COVID-19 outbreak credit negative for India’s retail industry: Report
| Date :01-Apr-2020 |
Business Bureau ;
The Coronavirus outbreak is credit negative for India’s retail industry in the short-term amid shutdown of malls as well as closure of non-essential stores across the country, rating agency Icra said in a report. Icra in a report said that as consumers are forced to defer their discretionary spends, the revenues and profitability and the credit profile of the Indian retail industry will be adversely impacted in the short-term.
Also, with the anticipated adverse impact on the economy and consequent uncertainty around employment prospects, it is likely to result in lower purchasing power, Icra said. Additionally, consumer sentiments are likely to remain weak in an adverse economic environment. Consequently, recovery in discretionary spending is expected to be gradual once the Covid-19 threat is allayed and Icra expects the credit profile of retailers dependent on discretionary spending to moderate in the next one year. This impact is, however, expected to be mitigated in the long-term driven by healthy demand outlook for the industry supported by favourable demographics, rising disposable income and low penetration of organised retail.
“Lifestyle and fashion retailers (primarily those having higher contribution of apparels, consumer durables, jewellery, accessories and footwear, among others) will be impacted the most because of these restrictions and overall curtailment on the movement of people, resulting in demand pressures over the short-term,” Icra Assistant Vice President Sakshi Suneja said. However, the food and grocery retailers have witnessed a sudden spurt in demand as consumers have started panic buying around uncertainties of stock-outs and closure of these stores as well, Suneja further said. In addition to demand, the Indian retailers are also facing supply chain issues as transportation or movement of non-essential goods is also restricted. Even after malls are allowed to start operations, the discretionary spends are expected to remain muted over the near term as consumers, as a means of caution, are likely to stay away from crowded places.
Icra, however, expects the sales for lifestyle retailers to pick-up following normalization of the situation led by rise in demand by consumers who postponed purchases during the coronavirus outbreak. However, the impact on the value fashion segment would be more pronounced. Icra Vice President Kinjal Shah said that due to the high operating leverage inherent in this industry, these lost sales will result in a decline in the profitability of the retailers in Q4 FY20 and Q1 FY21. High rental expenses for mall-based retailers will additionally dampen their profitability amid subdued demand, he said. However, many of these retailers may invoke force majeure clauses in their agreements so that they do not have to pay rentals during this period of shutdown, thereby limiting impact on their profitability, Shah added. “Furthermore, we expect retailers to scale down their capital expenditure plans in FY21, in a bid to conserve cash,” he said.
The present scenario, however, provides a favourable opportunity for e-commerce food and grocery players. The outbreak of the coronavirus has led to a sharp surge in online grocery retailing as consumers are wary of stepping out of their homes. These platforms are witnessing increased demand not only from the existing consumers, but also from new consumers. This, however, poses supply chain challenges for the online retailers amid increased demand and it will be important for retailers to timely invest in capacity, storage and delivery fleet.
Industry bodies seek extension of financial year till June 30 amid coronavirus pandemic
New Delhi,
Mar 30 (PTI)
Industry bodies have appealed to the Government seeking extension of the current financial year, ending March 31, by at least three months till June-end, citing the present economic situation amid the coronavirus pandemic. Representatives from industry chambers including CII, FICCI and Assocham met officials of the Ministry of Corporate Affairs here last week and apprised the government of the issues being faced by them, and gave various suggestions. “In the current scenario, any financial statement prepared for April 2019 to March 2020 will not give true and fair view as it does not represent one complete business cycle of the entity. Hence, it is imperative to increase the given period to disclose the correct picture of business performances of a company,” the Confederation of Indian Industry (CII) told the ministry in its submission. It further argued that the current economic situation in India and the world over has resulted in impaired valuations of all assets, including commodities and financial assets. CII also called for allowing companies to pass circular resolutions for restricted matters without the requirement of conducting a board meeting for approving such matters for a period up to June 30, 2020. “With the current backdrop of coronavirus, the entire economy is getting stagnated for at least a couple of quarters which are kind of missing quarters for corporates. Further, to view the annualised financial statement of any corporate entity, one has to appropriately factor in the impact of current quarter,” it said. Section 179(3) of Companies Act, 2013 read with Rule 8 of the Companies (Meeting of Board and its Powers) Rules, 2014, provides certain matters to be dealt with by the Board of Directors only by means of resolutions passed at meetings of the Board and these matters cannot be passed by circular resolution. These matters include making calls on shareholders in respect of money unpaid on their shares; authorising buyback of securities; issuance securities, including debentures, whether in or outside India; approving financial statement and the Board’s report; among others. As follow-up of the meeting, Assocham has submitted a representation to the Ministry of Corporate Affairs stating that extension by three or six months for finalisation of annual accounts would be required to reflect the true and fair statement about businesses. “This once-in-century kind of an event like virus attack would hopefully recede in the next few weeks or months. It would be only after normalcy returns in the economy that the companies would be able to resume their regular operations. Return to normalcy is required for any fair statement of accounts,” Assocham Secretary General Deepak Sood said. The chamber’s letter to Minister of Finance and Corporate Affairs Nirmala Sitharaman and the MCA Secretary Injeti Srinivas recommended that forbearances be given under the Companies Act, 2013. “AGM for all companies should be allowed to be held within six months of 30th June, 2020, or 30th September 2020 i.E., latest by 31st December, 2020 or 31st March 2021 respectively, and on case-to-case basis. Subsequent relaxation is also desirable in terms of extension of time for filing income-tax returns for companies,” Assocham said.