HomeCovid -19 Updates CEO FUNCTIONS IN A CORONA BATTERED ECONOMY

CEO FUNCTIONS IN A CORONA BATTERED ECONOMY

April 13, 2020 By M J Mirza No comments yet

By CA M J MIRZA

 

Chief Executive Officers, whether of a large listed company or MSME, had a coveted role for themselves, to deal with challenges routinely, whether to launch New Products, or to increase Market Share or to increase ROE, or meet expectations of all stakeholders all these years. But all this got so drastically altered since the onset of 2020, thanks to COVID -19.

 

First of all now, CEOs have to deal with an economy that has changed so much, due to economic and social impacts on the society/economy that has evolved as a response to Corona Virus. With Locked Down geographies, Social Distancing, Shifting patterns in Migrant Labourers, Premium on Savings Life, Evolution of Virtual Communities, Web Classes for Students, Use of Technologies like Zoom, Webex, Skype, etc. for Video Conferencing, Job losses, Revenue losses, Liquidity issues, Supply Chain problems, Government Policy Changes, and overall impact on GDP due to COVID -19, the role CEOs has become more challenging.

 

So, when lock down eases out gradually, CEOs will have to go back to drawing boards to re-assess the economic and social scenarios they will face for their businesses and find out best course of actions to deal with them successfully.

 

I must say that Corona has provided a never before new opportunity to all CEOs to review their business status and press a RESET button in their operations, to meet the new challenges and trim their operating costs, and get rid of unproductive resources to emerge lean and mean to survive.

 

In situations like these, companies do not manage for growth or profitability but liquidity. That means singular focus should be on cash flow. CEOs should examine all their fixed costs and look for ways to minimise them. Survival is the prime logic here, so that the business may see future.

 

So, CEOs are expected to review their skills set requirements, deal with demographic imbalances for daily and migrant workers, invest more for Artificial Intelligence and accelerate Automation, review HR Policies to make them more staff friendly and “humane” yet trim staff costs where needed. There will be a need to review leverage status and new options for funding the business, besides specific issues that each business may have to deal with in these difficult times.

 

Suggested ideas are:

 

  1. Take stock of Current Economic Scenario

 

  1. India GDP to take a hit post Corona Virus (estimated growth at 2.1%)
  2. Global trade is likely to plunge in the 13-32% range in 2020 (WTO)
  3. Indian economy is at the risk of falling deeper into poverty due to the pandemic (ILO)
  4. GST collection could fall by 40% with the lockdown hitting business activities.
  5. Around 7,000 GST-registered firms contribute over 90% of the revenue/ GST Collection (GST Council).
  6. Smaller firms, which constitute over 1.2 crore GST taxpayers, are likely to defer their compliance to the last week of June, as allowed by the government without any interest, penalty and late fees as a relief measure.
  7. Over One Crore retail borrowers eligible for the RBI’s three-month moratorium on loan repayments may not be able to benefit from it, as Investors who bought these PTCs have not approved the moratorium. (As per extant rules, any rescheduling will force reclassification of the investments as ‘restructured’. That would raise provisioning requirements and cost, and impact marked-to-market (MTM) valuations.)
  8. With livelihood of about 1 crore truckers in peril due to the lock down, transporters seek relief package from govt. More than 4 lakh truckers with goods under non-essential categories are still stranded across India while goods worth about `40,000 crore are lying in vehicles.
  9. Corona virus deteriorates Air India finances, but airline manages to keep afloat: CMD
  10. Nearly 50% of stores closed for operations over Covid-19, says Avenue Super marts.
  11. The Federation of Indian Export Organisations (FIEO) has warned of 15 million job losses due to coronavirus if the Centre doesn’t step in swiftly with a relief package for the export sector.

 

  1. Learn from Government Policy Narrative

 

  1. From “Jaan Hai to Jahan Hai” focus on saving human life, the policy narrative has now shifted, after three weeks of lock down to “Jaan bhi, Jahan bhi” signifying Save Life, and Save Economy too. Therefore, Government policy narrative keeps changing as situation demands, and CEOs should closely monitor the narrative.
  2. The Centre has, by 10th April 2020, released Rs 7,190 crore or 12% of the FY21 Budget outlay for the rural employment guarantee scheme (MGNREGA) since April 1, in what underscored the current priority of alleviating the distress of the rural poor, most affected by the lockdown.
  3. Budget estimate for MGNREGA in FY21 is at Rs 62,500 Crore against Revised Estimate (RE) of Rs 71,000 Crore in FY20.
  4. MNREGA 5.5 crore ‘active’ workers under the scheme in FY20; FY21 target is to have 8 crore active workers
  5. Commerce ministry has asked the Home ministry to consider allowing export units to function with half the staff, to start with.
  6. Commerce ministry has recently extended the validity of the Foreign Trade Policy (FTP) for2015-20 by a year to March 2021 and relaxed certain other norms.

