The effects of the pandemic are so deep rooted.
We get to see that only when a company, involved in working directly with the grassroot level tells us the impact. At the beginning of this week, National Fertilisers Ltd (NFL) issued a very detailed statement, highlighting what it has gone through, the bottlenecks faced on account of the lockdown and the pandemic.
These impacts are something which almost every single company has been facing and many will continue to face till the curve is not flattened and transport systems do not get back running on full steam. So, when we see the markets going rah-rah-rah, keep these facts in mind as this is the reality and probably, this is what the GDP numbers of Q1FY21, scheduled for 31st August will show us; earnings have scrapped through mainly on the back of lowered costs and adding back the deferred taxes. But the GDP will show us the impact which NFL is talking about in the truest form, in numbers.
Here goes - the challenges of the lockdown on NFL but largely common for majority of the companies, even today.
Though the company managed to keep all its plants working, it could not get the finished product out of the factories due to non-availability of adequate labour and trucks arising due to stringent restrictions imposed by the local administration.
For NFL, because it came under the “exempt category” the situation eased but for most companies, this continued for longer period of time.
NFL faced difficulty in getting inputs like neem oil, PP thread and chemicals (Sulphuric acid, causticlye, liquid chlorine, cooling water chemicals etc.) due to shortage oftrucks and operational difficulties faced by the suppliers due to shortage of man power, raw material and non-availability of trucks for movement – surely, this was ditto for 99% of the companies, be it FMCG or consumer durables or chemicals.
We take the ubiquitous jute bags for granted but their significance was known in this period. NFL said that it did not get - not the jute alone but plastic ones too, to load the urea and that created a major bottleneck. Due to this, NFL was not able reduce its inventory and this in turn led to loss of production.
NFL said that the situation with respect to bag availability is yet to normalize and bag supplies continue to remain constrained – doesn’t this bring to mind the what the cement companies might be facing?
Another major issue which we do not think about - delay in the visit of the foreign experts for commissioning of these projects due to travel restrictions, leading to delay in project executions. So, everything cannot be online or WFH.
Further delay in resumption of International Flights, VISA restriction, quarantine requirements due to CoVID-19may delay the commissioning of the on-going projects of the company.
Production and sale of Nitric Acid badly affected due to poor demand in the market – crash in demand is a problem currently almost all around; ask the realtors and developers.
Though we talk of unemployment, the fact remains that there is shortage of labour and the company, like most other is not able to recruit skilled labour and this in turn in also affecting production.
Thus we are now looking at companies facing time and cost over runs impacting earnings, loss of income on account of lesser or poor marketing, liquidity constraints, unprecedented higher borrowings to manage working capital requirement leading to incurrence of huge interest costs.
Indeed the pandemic is the weed on the field, you think you have it under control but they are so deep rooted, they will always come back.