The health, geopolitical and socioeconomic impacts of COVID-19 crisis are significant and catastrophic. Organizations are finding way to understand, react, and learn lessons from the rapidly unfolding events. While the effects of the exponential impact of the virus have proved to be disastrous for many organizations, it is also providing opportunities to other businesses to flourish. Following and keep continuing the Corporate Social Responsibility (CSR) of any of the organizations during the difficult time of COVID-19 may badly affected in some way.
Automobile & auto part manufacturers
- The automobile sector was already challenged by weak demand and lower sales pre-pandemic, the sales of the sector is expected to lower further amidst lockdown.
- Current decline in the interest rate and the expectation of a further reduction may provide some support to the auto sector sales once the lockdown is lifted, nevertheless, sales & margins will remain under pressure since the luxury buying (cars) won’t start immediately post crisis.
- The short-term outlook of the sector will remain tenuous.
Oil marketing companies
- The sudden decline in the consumption of fuel at all levels (i.e. industrial, transportation and consumer) has adversely effected the margins of the OMCs as they earn a fixed margin on sale of products, added to it would be a onetime sizeable losses on inventory valuations due to steep fall in international prices.
- The government has lately allowed relief on foreign exchange losses occurred on sixty days rolling basis, a welcome step for the industry.
- The interest rate cut of 425bps and SBP’s decision to defer loan payments will provide much needed relief.
- The outlook for OMCs is tenuous.
Reduced offtake from Oil Marketing Companies (OMCs) has compelled the refineries to either shut down completely or adjust their throughputs downwards. The collapsed demand has emerged as a consequence of economic meltdown and preference of imported refined products by OMCs to avail price advantage. On the other hand, refineries need to operate at an optimum throughput capacity to remain profitable. The limited storage capacity and the stock accumulation of the refined products along with piling up furnace oil inventory are adding to the woes. The government’s directives for OMCs to halt their import of refined petroleum products and increase offtake of the local inventory will help refineries to utilize their capacities time being. The outlook for refineries is tenuous.
The major export markets for Pakistan’s textile remained closed due to lockdown in nearly all economies of Europe and America, resulting in shutdown of all major outlets and cancelation or delay of orders. The expected loss in case of extended lock down is estimated to be around $2 billion till June 2020.
Local: The closure of shopping malls and retail outlets has impacted local sales. Extended lockdown in domestic market especially in the month of Ramazan, which constitutes a major sales period, has impacted revenues locally.
- The demand compression is for the entire chain i.e. spinning, weaving and finishing covering basic, fashion or home textile.
- Post crisis, the demand for export-oriented units is expected to surge due to expected relief packages from USA & EU to increase demand.
Textile players expected to have lower sales and higher inventory levels leading to liquidity and cash flow issues. Meeting financial obligations will be challenging in the short-term. Outlook will remain tenuous.
The asset and capital base of large banks having major share of the financial market is sound. This is further supported by the composition of their assets which are largely in government issued or guaranteed investments/ loans. With around 40-45% lending in real private sector their risk to catastrophe is high against these loans/advances. Further, the low leveraging of the economy with credit to private sector at around 20% of GDP makes our financial sector less vulnerable to shocks than many other countries where this ratio is much higher. Despite support by the State Bank of Pakistan (SBP) in way on the regulatory relaxations, this class of assets will be adversely affected and sector will be forced to allow rescheduling/restructurings for longer period hence, impairing the income. Under the prevailing situation it is expected that many banks will feel heat. Outlook for banking sector is tenuous.
Food & beverages
Most of the raw materials are procured locally i.e. wheat, sugar, corn, potatoes etc. The industry’s topline is mainly derived from local sales and local demand could be negatively impacted by the outbreak. However, any major impact is unlikely since most of the items are low cost and considered as necessity. Moreover, there is no such lockdown for grocery stores, so demand remains nearly unaffected. Medium term outlook for the sector is positive.
[box type=”note” align=”” class=”” width=””]The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan[/box]