Real Economy Check: How A Change In State Government Has Put SME Affordable Robotic & Automation In A Fix
A change of guard in Andhra Pradesh has left Affordable Robotic & Automation’s capital tied up in stalled projects.
Affordable Robotic & Automation Ltd.—a 13-year-old company listed on the BSE—is a supplier of welded lines to automakers such as Mahindra & Mahindra Ltd., Tata Motors Ltd., Bajaj Auto Ltd., Maruti Suzuki India Ltd., among others.
Its other job is to provide automated car parking solutions to private developers, the kind where machines lift vehicles onto different floors. As the auto and real estate industries started facing headwinds, it ventured into government tenders, supplying to “smart cities” under Prime Minister Narendra Modi’s Smart Cities Mission launched in 2016.
But a change of guard in Andhra Pradesh has left the small-sized company’s capital tied up in stalled projects. “We took two government tenders of smart cities. One was Visakhapatnam and one was Tirupati. Unfortunately, both were under the Andhra government and the government got changed and all the projects were stalled,” Milind Patole, managing director of the company, told BloombergQuint on Real Economy Check—a special series on challenges faced by India’s small-and-medium enterprises.
“Both the orders put together were almost Rs 25 crore, and our company size is Rs 120 crore,” he said. “For a Rs 120-crore company, a Rs 25-crore project getting stalled was a big jolt for us.”
The company has Rs 4-5 crore working capital tied in these projects, he said.
The company is now cautious about tenders in northern states where re-election is due at the end of the year. “We are now probably thinking that we will go slow on government tenders,” he said.
Watch the full interview here:
Read the full conversation here:
In a brief nutshell Milind, tell us something about yourself and your company.
I am Milind Patole, the managing director of Affordable Robotic & Automation company. It’s a Bombay Stock Exchange-listed company. We are a 13-year-old company. Primarily, we have two major verticals. One is automated welding lines which we supply to all automated customers like Mahindra, Tata, Bajaj, Suzuki and all other OEMs. We are also into automated car parking solutions wherein we supply you know, complicated towers, like 70-metre towers and the car gets automatically parked. There, we have two types of customers—one is private developers and another one is the government, where we supply to smart cities. Across the board, all the three customers, be it automotive or developers, all are in a bad shape. So, we thought we should start doing government jobs also.
We took two government tenders of smart cities, one was Visakhapatnam and one was Tirupati. Unfortunately, both were in the Andhra Government and the government got changed and all the projects were stalled. So, almost both the orders put together was Rs 25 crore, and our company size is Rs 120 crore. So, for a Rs 120-crore company, a Rs 25-crore project getting stalled was a big jolt for us. Also, the private developers like all the builders in Bombay who are our big customers, there is a big liquidity crisis there due to a series of things which everybody knows. So, those two customers and automotive demand is very less. So, there are also those sentiments.
As far as our business is concerned, automotive is still doing good because we are a supplier of equipment for new models. So, when old models are not well, we are building equipment for all automotive. As far as automotive is concerned, we are still protected, but the sentiment is not good. There our liquidity is good because of automotive, our demand is good because we are launching new models but as far as sentiment in automotive sector is concerned, it is not that great.
What is a company like yours doing right now to try and explore new avenues. I also want to talk about the government piece by the way, but before we come to that, if the three sectors you are catering to are under stress, what will you do next?
We are trying to optimise our operations, we are downsizing. We are cutting all costs like air travel and allowances. In the last six months, we might have downsized by around 40 to 50 people. We were around 340 people including contract and on our roll we were around 242 people, so we have downsized our roll size by around 40 to 50 people in the last six months because we have to cope with all this, right? We have to cope with the downtrend in the market, we have to cope with the liquidity issues in the market and now we are coping up. We are optimising our everything, every operation we are trying to optimise. We are negotiating harder.
The other factor is the kind of costs that MSMEs are facing. A lot of companies, mid-size companies, tell us that while the interest rates from the reserve bank have come off, their borrowing costs have not quite done that. In fact they have gone up. What’s your debt equity profile and what’s the cost of borrowing for you as a company? Has it moved up in the last 12 months?
Our borrowing cost is under control. We bank with Axis Bank and our debt percentages are like, what do you call it? The loan is good. The interest on the loan is quite competitive, I would say, it has not gone up.
What about liquidity Milind? Certain companies are saying because projects are stuck, or because the receivables are not coming in. It is an issue for them because banks are also not lending the way they used to?
Banks are getting more conservative because of the overall sentiment, because of the slowdown. So, they are not willing to further lend us of course. They are very cautious, and we are also trying hard to not get further debt because we want to manage on our own resources, because the overall condition is not looking that conducive. We don’t want to increase our liabilities further. So we are also pressing hard.
We bought a land adjacent to our existing plant and we were planning to build a shade. So, for that we applied for a loan, that loan got sanctioned, and they said, if we cross this milestone, then they will give that loan and we also shelved that. We said, we will manage it in the existing two plants. So, we have two plants here and we were building a third plant which we’ve shelved for now. For that, we bought a land. We bought a 5-acre land and we have kept it on hold. So, you know the money gone into the land is now getting stuck.
So, I guess money is stuck in a lot of places, I want to focus on the government side as well. Now, there are two distinct things out here, one is the project in Andhra Pradesh and because of the change of government, I presume there the project has gotten stuck. Part two is relating to the other government contract. Is money coming in at the desired time or at a slightly later time?
See, Visakhapatnam was the first smart city which started with the smart car park. Tirupati was the second smart city which gave the contracts so that also, we backed. So both contracts got stalled and after that, we became so cautious that now we are trying to fill some tenders in other parts of India and we are just cautious if there is a re-election coming in. There are many states in the north which are going for elections in December. So, we are cautious about all those things because we are not sure, if the government changes, if the project gets stalled like this, there is no fund, right? In Andhra Pradesh we have almost Rs 4 to 5 crore stuck in working capital due to the project which got stalled. We are chasing them, we are representing to all levels in the government and we are putting our case up. I hope it will be restarted again. But again, you know, it has been stalled for the last four to five months.
Have you lost any business, because of lack of such money, I mean, Rs 4-5 crore as you said is a large sum for a company like your size. Would you have, if the money was available, been able to bag other business which would have come your way, and you had to let it go?
Yes, of course, we would’ve bagged aggressively in other government tenders. But we are now probably thinking that we will go slow on government tenders. As the government is spending so much, so we thought we will also diversify our portfolio in the government part also. So that we are, you know, equally balanced in all sectors.
Milind, would you believe that the next six to 12 odd months would see pressure on the top line because the segments you are operating in are facing an economic situation right now?
Yes, because the sentiments are not getting better and my only fear is automobile is not picking up, real estate is not picking up, and if there is policy paralysis like this, the government is getting changed and the projects are getting stalled, it is going to deteriorate everything.
What is the one thing that you dearly wish can happen for either the business to become a lot more easier to find that much-needed liquidity. What is that one key thing?
See, one key thing is liquidity, you have to see the way it is stalled. The real estate, the two-wheeler sale, the three-wheeler sale, everything has gotten affected by the NBFC tightening. So, I think there has to be liquidity in the market. Otherwise, people are not going to spend if there is no money in the market. So, liquidity has to be there. NBFCs or banks have to ease their way of lending to people. How NBFC used to do, you know. That’s what I think.