 

  1. Re-assess various Industry Scenarios

 

  1. DRDO and ITI are likely to ink a deal soon to produce Portable Ventilators, a first of its kind in India, following the Corona Virus outbreak. (Read: Innovative ideas)
  2. Flipkart, in partnership with ICICI Lombard and Go Digit General Insurance launches Health Insurance Policies on its platform that distinctly covers COVID – 19. (Read: Mantra Cooperate)
  3. Manali Petrochemicals has re-commenced production of Propylene Oxide, feed stock for Propylene Glycol which is a pharmaceutical input, on 7th April 2020. (Read: Seize New Opportunity.
  4. TVS Motor Company is considering to make an offer for the UK-based Norton Motorcycles which went to administration in January 2020. (Read: Diversify).
  5. Cipla March Sales 5.8 billion rupees , up 9.8% yoy. (Read: Beat the Trends)
  6. Cadilla Healthcare has ramped up production of HCQS by nearly 10X to 30 MT (15 Crore tablets of 200 mg) per month and says can be scaled to even 50 MT (25 Crore tablets). (Read: Meet New Challenges and Serve Humanity)
  7. Dozens of garment companies have paid heed to the Textile ministry’s call to start producing certain types of Personal Protective Equipment (PPE) and help meet the mounting domestic demand in the wake of the Covid-19 pandemic.
  8. 100 factories in Tirupur are now producing Face Masks and certain PPEs, and have already supplied one million masks. Major exporter (Matrix Clothing) started medical coveralls output recently to meet local demands. Most products are to be sold to HLL, Centre’s agency for PPE purchases. Organisations like DRDO want to procure certain PPE, too. (Read: Weaving a New Story – PPE)
  9. Delhi International Airport working towards scaling up staff at cargo terminal for faster clearance amid lockdown. The airport is handling 20-22 cargo flights per day, including non-scheduled operations, with freighters arriving from destinations like Doha, Paris, Hong Kong, Shenzhen, Shanghai, Guangzhou and Incheon since the lockdown on March 25 (Read: Meet the Challenge)

 

  1. SWOT Analysis of your Company/Business in Changed Scenario

 

  1. Find many ways to Succeed
  2. Share resources to bring down Operating Expenses
  3. Prefer Liquidity in 2020, over Profitability
  4. Find a New Re-set Options for your business
  5. Invest in Technology and Automation
  6. Create a Digital presence, unless you wish to Fail.
  7. Encourage people to pitch in, and promote Teamwork
  8. Believe that a problem found Is an opportunity discovered.

 

  1. Staffing Issues, Core Team Definitions, & Cost Cutting Scenarios

 

  1. Respect balance between Life and Livelihood
  2. Define your Core Team, and protect them at all times
  3. Daily and Migratory Labourers are now like a shifting sand. Find a lasting solution for your business, especially if you are in construction business or other labour intensive processes.
  4. Inspire your Team to transform the business and the company
  5. Remuneration must be aligned to Performance, at all levels.
  6. Recognise employee’s contribution to your company’s success.

 

  1. Supply Chain Issues, Imports & Exports, Inter-State Movements

 

Supply Chain issues may pose a crucial challenge for the business and survival may be at stake in some cases. A locked down economy may present with challenges never seen before, as it never ever happened earlier. Imports, Exports, Aviation, Inter-State movements and local transportation may be gradually allowed to operate but their frequency, timings, and costs may not be beneficial upfront, yet there may be no other options to re-start the wheels of the economy.

One big advantage is lower petrol prices, which will help India, save around USD 40-45 billion due to lower oil prices. However, this may not be enough to safeguard against the COVID – 19 shocks to the economy.

Take a broad view of the value chain and look beyond the traditional industry definitions and practices. Examine your industry from three perspectives: your own company’s, other players, and the customer’s. Talk to industry players and analysts to uncover new or emerging business models. Try to take at least two different views – for example, company-level and product-level. If the numbers don’t add up, check all assumptions and calculations.

 

  1. Balance sheet Leverage Status, and Liquidity Issues

 

For 2020, the immediate goal is to maintain liquidity to survive, even if you have to borrow, than to go belly up. Businesses with ZERO debt will thrive, whether they have reasonable Cash or not, on the Balance Sheet, as they can easily borrow, if required. Just think of businesses that have tons of debt on their Balance Sheet and how will they meet their interest payments obligations, and get their ratings sustained, if not improved. This is the best time to understand why CASH IS KING!

It is time to carefully see Cash Flow Statement, and monitor Cash Inflow from Operating Activities, and find ways to increase Cash Inflow.

Nothing is more crucial than Working Capital Management in post COVID – 19 days, as CAPEX can be postpone to a better date/time in future. Economists are projecting an increase in NPA levels, post Corona Virus economy, due to demands drying up and difficulty in collecting moneys from companies.

RBI has though allowed for 3 month’s relief but it does not meet the expectations of common man, who has to bear interest on interest, besides may more EMIs, than contracted for. Banks, NBFCs, Housing Finance Companies, Car Loans and consumer Loans may face difficulty in their EMI collections, which may increase the financial risks in the economy.

 

Some of the reliefs desired by industry are as under:

 

  1. The government must extend interest-free working capital loans to cover the cost of wages, rental and utilities and they must be given a waiver from EPF and ESIC obligations for at least three months starting March 2020.
  2. The government must extend pre-and-post shipment credit by 90-180 days on their maturity, rollover of forward cover without interest and penalty, automatic enhancement of limit by 25% to address liquidity challenges and extension of interest equalisation benefits.

 

  1. Conclusion

 

Indian CEOs have a natural penchant for jugad economics, and I have no doubt that they will come out with flying colours, while dealing with an economy battered by COVID – 19. They need to be street smart, keep eyes open and gather lot of relevant data to decipher their own codes to progression in business. Priorities may change, and scale may change, but the commitment, leadership, support from stakeholders would always remain. CEOs must build resilience, financial muscle, and make the business future proof, with investment in Technology and Future Leaders. It is just a matter of time that COVID – 19 may be a distant past story, that changed us so much in such a short while.

 

Thank You

CA M J MIRZA

Senior Partner at GRANDMARK

 

 

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