19) cases. However, proper planning from day one is helping them to manage the business so far. The Machine Maker engaged with Saibal Sen in an exclusive interview and brings you insights on how the group is planning to tackle the COVID 19 pandemic, which will certainly come handy to the entrepreneurs who are sailing in the same boat.
The First Impact: Cash Flow & People Management
We discussed worker, staff and management salaries. Presently, payments could be only about 30% (the basic salary). The remaining amount could be paid by the company as per government and labour law directives or could be staggered, which will be payable on instalment mode at a later date. This measure to tackle the challenge in cash flow is in unison with the management, staff and all the workers.
In the best interest of the survival of the company the management, staff, and the teams are expected to cooperate and agree to the adjustment of paid leave/privilege leave policy against the lockdown period. Keeping in mind the low income of permanent workers the company would be paying their salaries in full; therefore it is hoping for the government to declare a help/support package at least for MSMEs and support them to pay the basic and dearness allowance (DA) to the employees of the low-income category for the lockdown period.
Original Equipment Manufacturers (OEMs) should own up the full responsibility of contract labourers since the contractor would not be able to pay them in the absence of cash flow at zero production levels. Even if the payment is reduced to the minimum wage amount, the OEMs must pay to support the survival of the daily wagers and the amount paid now should not be deducted from the contractors’ bills at any point in time.
Cash flow has been severely affected since finished goods (especially capital goods such as machinery) could not be dispatched owing to the lockdown, Saibal said that post lockdown also customers may delay in taking delivery of machines. Cash flow will also be affected because receivables will be delayed, he added.
Financial Assistance from Banking Institutions
Saibal expressed that the bank’s assistance in the form of the moratorium of EMIs and payments of interest for a period of 3 months is inadequate for SMEs. It should be at least 6 months because the lockdown itself is prolonging for 6-8 weeks and then under the relaxation period the manufacturing process will be limited; therefore, it would take at least 8-12 weeks after the commencement of manufacturing for payments to be received. Apart from the 3-months moratorium on installments, a 6-month waiver on interests would be a huge relief, he shared.
A 10% top-up of the present cash credit limit by the banks is a good stop-gap measure; however, it will again attract interests, which is also payable by December 2021. Owing to the foreseeable grim situation post-COVID19 for both the consumer and industrial products, the company is anticipating cash flow at only between 30% to 50% sales and revenues; therefore, the need to work out a plan for sustaining the business at that level is imperative.
In view of capital equipment, industries may put a hold on capital investments at least for a year due to the current downturn making the maintenance of the project-engineering team a challenging task; therefore, the workforce may have to be trimmed. Moreover, maintaining excess manpower in certain departments may be a challenge; therefore, the reallocation of responsibilities within a trimmed team is necessary.
Lockdown Strategy
Saibal explained that daily telecom meetings with the core management team and all departments are conducted to eliminate a disconnect with the work on hand, and team members can complete all pending desk work.
Sales and marketing teams are working on market research for expansion of the business into new areas and new applications, and are also focusing on payment collection. The company is also in the process of consolidating the domestic market by acquiring market share from competitors since international markets will be slow at least for a year owing to travel risks, quarantine, and other restrictions.
Saibal said that with respect to their business, which is focused on industrial machinery products, face to face meeting is the only way to sell capital goods. This makes travel of the company’s engineering team for installation and commissioning a bigger challenge. However, document, SOP, and factory plan for a start-up will be prepared to restart the business during the relaxation period and post lockdown.
Strategy for 3 months and 6 months will also be prepared with the primary and secondary teams for manufacturing areas as a contingency plan in case employees get infected. The company is also identifying team members who can continue work from home until the present situation is restored back to normalcy. The management is also considering the entry and exit points of the factory premises and will be preparing a protocol for factory operation.
Saibal said that with the cash flow projected at 30% and 50%, sales, revenue and the ways to sustain under the decreased cash-flow circumstance need to be planned in advance. Apart from these, the management should watch the market trends for 3 months after normalization and then take action; however, the blueprint of the plan of action should be ready, he shared.
Safety of the staff post lockdown is important; therefore, safety measures such as sanitization booths, face shields, face masks, sanitizers etc will be made available. Based on the conditions, the company is also planning on converting a couple of rooms in the office buildings into bedrooms with toilet facilities etc.
Revival Plan
“Call of the hour is cautious optimism and realistic pessimism” quoted Saibal. It may take more than a year for many companies to be revived since there may be a total freeze on the purchase of new machinery and capital investment on machines. Hence, it is important to realign the business to manufacture other products; however, this is easier said than done, said Saibal. It is not easy for SMEs to deviate from their core area because in attempting anything new, one should have the skillset, technology, and the resources to expand into a new area. Furthermore, a market needs to be created for the new product.
