Real Economy Check: Government Schemes Have Boosted Business But Payments Run Late - SoftTech Engineers’ Vijay Gupta
Business is picking up for SoftTech Engineers Ltd., which offers software services to architecture, engineering and construction firms, on the back of the government’s focus on automation and ease of doing business. The government in fact is an important client but there’s a problem of delay in payments.
“We have developed an artificial intelligence product that can help the government obtain construction permits through automation,” the company’s founder and chief executive officer, Vijay Gupta, told BloombergQuint on Real Economy Check—a special series on India’s small-and-medium enterprises.
“We’re benefiting from a lot of government schemes like digital governance and mobile governance,” Gupta said. “This is where we have a great level of opportunity.”
But the company has to go through an “entire cycle” before getting payments, which poses working capital difficulties, he said. This needs to be addressed to support small and medium enterprises, he said.
That could be due to lack of clear guidelines for payment conditions by the government, according to Gupta. “If it tries to change policy where payments are made to genuine contractors, this will boost liquidity in the system.”
Gupta spoke to BloombergQuint just days before the Finance Minister announced the government would scrutinise delayed payments to SMEs.
Watch the interview here
Here are edited excerpts from the interview:
Can you tell us a bit about yourself and your company?
So, we are a software product company with innovative products into architectural engineering and construction domain. We have developed a very innovative artificial intelligence or intel product which helps the government, in terms of construction permit. That has helped the government uplift the ease of doing business ranking. You must’ve heard a lot about that the government’s focus towards improving the ease of doing business ranking in construction permits and we are helping the government in a big way by lifting that ranking up. So, our mission is towards construction process automation.
Considering it is in demand, business must’ve largely have been picking up I presume. In FY18, your turnover was about Rs 50 crore, in FY19 you’ve made Rs 65 crore. Is business momentum looking up?
Business momentum is very good because the government focus is towards automation, towards ease of doing business and towards e-governance, especially. So, we have a lot of government schemes like digital governance, mobile governance and this is where we have a great level of opportunity. We are absolute market leaders in construction permit solutions and government focus towards automation like, the permit, is helping us a lot. So, besides that, we are into the private sector, automating the real estate industry and because of RERA there is compliance, and the construction industry is fast moving towards standardisation and improving into the processes. And this is where the digital construction economy is something where we have a leverage.
With the nature of your clients—from architecture, engineering and construction space—with the kind of issues which a large number of companies are facing, the morale of your clients might have been a bit iffy. You don’t see that in your conversations with your clients, especially in the construction and real estate business?
Well, if you look at the current situation, it is definitely true that the construction industry, especially the real estate industry I would say, is on a downturn. But that is probably more because of the sector getting organised. In long term, I feel that due to schemes like RERA in a mid-short term, mid-long term kind of scenario, the industry would definitely benefit by way of the schemes being introduced by the government. So, I foresee a clear picture that the industry, though going through a bad phase at this point of time, would look at a better picture eventually.
How different is the current cycle for your clients and your business compared to what you have seen in 2013 or 2008-09? Because a lot of companies that we speak to suggest the kind of issues that they are facing now are markedly different from that they faced back in 2013 or 2008-09?
We are the market leader in providing government solutions. So, because of the government schemes introduced for automation, we are having a very good business scenario at this point in time. Having said that, there are challenges like the government payments are very slow in nature, there is dependency on the kind of cycle that we have to go through as far as receiving the payment cycle is concerned. So, those are the challenges that we face and when we try to grow our business because of our potential in this space, we find that there is difficulty in terms of working capital because government payments are delayed significantly.
Is the delay slightly longer than what you’ve seen in the past? And I am guessing that companies like yours would be communicating with the clients in order to expedite payments. What’s the issue, largely?
The issue is probably because many changes in the officers’ ranks and sometimes the officer who was dealing with it is no longer in the process of approvals; so, there is a delay. And by itself, the process is delayed and probably the government has not set up clear guidelines or accountability in terms of payments being made on time. I believe, if the government tries to chase the kind of policies where the payment to the genuine contractors or suppliers should be made on time, it will help the economy because the money paid by the government will come into the system, and that will help the liquidity of the market as a whole.
What happens to private companies like yours, in such a scenario? Do you resort to external borrowing, or have external funding costs gone up? Because a lot of companies also tell us that while the RBI has been cutting rates, their cost of funding has gone up. You’ve got a software company so your borrowings would not be that large, but still?
Yes, our borrowings are not that large, but I would say that from the general SME experience which I have, currently the challenge with SMEs is very big in terms of getting working capital from banks and especially for companies of our size where the entrepreneurs of first generation do not have their own assets to put into the bank, and banks want a great level of collateral to fund. So, this is definitely a challenge where some policies/improvements from the government’s side for being a little liberal for genuine entrepreneurs or genuine businesses to be funded bybanks is going to help a lot. So, in general yes, it is a true problem for the SMEs.
Have the funding costs gone up? With the rate cuts coming off, they would have come down and for small and SME companies, have funding costs gone up? For you, have the funding costs gone up?
Funding, for us, we have sufficient liquidity in hand and also, we are a public company, so we have raised funds through an IPO last year. So, we have a good amount of working capital required for the business at this point. From the banking side, it is still kind of stand-still at this point.
What’s the one pressing need that you would have from either the regulation side or the ease of taxation or something else which you think will help improve the business sentiment in a meaningful way?
Yes, regulations should be decided based on the size of business. Unfortunately, the regulations which are applicable to the giants are also applicable to the organisations which are quite tiny. So, it becomes a real difficult scenario, especially with the company acts, taxation provisions, etc. Though I am not an expert in tax matters but I can say, there should be some further simplicity for the smaller organisations because SMEs are the backbone for the economy of the country and if the government seriously thinks about simplifying procedures for them, probably this will help a lot in uplifting the economy as a whole.
You said that what is applicable to giants is unfortunately applicable to small companies as well. Can you give us an example?
Act 13 in the Companies Act wherein a lot of compliance needs to be addressed to and this company act is a bit elaborate and it needs a lot of compliances which are sometimes irrelevant considering the financial strength of the company. So, I think that is where some more attention may be required for some simplifications.