With the uncertainty over economic crisis and lockdown continuing, the Indian companies have begun brainstorming on ways to revive the business activity.
And their core agenda is ‘cash conservation’!
For this, big players are considering lowering their Capital Expenditure (CAPEX) going by the fact that there is no use of creating capacities in the absence of demand.
In their recent media talks, major market players like Tatas, Mahindra, Britannia, Godrej and Aditya Birla have reportedly expressed the same idea of restraining capex.
For this, they are considering at least a 3-6 months time frame to resume the regular activity.
“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 of a Mumbai-based company.
Considering the impact of lockdown on business, Tata Sons have reportedly recommended CEOs of various companies to develop scenarios for 3-6 months and drop capex plans.
“Conserving cash for 2020-21 is our message to all group companies,” said N Chandrasekaran, Chairman, Tata Sons, in a media interview.
Chairman of HDFC Deepak Parek also feels the same in saying, “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 fund,” Deepak said in a statement.
Britannia also feels the same in recommending financial flexibility in times of market uncertainty.
“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%,” says Subrata Ray, senior group vice-president, ICRA.
“Given that the capacity utilization 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,” says Madan Sabnavis, Chief Economist, Care Ratings.
Meanwhile, the International Monetary Fund (IMF) has reduced its growth estimates of India for FY 21 from 5.8 percent to 1.9 percent.
According to IMF, the current lockdown will throw thr world into the biggest-ever crisis since the Great Depression in 1930s.
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