The June 2020 cover of The Economist magazine was titled “The New World Disorder”. This aptly describes the state of the world as we know it today. Before COVID-19 struck, the world was grappling with varied topics pertaining to trade disputes, slowing economies, and overall a multitude of issues that point to a phase of de-globalization. The OECD has now projected that global GDP will fall by 6% this year in the optimistic scenario. The Indian economy was already reeling from muted demand and declining consumer confidence. The coming year will probably be the most challenging one of the last couple of decades.
In the Transformer business turnover contracted year on year by 9% owing to the product mix that was available and subsequently targeted in the market. A planned shutdown where we carried out work related to the expansion of our capacity has also contributed to this. Prices continue to be extremely competitive. Despite this we have booked our single largest order and ended the year with the highest order book ever. This is a 35% increase in the order book over the previous financial year. In the coming year we will focus on execution. The Motor business has done well to register a robust 12% growth in a market that has contracted. The real achievement has been an improvement in margins despite fierce competition. Along with this we have been able increase market share significantly. Increased geographic coverage and a further optimized supply chain have contributed to this.
In the Projects business growth is flat but order booking has increased substantially compared to last year. This business is linked closely to the transformer business and more or less follows the same business cycle. The market conditions with respect to price are similar. We are seeing a number of customers in the market delaying placing orders. The Magnets Technology Machines (MTM) division has grown 6% over last year. Export orders have picked up and contributed significantly to growth. We have successfully developed and tested a range of synchronous servo motors for phased market release. In the Drives and Automation division the top line is roughly the same as last year. An overall slowdown in the plastic, metal and textile industries has impacted business. Successful implementation of applications involving the servo motor developed by the MTM division has been an achievement. New product development in the “Industrial Internet of Things” space will throw up some exciting possibilities.
Your company has taken a number of proactive steps to ensure smooth functioning during these very difficult times. We have formed a number of cross-functional groups to ensure business continuity. On the workforce front, our white collar employees voluntarily agreed to a salary cut in the range of 20 to 50%, with the working directors taking the largest reduction. We have entered into an understanding with the Union to regain lost days of work. All these initiatives will immensely help to mitigate the effect of the ongoing crisis.
There has been a lot of talk about the impact that the potential banning of Chinese goods will have on Indian companies and our industry. In the long run there may be reduced competition but in the short run this is a double edged sword. India’s trade deficit with China is about $60B. This amounts to about 14% of all goods imported. Thus in the short run a huge number of industries that import raw materials and components from China will be negatively impacted if this does indeed play out.
The primary challenge facing business today is unpredictability. There is extremely low forward visibility and this makes it very hard to plan ahead. Will there be a second wave of the virus? How will the Government react? Will there be more stringent lockdowns? How long will we function at limited capacity? How deep will the fallout of the current crisis be? Economic recovery will be directly correlated to our healthcare system and our preparedness in dealing with this virus. The answer to many of these questions remains speculative and we will have to wait, watch, and be agile enough to respond to the fast changing needs of the present business environment. We have prepared as best we can for any challenge that may come our way.