Depressing October
By Dhaval Valia
Reports from the ground for the month of October look scary. Distributors, I spoke to suggest a dip of nearly 25-30 percent in October sales, compared to last year. What is more alarming is that the credit outstanding in the market for the October cycle is being estimated upwards Rs 300 crore.
At the moment, though, distributors are not panicking, as they expect delays but no defaults. Demand from enteprises is dipping faster than anticipated. Diwali did help retail but not as much as last year. With more bad news seeping in, retail demand is unlikely to keep up.
One distributor opined that the credit cycle, for the next six months, is likely to be an average of 40 days, which would result in a decrease of inventory cycles from 10 per year to 8 during the current fiscal. This would mean a 20 percent cut in topline straightaway. With demand decelerating, distributors are expected to see negative growth of 30-35 percent during the remainder of the financial year.
On the reseller side, business customers have frozen all expenses. IT projects are being postponed, payments are being delayed, distributors have stopped channel financing (purchase bill discounting) and customer financing for IT projects are hard to come by. Ninety-day payment cycle is becoming a norm and to add salt to the wound, banks have capped their lending limits.
In a nutshell, the business scenario is worrisome. Solution providers are no longer looking at signing new customers, at least for the next couple of months. Focus is now on completing ongoing projects and working with select clients. Accounts receivables have become a priority.
Some of the partners have already initiated cost cutting on a priority basis. Cutting controllable expenditure like telephone bills, travel costs, power bills and other such expenses is very much in progress.
On the HR front, however, partners plan to wait till end of this quarter before they begin to axe the staff. But the exercise to reduce the fixed component of the salary in favor of the variable component has already begun.
So get ready for a long winter. October was just the beginning. The chill will only spread! |