Share Market Live

NSE

If a COVID-induced slowdown wasn’t enough to impact business at Chennai’s auto-component units, the recent two-month lockdown in Tamil Nadu has complicated operations, order books and logistics processes. The reason: different states announced lockdowns of varying durations, at different points in time, which left these MSME units struggling to service staggered closures.

For instance, Alfa Rubbers & Springs, which supplies rubber gaskets and seals to Chennai’s automobile corridor, has found the going tough despite managing to secure labour and supplies.

‘Staggered closures upset operations’

“When Maruti Suzuki (plant) shut, Renault Nissan did not shut; when Renault Nissan shut, Hyundai did not shut. That means if we were making parts for all of these OEMs, we were forced to remain open,” said K Srikanth, Managing Director of Alfa Rubbers, “So the shutting down of the industrial sector did not percolate down to the tier-2 and tier-3 levels.”

What this meant was that many other auto component units like Alfa Rubbers’ Gummidipoondi-based plant (50 kilometres North of Chennai) had to keep lines running amid a lockdown. However, these plants were forced to re-order supply schedules to service factories in the midst of staggering factory closures.

“Most of us in the automotive segment has had a 25 to 30 to even a 40 percent drop in schedules,” Srikanth added.

Oxygen shortage impacted component manufacturing

To add to the woes of these MSMEs, Tamil Nadu was facing an acute oxygen shortage in the treatment of COVID patients, which meant that industrial units were diverted or repurposed to produce medical oxygen, thereby preventing many smaller vendors from producing spares, which in turn further disrupted supply chains.

This meant that the state’s decision to allow cargo movement even amid a lockdown provided little relief. And while cargo transport was allowed, public transport was not, which resulted in most units seeing nearly 20 percent of its workforce not turn up.

‘Recovery only 60 percent of 2019 levels’

However, what was truly a cause for concern is that 2021 has so far failed to sustain the sales recovery seen in the festive season last year. “We were doing about 40 percent of 2019 last year, and this year has improved to 60 percent of 2019,” said R V Chari, Managing Director, GH Induction, “We were expecting to do close to 100 percent, but that didn’t happen.”

The unabated rise in prices of raw material, including steel and rubber, has created another problem. Many MSMEs, who had set money aside for expansion, have had to divert these funds to meet rising procurement costs.

The Tamil Nadu Government has taken note of the situation and has announced that nearly Rs 168 crore of the state’s Rs 280-crore-rupee capital subsidy for MSMEs will be released to aid cash-strapped companies.

The government is also assembling an expert panel of industrialists and bankers to brainstorm on ways to revive such MSMEs. The question remains whether any of these solutions will help and whether this help will come by quick enough to make a difference.