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Groups such as the Tatas, Godrej, Mahindra and Aditya Birla have decided to restrain capex, something cookie maker Britannia, too, is considering.
Companies are considering multiple resumption time-frames, ranging from three to six months. “Since no one can take any guess about how long this crisis will last, we are preparing alternatives for each time-frame in terms of production and demand,” said the CEO at a top Mumbai based conglomerate.
Tata Sons has directed group CEOs to go slow on capex plans and build scenarios for three to six months, keeping in mind the impact of the pandemic on businesses.
“Conserving cash for 2020-21 is our message to all group companies,” N Chandrasekaran, chairman, Tata Sons, told ET in an exclusive interview earlier. Venu Srinivasan of TVS Motor said the biggest challenge is business continuity and sustaining fixed costs.
Deepak Parekh, chairman of India’s biggest financial group HDFC, has also directed the group to conserve cash. “To increase equity in the company in order to be over capitalized is better than to be over leveraged.
Avoid debt trap and rope in private equity if needed,” he said in a webinar to a closed group. Birla and Godrej groups did not comment.
Britannia said the focus is to conserve cash and be flexible financially in an uncertain market. “The growth slowdown during FY20 across many segments has impacted corporate capex.
We estimate the combined capex of the corporate sector would have declined by around 15-18%,” said Subrata Ray, senior group vice-president, ICRA. ”
Given that the capacity utilisation in the fourth quarter of FY 20 was in the region of 68-69%, it’s a clear indication that there is surplus capacity within the industry,” said Madan Sabnavis, chief economist, Care Ratings.
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