Thinkpad: Pandemic Survival Strategies

Happy Sunday.

We promised you a few weeks back that we would get back with a clearer understanding of corporate earnings for the pandemic’s worst-hit quarter. Analysis by the Credit Suisse team, led by Neelkanth Mishra, now provides some insights into what happened in the April-June period.

The brokerage points out that the BSE 100 set of companies saw about a 30% year-on-year drop in sales. 57% of this fall came from the energy sector and 20% from autos. 17% of firms actually managed to eke out growth of more than 10%. This includes financials and staples. But operating margins for the BSE 100 declined only marginally as companies decided to cut, cut, cut. Spending was reduced on raw material, marketing, and ‘other’ expenses.

You can read a more detailed summary of the report here.

Another interesting takeaway from the Credit Suisse analysis—staff costs rose just 1% in the quarter, the lowest in about a decade. Of course, that statistic for a small subset of top companies may not tell us much about the state of the job market. A wider view of employment is worrying. CMIE’s Mahesh Vyas, wrote on his website, that salaried jobs, were estimated at 86.1 million in 2019-20, fell to 68.4 million in April 2020 and further to 67.2 million after the pandemic. Another estimate came from ADB-ILO, which said that 4.1 million youth in India have lost jobs due to the pandemic.

The jobless growth problem that we have spoken of for years is getting worse.

The pandemic is also forcing change. For a set of companies where troubles already existed (call it co-morbidities if you may), the pandemic may have forced decisions.

The Indiabulls Group may be among them. It has been rearranging its lego pieces for a few months now. This week, the group finalised the share-swap ratio for a merger between Indiabulls Real Estate and the Embassy Group. The promoters of Indiabulls will be de-promotorised from that business now. In an analysis just ahead of that announcement, we highlighted the multiple changes the group has seen and where the promoters are likely to focus their attention next. You can read that analysis here.

There are also new business opportunities that companies are jumping at. Online pharmacies seem to be one. Reliance Industries Ltd. announced the acquisition of Netmeds this week. The thesis there is easy to guess. Whether online pharmacies make a serious dent in the business of the neighbourhood chemist, who even takes orders on WhatsApp now, is debatable. The bigger battle there is setting up between Amazon.com Inc. and Ambani.

As Uday Kotak suggested at his AGM this week, the distance between the physical and digital worlds is becoming smaller. And that’s the real change the world needs to adjust to.

So companies are doing what they can to survive—cutting, rearranging, adding.

What are you and I doing to survive? Maybe having an extra drink or two. Well there’s good news there. The world finally has a cure. No, not for Covid-19. But for hangovers. Hey, we’ll take what we can get.

Enjoy what’s left of your weekend.

PS: Last week’s Thinkpad said the inflation debate is back in India. Well, that debate got more shrill when the minutes of the last Monetary Policy Committee meet were released. Suspect there were a lot of angry faces among bond traders in India on Friday as they watched yields go up after a surprisingly hawkish set of minutes. Cheer up. Monday is a new week. Oh, and we’ll soon have a new MPC.