The government is aware of the challenges and is working closely with industry to get supply chain back on track.
By Malini Bhupta
Consumer companies are working very closely with the government to get supply chains functioning again. Vivek Gambhir, managing director and CEO of Godrej Consumer Products, in an interview with FE’s Malini Bhupta, says that the return to normalcy will be staggered and that the new fiscal will be a story of two halves. Excerpts:
How is Godrej Consumer managing the disruption in supply chains?
We are trying to be as agile as possible and adapting to the evolving situation. Both distribution and production have been significantly disrupted over the last couple of weeks, and our operations have been curtailed. This is not surprising given the unprecedented nature of the lockdown across the country, which was thrust upon us. The government is aware of the challenges and is working closely with industry to get supply chain back on track.
Over the last few days, we have been ramping up production of essential items, but this ramp up is at a reduced capacity so that we adhere to the safety and social distancing norms. Our factories are at 20-25% production levels and that too for essential items; 60-70% of our depots are open and about 25-30% distributors have the permission to operate. The big challenge is labour shortage.
How will the lockdown impact financial performance of GCPL in Q4? How are markets outside India impacted?
The impact will be quite negative as the market was shut down for the last 10 days of the month. March tends to be a big month for us as that’s when stocks of insecticides get loaded up the season. While operations in all other markets have been impacted, given the global nature of the pandemic, the spread of the pandemic and response of the governments varies. India has implemented a complete lockdown and that will have an impact on the overall business, as India is more than half of our overall business. Given that Indonesia has implemented social distancing guidelines, retail shops are open and factories are functioning at reduced capacity. So, the effect on Indonesia is lower. Across Africa, some countries are in full lockdown mode, while others are at different levels of restrictions. The spread of the virus in Africa is a few weeks behind, so effects are yet to be seen.
How do you see this crisis impacting GCPL in the new fiscal?
This could be a story of two halves, depending on how long the crisis lasts. Even if the lockdown is lifted in a week or so, it doesn’t mean the crisis is over. The pandemic could last much longer. From a planning point of view, what we are assuming is that the impact of the virus will be acutely felt in Q1 FY21 and there could also be some impact in Q2. But if the crisis subsides then you could see the second half being very different from the first. The only data we have is from China where the impact was for the months of January and February, and retail came down in China by 20%. Then recovery started in the month of March.
How will this crisis impact your cash conversion cycle?
We have a healthy balance sheet, but working capital does get impacted. At the same time, some of the partners who end up getting the most impacted are distributors and wholesalers. In select cases, if our distributors and partners need short-term credit, we are open to helping them out. It is important to maintain liquidity. We are being prudent in managing working capital.
Do you see consumption patterns and how will the lockdown impact behaviour?
Consumption is linked to economic growth, prosperity and availability. If economic growth is impacted, overall consumption will take a hit. FMCG as a sector will be more resilient. Staples and essentials will be less impacted. Post lockdown there will be some pent up demand as well. In general, if economic growth suffers then FMCG won’t be immune to the downturn. As the situation normalises, FMCG will see a higher level of resilience, but like other sectors, it will be impacted. Depending on how long the crisis lasts, you will see the emergence of a new normal.