Companies can anticipate a surge in the supply chain immediately after manufacturing starts during the first few weeks since the lockdown was abrupt and leading to a huge inventory of unfinished products (unfinished engine assemblies etc), which one quick completion would go into stocks and then there will be a slowdown for sure.
With regards to the market scenario, Saibal said that it will be grim because as it is India has been on a slow down because it was going through a cleansing and a purging process on account of Demonetization and GST and now, the COVID 19 pandemic and the prolonged lockdown that entailed only made it worse (not a criticism but such a cleaning process is bound to have this kind of after effect for some time).
Global Plan
The Indian economy has always had a parallel economy. The Indian economy is going through a slowdown because of a fall in consumption. The economy should see signs of life soon. The automotive industry has slowed down, may be on account of the economy clean-up process and may also be due to new mindsets, like presently, lot of us like to use a cab service like Ola and Uber and also renting homes instead of buying.
In short, due to demonetization and compliance of GST, liquidity was affected and businesses in the disorganized sector closed down which led to loss of jobs and reduced consumption
Obviously, the cash flow of liquidity in the market was affected due to demonetization but it would have its positive long-term effect on the economy. The manufacturing sector suffered due to the drop in consumption and demand, perhaps presently on account of the demonetization and the economy clean-up process. Hopefully, economy slowdown, will be over soon. It is not known for sure but, some anticipate that there could be some positive impact on real estate business because India has managed to contain the pandemic well, so far.
China and Growing Mistrust
China is no more reliable; everyone has lost its faith and trust in China. At the same time, if India can overcome this crisis soon, we could have a great opportunity to take advantage of this situation to have businesses moving from China to India.
We should be aggressive with our Make in India, Start-up India concepts, which will give us an upper hand and the demand for commercial spaces (offices/retail) may increase. Indians from abroad may also think of returning to India, which will lead to increased demand in premium residential apartments. In addition, many will be desiring for bigger living space
If the Make in India program picks up, there would be an increase in demand of office spaces and also manufacturing factory spaces. The work from home concept also may require larger spaces with facilities for the same. There could also be a demand in premium residences for returning residents and also because in our life time this has been the first ever lock down, it may leave everyone with a desire to have bigger living space, of course, those who have the choice. Therefore, most of the occupants would look for bigger and better residential spaces. This has been a kind of house arrest and being jailed within your house, which we would not visualize even in a distant dream
Move of Manufacturing from China to India
It is well known that manufacturing in India stands out as a cost-effective alternative to China. However, our infrastructure and regulatory procedures should not be a deterrent to a smooth business. We have to be looked upon as an organized manufacturing base which may still not be the case today.
China exports including products such as electrical and electronic equipment, various appliances and technology driven machinery
While Indian exports have been mainly raw materials and less technology-driven manufacturing. Chemical, mineral and pharmaceutical products form a large component of Indian exports along with food products and textiles and minerals etc. The manufacturing sector stands at barely 15 percent of our total exports. We will have to do away with the tag of being a disorganized nation for India to become a competitive manufacturing hub. If this happens, India could become a major manufacturing base not only for pharmaceuticals, textiles, minerals, precious stones and jewellery but also for technology-driven engineering.
Of course, there is news that the US-India strategic and partnership forum’s thinking of a free trade agreement between India and the U.S would be a great move in this direction if it happens.
Major learning
Most of the times people forget the most important thing, which is life and family rather than just lifestyle and money. Cash liquidity is has proved to be prime since any form of assets may not help in a crisis situation like this since transactions are not possible with assets. People need to learn to conserve resources and reduce expenses.
We understand that in situations like these it is better to be in/near your own base even as tragic stories of separation of family members have been surfacing. Hygiene will be prioritized and hygienic practices will grow. With the pace at which science is progressing, international organizations like the United Nations and WHO along with global leaders must discus and prevent science from becoming an enemy to human beings with its advancements. Just like in the case of Nuclear Energy and the NPT treaty, there should be a consensus about biological advancements, artificial intelligence, etc., Saibal expressed.
The COVID 19 situation has taught all of humanity basic attributes such as humility and compassion and has helped realize that even when in still waters there could be a storm and that everyone should be prepared according to their thought process and capacity for their varied situations. Saibal also said that self-isolation should be used to plan future strategies and goals, realign businesses and introspect and hone individual skill sets and stated: “when one door closes, another one opens, we will have to move ahead”.
For more details, you can write to Saibal Sen at saibalsen@impregseal.com, or visit www.teknoseal.in