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COVID-19 restart: Auto component cos staring at cash flow, workforce and demand shortfall

Updated : May 13, 2020 03:36 PM IST

A week into Tamil Nadu’s industries re-opening from the nationwide lockdown imposed on March 24, the state’s automotive components sector is gasping for breath.

While the state government’s guidelines state that all industries outside Chennai city limits can operate at 50 percent workforce, multiple bottlenecks surrounding operations at these units have begun to emerge.

These problems range from stressed cash flows, restrictions on movement of employees living around containment zones and a steep drop in demand for auto components across the world.

‘No Billing For The Last Month’

"We do a turnover of Rs 70 to 80 lakh per month, but I’ve been (registering) zero (turnover) for the last month,” said K Srikanth, managing director, Alfa Rubber and Springs, “This means that one month down the line, I’m not going to have any cash flows to help me meet my expenses.”

Srikanth, who is also the Tamil Nadu convenor of CII’s MSME Panel said nearly three-fourths of the state’s MSME units may not be able to survive the lockdown: “We have anywhere between 12 to 15 lakh MSMEs in Tamil Nadu, of which less than 25 percent have the wherewithal to weather a zero-month billing. None of us in our life have seen a month go with zero-billing.”

'Automobile Companies Relying On Safety Stocks’

Cash flows, however, aren’t the only bottleneck the auto component industry is dealing with. A steep fall in demand for auto components is another. Even before COVID-19 became a pandemic, the automobile industry was dealing with tepid demand by shutting plants and cutting down production. This situation has only worsened since their re-opening.

Alfa Rubbers and Springs is only running at 15 percent of its total capacity, and the company says automobile plants have requested for delayed deliveries since there is no pressing need for components. “The auto sector has maintained safety stocks, and nobody wants to use dead stock,” said Srikanth, “So, when companies re-open for production trials, they would end up using this production stock.”

'Expecting Delayed Payments From Export Customers’

A similar situation has prevailed for auto component manufacturers who export their wares too. Chennai-based Emerald Tyres told CNBC-TV18 that customers in the export market have begun requesting for more time before making payments.

“The last shipment we made hasn’t seen our customers clear these tyres from ports. They now tell me that they will need to clear these goods and start selling, and only then be able to pay,” said VT Chandrasekharan, managing director, Emerald Resilient Tyres, “When we export, our payment cycles are between 120 and 140 days. With this situation, these payment cycles are only going to get larger.”

'Employees Restrained From Returning To Work’

As on date, Emerald Resilient Tyres expects to operate at just half its capacity of 800 tonne once the lockdown is fully lifted. However, for the moment, the company is merely running only 20 percent of capacity, for reasons not entirely attributable to the fall in demand. The company is also struggling with getting their employees to return to work.

“Villages are suggesting that employees don’t go to work. In case they end up coming to work, they don’t want them to come back to their houses,” said Chandrasekharan, “We have been requesting them to come back since we are re-starting production, but our employees are being restrained.”

Even if the company sees most employees getting back to its plant, tepid demand will continue to see most component plants operate at reduced capacity. However, Emerald is confident of operating at 50 percent capacity in the medium term thanks to the replacement market segment.​
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