The covid-19 pandemic, wreaking havoc on global economies, may turn out to be a blessing in disguise for India, if it can emerge as a credible alternative for companies looking to shift part of their supply chain network from China. In an interview to Mint, Pankaj Munjal, chairman and managing director, Hero Motors Ltd, said India may be looking at a golden period in the post-pandemic world if it can emerge as a trusted partner for global companies. For the medium, small and micro enterprises, Munjal is of the belief that banks should be mandated to help them out while a fiscal package is also the need of the hour for the sector.
Can India become an alternative for companies looking to move away from China?
India is staring at a golden opportunity. The kind of customers that we work with are the likes of BMW, Ducati, Mercedes Benz and Audi and they are giving us future drawings, cash-flows, and telling us how they will earn tomorrow. If India can prove to be a trusted supply chain partner, that means we protect their intellectual properties, patents and technology, and we have the domestic volumes, then the country can be a base and a market for them compared to a Vietnam or a Cambodia. For instance, if we make a component for a large vehicle manufacturer in England and they have a factory in India, then the same component will go to both the places and will generate scale. So India’s golden years may be ahead.
What will be the impact of this pandemic on your bicycle and auto component manufacturing businesses?
Europe is going to bounce back well and we already have a schedule–for supplying parts–from our customers there and North America on when operations will resume. That part of the business is well planned and organised and will pick up much faster. The Indian auto industry was facing a lot of challenges and this pandemic has derailed the recovery process.
In Wuhan, after the lockdown was lifted, people wanted to maintain social distancing as the new normal. So, people are not opting for cabs and metros and are switching to individual transport and that gives me lot of hope. If that culture comes here as well, then personalised transport will get a big push. On bicycles, I am quite bullish. We make 20,000 units every day which caters to the basic necessities. We have to travel from one point to the other, like home to school or work, in rural India.
Will a stimulus package from the government help revive the economy in the coming months and how that should be implemented?
The magnitude of money, i.e the percentage of the Gross Domestic Product that the Europeans are putting, which is around 10% or 20%, is a well-thought out plan. They are not focused on deficit now and are looking at survival and the fundamentals to fall into place. It’s like a ventilator and you have to remove it slowly. In our factories in Germany, we have already received the cheques for salaries from the government. It’s not just a plan, it has been executed.
Here the plan is yet to come. What worries me is that half of India is small and medium enterprise. When it comes to the execution of the rescheduling of loans and the gap in repayment of installments for three months, the Original Equipment Manufacturers (OEMS) and tier-one component manufacturers will have dedicated teams for this but what about the small and micro enterprises. They are the weak link here and the money has to reach them. In a car or a motorcycle there are lots small components required which are manufactured by tier-two suppliers, who then supply to the tier-one vendors and then that gets supplied to the (OEM).
There are two aspects to this which is demand and supply. To get the whole supply chain moving, the economic package has to be such that it can reach the SMEs which generate half the employment.
Have you deferred the planned capital expenditure for the current year?
At this point of time we can’t say anything. All we read in the media is that demand has gone and everything is down. In China, after the lockdown was lifted, there was spike in purchases of luxury goods and cars. So, that defies everything we are reading now. We have to wait and watch at least a month after the operations start, then we will get hold of some ground reality on the post- covid world.
On the capex side, we will take a call after a month or two. As of now, we can now only speculate about the demand in market. May be it is not that bad as it is projected to be.
What do you think of the measures taken by the Reserve Bank of India till now?
The OEMs are strong companies and are virtually debt free and can negotiate with banks for credit. If a company which falls under the small and medium enterprises goes for a loan then the bank should question its financial ratios since to get the money from the banks one requires a lot of ticks in the boxes. If that SME guy is not ready that will affect the entire supply chain. The banks have to be mandated that they have to assist these companies.
Considering the crisis, what is your expectation from the European business?
We make components for electric vehicles, e-bikes and bicycles which are anyways new age products and are not environmentally damaging. We have a double edged opportunity there. EVs have a very small base and we have tied up with one of the EV truck makers in the US. Fortunately we are in the right business at the right time.