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Value conservation to value creation
COVID-19: Path to Recovery
COVID-19 has had a relentless impact on the global and Indian economy. Pitted against an unknown adversary, business leaders have altered their priorities and are adapting their business models to the evolving situation – from lockdown to unlock to several localized lockdowns. The severity of the crisis has led companies to focus on the immediate problems, namely the here and now. Our ‘Value conservation to value creation’ survey explores corporate India’s journey through this crisis and path to recovery.
225 CXOs from across a wide range of sectors and company sizes responded to the survey between 17 June and 10 July 2020. We have drawn insights into the steps that companies have taken for survival and value conservation to the steps that will be taken for value creation subsequently.
Decoding the impact of Covid-19 on India Inc and understanding the new emerging paradigm
Key findings
73% of respondents expecting lower revenues in FY21
Recovery expected to be swift, with 82% looking at returning to pre-COVID revenue run rates by June 2021
As the nation unlocks businesses are focused on recapturing demand and optimising costs
Greater competition and higher costs are expected to be major challenges in the near term
Accelerating digital enablement has emerged as a clear necessity across all sectors to overcome these challenges.
The respondents considered localisation, new logistics and distribution models, new products and services and collaborations and partnerships as other key themes
45% of organisations view the current situation as a good consolidation opportunity
34% of the respondents have stated that a successful response to this crisis would be to build organisational resilience to future shocks.
Analysis
Overall By sector By revenue size
Overall
- COVID-19 has adversely impacted FY21 revenue across all sectors. Collapse in demand, supply chain disruption and liquidity constraints are the main factors driving this decline.
- Resilient organisations have benefitted from sector tailwinds but also have quickly adapted to changing market needs.
- 82% of the respondents expect to return to pre-COVID revenue run rates by June 2021.
- As organisations expect a tougher business environment, they are preparing for an emerging new paradigm with digital enablement as the overwhelming theme across all sectors.
- Other important interventions that organisations are considering are localization options, building redundancy and multimodal networks, widening products and services and evaluating collaborations to augment capabilities.
- Building resilience is one of the key successes organisations are aiming for coming out of COVID-19.
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By sector
Anticipated impact on revenues (Infrastructure & Real estate)
- Infrastructure and real estate sector is among the most impacted sectors with 81% organisations expecting a decline in FY21 and nearly 30% expecting the decline to continue in FY22. The sector also has the slowest recovery with nearly a third of the organisations expecting recovery timelines to extend beyond June 2021
- This sector is also most impacted by liquidity concerns and hence is also seeing the highest percentage of respondents looking to raise funds.
- Accelerating digital enablement was identified as key theme for the new paradigm with a large focus on automation/ robotics.
- Liquidity coupled with slower recovery has resulted in significant percentage of organisations identifying achieving break-even cash flows as a key success measure coming out of COVID-19.
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- Media & entertainment is among the most impacted sectors with 79% organisations expecting a decline in FY21 revenues and 26% extending the decline in FY22. The sector also has the second slowest recovery, after Infrastructure & real estate, with 21% organisations expecting recovery timelines to extend beyond June 2021.
- While accelerating digital enablement continues to be the overarching theme, 74% organisations consider collaborations and 50% consider new product and services as other key themes for the new emerging paradigm.
- Gaining/ protecting market shares emerged as the most important measure for success coming out of COVID-19 as compared to building organisational resilience, which was the second largest.
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- R&C sector has witnessed one of the sharpest declines in FY21 but is also expecting a quicker rebound with nearly 90% organisations returning to pre-COVID run rates by June 2021.
- While digital enablement continues to be a priority, over 60% of organisations also are looking to increase share of online business and 50% are looking at new logistics and distribution models to leverage emerging trends such as online shopping and D2C shipping.
- Even though it is one of the most impacted sectors, only 12% are looking to divest non-core business and less than a fifth of the businesses are looking to raise funds, presumably due to faster rebound expectations.
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- Industrials is the most impacted sectors with 95% organisations expecting a decline in FY21 revenues.
- Accelerating digital enablement is the key themes of the emerging new paradigm in this sector.
- While focus on remote working is a key intervention, 70% organisations are considering using digital enablement to manage vendor relationships and 48% are considering automation and robotics.
- 60% organisations have indicated a preference for domestic sourcing and manufacturing, the highest across all sectors.
- Interestingly, despite the liquidity constraints only 14% of organisations are looking to raise funds and 21% are considering divestments.
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- 74% organisations expect a decline in FY21 revenues. Interestingly nearly 80% organisations are expecting an increase in FY22 revenue, the second highest across sectors after ITeS.
- As with other sectors, accelerating digital enablement is seen as a key theme of the emerging new paradigm with a focus on greater use of automation/ robotics and increase in online business apart from remote working processes and systems.
- New logistics and distribution models and new products and services are other key themes for the emerging new paradigm.
- Demand collapse coupled with liquidity constraints are driving organisations to consider fund raise and divestment options with nearly half of the organisations considering either one of them.
- Building organisational resilience was identified as a key success measure by over 50% of organisations in this sector.
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- The sector is resilient with less than 40% organisations expecting a decline in FY21 revenues and nearly 90% organisations expecting to recover by June 2021.
- An overwhelming 78% organisations believe accelerating digital enablement is essential in the new paradigm. While remote working is an overarching theme across all sectors, the sector also saw a higher number of respondents focusing on greater use of automation/ robotics and sales effectiveness tools.
- Healthcare & pharma was the second sector after Industrials with the highest preference for domestic sourcing and manufacturing options presumably driven by supply chain disruption and high dependence on imports.
- More than 50% organisations are considering acquisition opportunities, with nearly 90% considering strategic acquisitions.
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- ITeS is the most resilient sector with less than a third of the organisations expecting a decline in FY21 revenues and over 75% organisations expecting greater than 10% increase in FY22 revenues.
- 4 out of 5 ITeS organisations see accelerated digital enablement as a key theme for the new paradigm with the focus on remote working processes and systems and improving speed and accuracy of decision making.
- Nearly 50% of organisations are considering raising funds through debt or equity over the next two years, nearly double of the average.
- 47% of organisations are evaluating acquisitions to boost growth by focusing on strategic assets rather than stressed assets.
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By revenue size
- Organisations across revenue sizes are expecting similar impact in revenue growth in FY21 and FY22.
- However, the smaller organisations are expecting a marginally faster recovery with 84% organisations in the less than INR 500 Cr bracket expecting to recover by June 2021 as compared to 72% organisations in the over INR 5000 Cr bracket.
- Greater focus on localization is a key theme for larger organisations with 53% in the greater than INR 5000 Cr and 44% in the INR 501 – 5,000 Cr brackets considering it as compared to 28% organisations in the less than INR 500 Cr.
- Larger organisations are more inclined to acquisitions while the smaller organisations are considering more collaborations and partnerships.
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- Accelerating digital enablement continues to be the overarching theme of the emerging new paradigm across the revenue brackets. Interestingly while remote working processes and systems is a key focus across sizes, the percentage of organisations looking at greater automation and robotics increases with increase in revenue.
- New products and services is a key theme for smaller organisations with 38% in the less than INR 500 Cr considering it as compared to c. 25% in the other two brackets.
- While building organisational resilience is the foremost success measure across all brackets, the smaller organisations consider achieving break-even cash flows as the second key measure compared to larger organisations that are looking at gaining or protecting their market share.
Analysis by company revenues (numbers in INR)
Path to Recovery
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