Looking Back at FY 2021
The commercial vehicle (CV) industry was already facing multiple challenges prior to the pandemic with the downtrend in demand for two consecutive years, uncertainties on EV transition, higher investments, court-led enforcement of the BS-VI implementation timelines, and the hike in manufacturing cost of vehicles. Sales decline and poor profitability across the segments continued through the last year as well, exacerbated by the corona virus pandemic. The financial year 2020-21 ended with unprecedented slide in sales, resulting in poor financial metrics for the CV industry.
The bus segment continues to suffer severely due to the pandemic with compounding factors seeming to extend their impact in FY 2021-22 as well with spurt in new caseloads and sporadic lockdowns in sight. The SME sector within the CV and bus industry is struggling to survive this business crisis. The unexpected fallout of the pandemic has crippled the economy and the demand for trucks and buses. This has severely affected the bus industry with continued losses, poor operational revenues, nonperforming assets and large inventories, order cancellations, burden on fixed costs, loan repayments, and interest costs.
Private bus operators and state transport undertakings (STUs) bore the brunt of the financial losses due to restrictions on public modes of bus transportation and absence of any revival or support measures throughout the pandemic period. The absence of business revival in the bus industry led to a freeze on new bus purchases and hence, suppliers of bus passenger seats and other aggregates are suffering continued losses in business operations. StellarSP is a SME manufacturing company in its second year of operations, and the business results remained in sync with the bus industry on business metrics since most of the products catered to the bus seating requirements. The company thus faces challenges of negative growth, operating costs and financial liabilities on investments made.
Takeaways and Positives
The pandemic-triggered lessons enabled a broader business strategy for diversification into multiple business verticals and de-risk the business with contingency measures. This thought process provided the vigour to look at opportunities for adjacencies and business verticals, reducing dependence on the bus seats’ segment. StellarSP focused on the business objectives and action plans, even though business realisation and sales remained negative. However, it provided the opportunity to leverage human resources for futuristic product developments, capacity enhancement, process efficiencies, productivity improvements and quality excellence. Further, focused reviews helped in value engineering and cost reduction for the new products, leaner manufacturing lines and fixed costs control with flat organisation structure initiatives taken up to meet futuristic customer requirements and become a competitive solution provider for seats and components.
Thoughts on PLI Scheme, Scrappage Policy
The recent announcement in the central government budget for bus industry to infuse Rs 18,000 crore to augment the bus sector is promising and likely to bring in new investments for buses and replacement of old fleets. The vehicle scrapping policy should help in demand for new trucks and buses. From a long-term perspective, these measures with budgetary support and policy directions will enable the CV industry to recover and rebound with higher growth for the year 2021-22. It will create downstream job opportunities in the SME sector and help in revival of economic activities. However, the current pandemic impact with resurgence in infections across many states and implementation of travel restrictions will delay public investments and the enabling drivers for the economy.
Plans for Current Year
The industry is expected to get new bus induction from the second quarter after the ongoing elections and vaccine inoculation helps control the spread of the pandemic. STUs with new tenders will bring back activities in the bus bodybuilding industry and demand for passenger seats. New products and cost-effective solutions will help in business realisation with efficiencies on delivery, quality and resources. StellarSP is progressive by vision and has kept its focus to leverage the long-term business opportunities with fresh investments in new products.
This also includes a greenfield manufacturing facility with higher capacity, operational efficiencies, training, and quality improvement projects at supplier end and in-house process quality. Focused efforts have enabled the launch of an innovative modular seating product for buses. Further initiatives are afoot to develop a range of driver seating solutions for the CV segments in 2021. The new manufacturing facility will help in catering to the OEMs in emerging sectors like EV and components with business enquiries coming in.
FY 2022 Outlook
The current financial year will heavily depend on specific economic drivers on government spending for infrastructure and job creation projects. The pandemic must subside for any revival of public spending on travel, tourism, and festive occasions which will help the services sector and in turn, the manufacturing industries as well. Monsoon holds the key for agricultural activities and better crop harvest will bring in improved sentiment for spending and demand revival. Post state elections, state governments would also focus on creating job opportunities in core sectors and enabling the SME sector businesses will be key to overall growth. The CV and bus segments will have better opportunities for growth with government support on new investments and infrastructure projects. Initially there is uncertainty on demand for vehicles due to lack of specific schemes and financial support to the public transport sector and subsidies for revival of the investments. Hopefully, the Indian CV and bus industry will have better business viability and emerging opportunities from the second quarter of the financial year 2021.