capital raising plans: Companies see cash as king, cut capex plans

Bogged down by lockdowns, India Inc has decided to adopt a strategy of financial prudence. As costs remain constant while incomes decline, companies are revisiting their capital expenditure (capex) programmes. ‘Cash is king’ is the new mantra corporates are strictly abiding by, as they delay heavy investment plans, revise their sales budgets and bring their cost plans to a new realistic Covid-19 normal.

JSW Energy director (finance) Jyoti Kumar Agarwal said, “Much like non-essential travel, we have decided to put off any non-essential, discretionary expenditure for the moment. We would prefer to conserve as much capital as possible.”

Some industries, like cement, move in tandem with the GDP growth numbers. “We expect this quarter to be a damper,” said Birla Corporation COO Sandip Ghose. Normalcy could return only in the fourth quarter. “Costs that are postponable, will be postponed,” said Ghose.

Rajesh Gopinathan, CEO of India’s largest IT services player TCS, expects the peak impact of the virus outbreak to reflect in the current quarter’s earnings and sees TCS’s financial performance retur ning to nor malcy in the third quarter of fiscal 2021.

The FMCG sector too has been impacted by the lockdown. Godrej Consumer Products MD & CEO Vivek Gambhir said, “Maintenance and capital expenditure for incremental capacity expansion and lines for new products launches will continue.”

Although food is an essential commodity and there’s increased demand, factories are functional only partially as there are constraints on raw material, packaging and labour. Mother’s Recipe-Desai Foods executive director Sanjana Desai said, “We would need to revise our sales budgets and purchase forecasts.”

But largest biscuit-maker Parle Products plans to stick to its capacity addition plans. Executive director Arup Chauhan said, “We are currently in excess of 75% of our production levels with 50% worker strength. Stocks in the pipeline are moving really fast now and we believe we will increase our capacities by 20% this year.”

Executive Access India MD Ronesh Puri said, “Hiring will take a back seat and that will hit our industry. Some companies are struggling to pay salaries.” Chauhan of Parle Products, however, said, “Even if working capital is impacted, we are not cutting salaries or jobs.”

The impact on M&A activity would be mixed. Singhi Advisors MD Mahesh Singhi said, “The increase in availability of assets will enable well-capitalised buyers to cherry pick these and structure transactions with staggered payouts and, in turn, lower risk-adjusted valuations.”