Lockdown adversely affects Orient Electric’s profitability

suspension of economic activity from March 2020 till mid-May 2020 adversely impacted the company’s results in the first quarter of the financial year 2020-21

Aug 17, 2020 04:08 IST India Infoline News Service

Orient Electric Limited informed the exchanges Monday that due to sudden lockdown on account of Covid-19 and consequent disruption of manufacturing operations, the profitability of the company was adversely impacted during the lockdown period which extended to mid of quarter ending June 2020.

The lower level of business volumes because of the Covid-19 disruptions during the lockdown period, disabled to drive any operating leverage and cover for the minimum fixed and committed costs despite a significant reduction of expenses.

With the government introducing relaxations in the lockdown, with restricted re-opening of retail outlets, transportation of all kinds of essential and non-essential goods, and finally followed by a graded approach to restore normalcy in the less affected zones with the announcement of Unlock1 and 2, the sales slowly started picking up from June 2020 onwards.

But the suspension of economic activity from March 2020 till mid-May 2020 adversely impacted the company’s results in first quarter of the financial year 2020-21. Profitability was further impacted by the payment of wages on minimal sales and no production activity during the lockdown period. Lower volumes impacted the productivity and thus impacted the gross margins.

The company has taken several actions to reduce all other expenses. These cost reduction initiatives include renegotiation with third parties, restricting new spend commitments, withholding of discretionary spends and deferring all recruitment plans but without comprising on competency building and employee health.

The company has sufficient inventory to cater the demand for the next few months. After unlock, the company has already started productions taking all necessary safety and preventive measures and lower capacity utilisation as per government guidelines being announced from time to time, to fulfil the demand expected to begin with the forthcoming festival season of the current financial year.

Characteristically, for the company March-June every year happens to be the maximum cash generating period of the year. Due to pandemic, downfall in sales and consequently in collections in the most crucial period, there was initial stress on the cash flows for first 3-4 weeks of the lockdown.

However, the company has quickly recovered back to normalcy with high focus on collection of its receivables and liquidation of inventory to relax the working Capital pressure. The Company has rolled back to comfortable liquidity position by July 2020.

Orient Electric Ltd ended at Rs175.95, up by Rs0.65 or 0.37% from its previous closing of Rs175.30 on the BSE.

Related Story