The Covid-19 outbreak and the consequent lockdown may have erased a fifth of annual demand in the chemicals industry, says RS Jalan, MD at GHCL, a Rs 3,000-crore conglomerate with interests in chemicals, textiles and consumer products. In an interview to Banikinkar Pattanayak, Jalan says the closure of some 150 retail units in the US, the single-largest textiles and garments market, has also dealt a blow to Indian exporters. A fourth of GHCL’s textiles orders have been cancelled and another 35% of its open orders have either been pushed back or gone through a volume reduction. Edited excerpts:
The novel coronavirus pandemic has wrought havoc on the chemicals industries? How has it affected GHCL?
With the announcement of the lockdown, all consuming industries, particularly glass and detergents, closed down across the country. With consumers shutting down and local authorities enforcing the lockdown, GHCL had to shut down operations. However, as we were carrying sufficient inventory at the plant as well as our various depots, we could give assurance to our customers that in the event of a phased resumption of operations, we could meet their requirements. We restarted our plant at the end of April at reduced levels, as demand for detergents was stabilising. However, the glass plants were not starting up as downstream industries, including construction, auto and liquor, had not opened up. In effect, we, as an industry, are estimating a demand erosion of about 20% on an annualised basis.
In the textile segment too, the effect on GHCL has been pretty much the same as it has been for the entire industry. We decided to close down our factories right after the Janta Curfew. Our home textiles plant got permission to operate partially in early May and we are currently confecting coveralls or body suits for doctors. Our weaving and processing operations have partially commenced too and we will ramp up production based on the directive from the government. On the exports front, almost all of the retail units in the US, which is our single largest market, have come to a grinding halt, with about 150 retailers shutting down stores across the country. This undoubtedly will have a huge impact on the inventory build-up in the country and will push back purchase decisions by several months.
Have we witnessed any cancellation/renegotiation of already-forged export contracts? If yes, what is the extent of cancellation/renegotiation?
We are normally exporting to Bangladesh, Sri Lanka and Southeast Asian nations. These countries did not have a lockdown till mid-April and so port operations continued. We are able to meet our export orders in March. Now most of these markets are closed, so the processes are delayed and we are witnessing demand erosion there also. While there have been no re-negotiations, there have been some cancellations. Also there are indications that the marketers have softened and buyers are looking at lower pricing. In the textile business, about a fourth of our open orders globally have been cancelled, with most of the cancellations coming from the US. Another 35% of our open orders have either been pushed back or have encountered a reduction in volume.
How has been the domestic demand for soda ash and sodium bicarbonate in the past one month? What are your revenue and profitability forecasts for 2020-21 vis-a-vis 2019-20?
Demand was normal until the lockdown was announced. Thereafter there was a complete closure. We are witnessing some resumption in the detergent and pharma space. However, all other consuming industries — including glass and chemicals — remain closed. As of now, we are estimating a demand erosion of at least 20% and this will have a huge impact on our business. For the textiles business, we do not sell home textiles domestically, but based on various reports coming in, the domestic demand has clearly witnessed a serious setback.
What about the labourers, especially the migrant ones?
Our workers are returning to the plant, in keeping with the permission granted to us to operate. However, there has been an exodus of migrant laborers to their hometowns, mainly in Uttar Pradesh and Bihar. We feel it will take a while for a bulk of these people to return to work. There is, hence, a strong likelihood of a labour shortage in the short term, once we fully resume functioning.
What about your liquidity issue and is the credit flow adequate?
The situation at the moment is very volatile, creating uncertainty about the future outlook. However, at this point in time, we are not facing any liquidity issues and we are in the process of strengthening our cash flows with adequate measures to ensure adequate cash flows.