Recovery likely to be seen from Q3FY21: Jitendra Adhia, Atul Auto

Jitendra Adhia, President (Finance), Atul Auto, talks about Q1FY21 numbers, recovery, margins, inventory level and demand and supply scenario during a candid chat with Pooja Tripathy, Zee Business. Edited Excerpts:

Q: Numbers of Q1FY21 have been pretty weak in terms of sales which are 82% down and profit went into the negative territory. Has the COVID pandemic impact has bottomed out and now there can be an improvement from here?

A: An improvement is expected and it is a positive sign. Apart from this, I believe, there will be a gradual improvement because it seems that the recovery is still awaited in both, the market and demand. Going forward, obviously, the results should be better as compared to the first quarter but the conditions are still in quite liquid.  

Q: Situation is worrisome yet but when you are talking about recovery then tell us the kind of recovery situation is visible to you and when do you see the demand returning to pre-COVID levels?

A: It is very difficult to estimate it now. At the start in March-April then it was projected that the recovery is likely to start from September. But now, when it has moved a bit ahead and COVID is moving towards its peak in India, then it gives a sense that slight recovery can be seen from the third quarter or at the beginning of the fourth quarter and till then the gradual recovery will continue. As far as the pre-COVID is concerned then I think we should give it a quarter’s or two times.

Q: Let’s talk about the margin which has been under pressure in the first quarter and the working profit was also slightly weak. So let us know about your strategy to improve your margins?

A: As far as problems are concerned than the first quarter should be taken as one of the things as everyone knows that we were not able to operate the plant in full capacity in the quarter and I think the situation was common everywhere. As far as economization is concerned then every possible thing has been triggered to economize and optimize the cost wherever it is possible. If we will talk about the compensation of the fixed cost then it seems that it will be difficult below a production level. I think things will definitely fall in order from the third quarter.

Q: If we will talk about the last two months then how the demand scenario has been for the three-wheeler passenger and three-wheeled cargo vehicles?

A: Recovery in the cargo has been bit speedier and is coming bit faster here. The demand in the passenger vehicles segment is very weak because of the rules that have been imposed by the local administration. So, we should expect improvement in the segment from here onwards. As far as the last two months are concerned then July was good then June and I expected some more improvement will be seen in August. However, we are still facing some problems on the front of retail finance because three-wheeler is a micro commercial vehicle and maximum vehicles are sold on the availability of retail finance.

The collection cycle of the independent financers is running in a highly suspended manner since last March when the moratorium was declared by the Reserve Bank of India (RBI). Their complete cycle will be set after the moratorium comes to an end. So, challenges will be faced in fresh funding that is brought by the financers for the vehicles. Going forward, we will have to face this challenge. So, I think, we will have to address all these challenges and gradually there will be an improvement in volume.

Q: I would like to take an inventory check. Can you please provide a ballpark number of the inventory that has been cleared and how much is lying in inventory since the lockdown was implemented?

A: As far as the inventory is concerned then we normally maintain 8-10 days inventory. Mostly, it is in very close contact with the market due to which a prediction for demand is created and production is planned accordingly. Fortunately, we are enjoying a debt-free situation so we are managing things effectively and efficiently. Inventory is not larger than 8-10 days at the plant level. We have inventories of around 30-45 days at the dealership level.

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Q: Many companies have faced issues on the supply and dealership front during the lockdown due to which they had to make changes in their distribution strategy. Are you still facing such issues or things have returned to normal?

A: We faced some troubles for the first two weeks when unlocking was started. But we were quite efficient enough due to which everything has settled. As far as the supply chain is concerned that has been well set. Production and resources are very well and efficiently deployed. The only thing, which we now need to cover, is the demand curve. Going forward there will be gradual improvement and we are well geared for that.