Wood panel industry which would have turned out one of the best performances in the fourth quarter of the last financial year but for the outbreak of Coronavirus, is now preparing for life after the lockdown. It would be a difficult task to resume operations after 40 days of forced leave – everything needs to be started from scratch. But there is no option for the industry. Meanwhile, the industry is preparing a list of Do’s and Don’t’s for the industry as well as for the government in the post lockdown period.
Wage cut is expected
The industry knows that it has to take some painful decisions soon after commencing operations and the most important one being wage cut for employees. However, according to some players in the industry, wage cut will be a last resort and not the first step. It all depends upon how soon the demand will pick up once the production resumes after lifting of lockdown. For some companies, like Century Plyboards, monthly wage bill is huge and runs into anywhere between Rs 20-30crore. Though many of them in the industry have not yet decided about the quantum or the timing of wage cuts, it may be anywhere between 10—25% and may vary from company to company. However, some have already taken decisions in this regard. For example, Stylam has decided to cut wages by 50% for next 2-3 months. The industry is also requesting the government to allow it to treat the wage payment during lockdown period as CSR activity and allow it as CSR expenditure.
Low level of bad debts
One of the highlights of wood panel industry is the discipline in repaying the book debts, which is far better than any other industry. This is especially so in case of MDF. Therefore, this industry has one of the least bad debts compared to other industries. Even after the lockdown, the situation may not turn to bad and most of the companies are taking steps to help out the channel partners. For example, Century Plyboards will be extending the credit period for the channel partners on case by case basis. It will also finance dealers in special cases. On the other hand, working capital intense industries like laminates may find the going tough, especially during first few months of the resumption of the operations. Most of them wonder, how they can pay wages unless dealers pay their dues on time.
Long list of demands
However, the industry is eagerly waiting for some incentives/stimulus from the government. Most of the industry participants are surprised as the government has not yet announced any stimulus so far while some companies are already in the process of reopening their operations. Industry’s wish list is too lengthy and some of them include:
- The industry wants the salary paid during lockdown period reimbursed by the government. As they were not allowed to carry out any economic activity, salary paid by them to the workers should be reimbursed by the government.
- Similarly, industry also wants subvention of interest paid during the lockdown period. However, the government so far has only provided for moratorium for interest payment. The industry also wants moratorium on bank loans till the situation stabilises.
- The industry also wants the postponement of the recovery of statutory liability till the business stabilises.
- The industry wants GST rate to be reduced to 12% from the present level of 18%. On the other hand, the government is looking out for ways to mobilise additional revenue and one of the ways is through temporarily increasing the GST rates on some of the commodities.
- Another demand of the industry is the abolition of fixed utility charges for six months. Though this demand seems to be genuine one but the government may face practical problems in implementing it as there are many private entities who are also engaged in providing public utilities like power and water.
- Another demand of the industry is the reduction in the income tax rate for firms on similar way it’s done for corpoartes. This is a just and equitable demand though the government may find it difficult to carry out due to mounting stress on its resources.
- The industry also wants the working capital limit being raised from 10-25%. In all likelihood the government may act upon it sooner than later.
Most of the players feel the prevailing anti-China sentiment in the country would help the Indian industries, including wood panel industry initially. However, in the long term its impact may not be there and the industry may have to survive entirely on is strength.
However, what’s more worrying the wood panel industry is the fact that demand for wood panel emerges only with a time lag of 12-18 months of the launch of a real estate project as its use in the real estate project takes place towards the completion of the project. Since mid-February, the real estate industry has not seen any major launches and the situation is likely to continue till the beginning of next festive season. Thus, there is likelihood of a period of 6-8 months during the current year when there will be no new launches. However, the impact of this new launch ‘lockdown’ period will be felt by the wood panel industry by way of low demand only towards the end of next year. Thus, industry may see a sluggish demand once again next year due to the current lockdown. This may be a little worrying factor for the industry.