Prolonged coronavirus outbreak could be disruptive for India Inc: Crisil

Our Bureau Mumbai | Updated on February 21, 2020

As inventories run down, more sectors will face headwinds: Report

The impact of coronavirus on Indian companies will be a mixed bag in Q4 of this fiscal, but could be disruptive if it persists beyond March. According to a Crisil report, sectors such as auto components, pharma bulk drugs, and agro chemicals can survive the COVID 19 headwinds to some extent in the near term, given inventory stocks of two months.

“However, as inventories run down, industry will face significant pressures. Overall, that would eventually result in more sectors being negatively impacted, outweighing the positives. Credit profiles of firms in select sectors could also get impacted if the supply disruption continues beyond March, for instance, automotive components, renewable (solar) and diamonds,” Crisil said.

Sectors affected

Dun & Bradstreet data shows that at least 220 Indian companies have legal linkages with around 350 companies in China. Linkage is the relationship between different businesses within a corporate family, when one company has financial or legal responsibility for another company. “

Of these 220 Indian companies, 58 per cent are in the manufacturing sector, 40 per cent in services, and the remaining 2 per cent in the construction sector. While companies in sectors such as retail trade, wholesale trade and transportation are expected to have foregone revenues, companies in construction and certain manufacturing segments will experience a pile up of their order books and deferred growth,” said a Dun & Bradstreet report.

Diamond and automotive components sector have been witnessing demand sluggishness for over a year; the automotive sector is on the cusp of adopting BS VI regulations effective April 1, 2020, leading to higher cost of components and, hence, vehicles. Also, 3 GW of solar projects, worth ₹16,000 crore, could be penalised for missing project completion deadlines if the coronavirus impact prolongs and delays supplies of solar panels. Credit profiles of some of the firms implementing these projects could witness some strain.

Exporters may gain

On the upside, Indian exporters could benefit. “Due to rising operating costs, the sourcing of apparel by the US and EU had shifted from China to other low-cost economies. COVID-19 will further impact China’s exports, thereby giving more opportunities to low-cost economies like India, Vietnam, and Bangladesh,” Crisil said.

“Although the operating rates of many Indian ready-made garment players are high at 90 per cent, the labour-intensive sector should be able to add temporary manpower to take up these additional orders,” Crisil added.

Published on February 20, 2020

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor