Reviving demand tops CEOs’ agenda

Getting demand for their goods and services back to earlier levels once Covid abates is a challenge that’s keeping India Inc CEOs (Chief Executive Officers) awake at night, showed an exclusive survey of 28 major companies across several industries, conducted by BusinessLine last week.

The survey, conducted between June 21 and 28, covered 28 leading members of Corporate India with annual revenues totalling ₹19-lakh crore. Also included in the survey were 19 Nifty companies as well as their large unlisted counterparts, which are key economic drivers.

For a broad representation, we spoke to five energy firms, three infrastructure players, four cement and metal firms, six vehicle and component manufacturers, four FMCG makers, three financial services firms, and three service providers.

The biggest constraint

Over 70 per cent of the CEOs surveyed said it is the lack of demand that they see as the biggest constraint to resuming full operations — not disrupted supply chains, difficulty in getting working capital or even worker shortages.

Fifty-nine per cent of the companies were operating at 75-100 per cent of their capacity or staff strength, while nearly 30 per cent admitted to being at less than 50 per cent. Energy, FMCGs and banking were the sectors that reported high capacity utilisation, probably as they provide essential services. With operations below par, two of three CEOs cited the shrinkage in their revenues as the biggest financial pain point today, more worrying than servicing debt on time, getting credit or managing costs.

The good news though is that most CEOs expect a U-shaped or a V-shaped recovery for the economy from the Covid setback, with 59 per cent expecting a U-shaped revival and 18.5 per cent voting for a quick V-shaped one. Most CEOs expect this revival to happen by Q4 of FY21 (42 per cent of the votes) or Q1 of FY22 (46 per cent) with very few expecting the crisis to prolong beyond that. However, none of them believes that it will be business-as-usual post Covid, with 71 per cent of the leaders preparing for changes in buyer behaviour and the rest bracing for a watershed shift.

It was on the question on the level of demand expected post-Covid that CEOs were divided. A fourth of them — from the financial services, entertainment and energy sectors — expected their demand to register growth. But 22 per cent expected demand to flat-line and nearly 30 per cent thought they would get back to just 90 per cent of the earlier levels. Over one in five firms expected 20-50 per cent cuts in the offtake of their products and services compared to earlier.

Focus areas

Given this view, it isn’t surprising that as many as 43 per cent of the CEOs will focus on drumming up demand through ad-spend and promotions, while 48 per cent have lined up new product launches. This doesn’t mean that cost-cutting will take a back-seat though.

The axe is likely to fall mainly on business travel, with three out of four leaders saying their switch to video calls will be permanent. Rationalising vendors and supply chains (41 per cent of the respondents) also came high on the cost-cutting list, suggesting some pain for smaller suppliers.

Shrinking the workforce through layoffs is not a top-of-mind choice, with only about a fifth of the CEOs ticking this box. Pay- cuts for CEOs seemed to be even less popular, with nearly three-fourths saying they have taken zero cuts so far. Two of them reported taking a 30 per cent cut while one opted to cut pay by half.

Half of the CEOs we spoke to expect to restart capital spending in the current fiscal itself. But they hailed from sectors such as two-wheelers, power and cement, where players are hoping for quick demand rebound. Another 45 per cent said they expected capital spending to look up the next fiscal, with only two of them saying they saw no pick-up in sight.

Three-fourths of the leaders who responded to a specific question, thought the Centre hadn’t done enough yet to stimulate the economy, while the rest said they were satisfied. Many plumped for government capex, direct cash transfers to citizens and GST rate cuts.

(With inputs from Chennai, Mumbai, Delhi, Kolkata, Hyderabad, Bengaluru and Ahmedabad bureaus).