Signs of a Slowdown

Shah’s worries echo through 4,500 brass units in and around the city. “The rising dollar has made raw material costly,and there is no demand in Europe and America due to fears of a prolonged slowdown there. Domestic customers are not ready to place orders at current rate because they feel brass should be cheaper as there is sluggishness in the market,” says Ramji Patel,president of the Factory Owners’ Association,Jamnagar.

These small-and medium-scale enterprises (SMEs) directly or indirectly employ around two lakh people in the district. The fear of factory owners has trickled down to the workers too. “Since demand is 40 per cent down,factories have been forced to reduce production. Consequently,they have cut down working hours by an average two hours and salary by up to 20 per cent,” says Patel.

The casting-and-forging industry in Rajkot is also down due to falling demand in local,domestic and international markets. The 10,000 SMEs here,suppliers to world’s major auto companies and other MNCs,have order books with lots of blank pages. “Exports are badly hit. New orders are not coming in,and those firms which have already placed orders are asking for delivery to be spread over longer periods of time,” says Dhansukh Vora,president of Greater Rajkot Chamber of Commerce and Industry. Prashant Parsana of Prashant Castings Pvt Ltd,a city-based firm which casts electric motor housings and pump parts,says they have registered a five to 10 per cent dip in demand during the last couple of months over the previous year.

In Ahmedabad,the 600-odd engineering-equipment manufacturing units too expect hard times ahead. The chemical-and-dye units have been hit the hardest. An indicator of the slowdown is the decline in credit offtake from nationalised banks. The growth of advances to SMEs in Gujarat by nationalised banks in September 2011 turned negative against advances in March 2011. In six months ending September 2011,the credit offtake was Rs 4,155 crore less than what it was in March 2011,according to a report of a state-level bankers’ committee,which attributes the decline to SMEs finding the credit a bit costlier.

Gaurang Shah set up Mouldtech Industries,a foundry,on Naroda Road in 1986. “The raw material costs have gone up considerably over the years,so has cost of funds from 12 to 14 per cent,making it difficult to get working capital at an affordable rate,” says Shah. Annual turnover of his factory,which was Rs 3.5 crore this year,would be down to Rs 2.5 crore by March 2012. The sales have nosedived by 25 per cent over the previous year.

Vatva Industrial Estate is one of the three large estates in Ahmedabad that host chemical-and-engineering businesses. Here too,the businessmen are feeling the pinch. Rajiv Patel,who runs Techno Bonanza Pvt Ltd in Vatva,says the industry suffers from high raw-material prices and costly labour. “In our sector (equipment manufacturing),we suffer the pinch due to postponement of commissioning of plants supplied by us or because no new expansion plan is taking place due to slowdown,” says Patel.

The future scare-PUNE

On October 21,during a conference call with financial analysts and fund managers to discuss the second-quarter results of Thermax Ltd,managing director M S Unnikrishnan didn’t mince words: orders had fallen in all major sectors. Two months later,there’s little reason for optimism—the orders have nearly dried up.

However,Unnikrishnan is more worried about the future. “Things are worsening in the market. There are no projects coming through. Earlier,the trouble was of global nature,now the trouble is internal. But we are still not laying off people,” says Unnikrishnan. “In the power sector,projects are not taking off due to difficulties in clearances and availability of coal. Since the interest rates have increased,debt-financing has become costlier,” says a Thermax official.

But while Thermax,which has diverse businesses such as manufacturing of industrial boilers and heaters and setting up air-pollution control systems,can sustain the impact,others will find it hard.

Auto-part makers are heavily cutting down on sales promotion. “There are no orders in the market. We have also put on hold all expansion plans. For the last one-and-a-half months,there is nearly a Rs-50 lakh drop in orders,” says Deepak Karandikar,managing director of Pressparts Ltd.

Anant Sardeshmukh,director-general of the Maharashtra Chamber of Commerce,Industries and Agriculture,says if economic conditions continue as they are,there would be a sharp plunge in manufacturing. “The annual turnover of the manufacturing sector in Pune is nearly Rs 65,000 crore,and we expect not less than a 10 per cent drop,” he says.

Even the luxury car sector doesn’t feel insulated. Peter T Honegg,MD and CEO of Mercedes-Benz India,says,“We are encouraged by positive traction in our company,but we are also keeping a close watch on the market.”

For companies such as Bajaj Auto,the swing in interest rates and the hike in the prices of essential commodities will drive the demand in coming months. Chairman Rahul Bajaj stressed this point in the annual general report of 2010-11. “Financial year 2012 may be a difficult year and the automotive companies may get caught in a pincer of slackening demand and higher input costs. The management of Bajaj Auto will need to battle these forces with more determination,” he wrote.

Driving down-Manesar

Harbhajan Singh,general manager,associate and social relations,at Honda Motorcycles,says,“We have only seen the symbols of a slowdown till now. But the real downturn will come in six months.”

The plant will find it difficult to stave off the effects. The Manesar factory will seek to manufacture 1.7 million two-wheelers in the year to March 31,which was also its target 12 months earlier. But people familiar with the plant’s plans for the following 12 months say that the management proposes to reduce output from 5,600 units a day to between 4,000 and 5,000.

Factory output across the country fell 5.1 per cent in October from a year earlier,and 3.3 per cent from the level in September. People don’t talk of production cuts in this industrial town but unease lurks when they speak of what’s to come.

Contracted workers will bear the brunt. Some will be laid off,says a trade union official,without revealing how many. A fall in production would lead to a loss of Rs 50,000 for new employees in the next financial year by reducing the amount they earn for meeting performance targets.

“We are trying to prevent volumes,salaries and employment from coming down,” the official says.

The Maruti factory has seen an eventful year. Employee strikes hit operations for nearly two weeks in October.

Subeh Singh,a union leader at the unit,remains suspended from work along with five others. He is heartened by a change in the management’s approach. “But conditions are just as they were before,” he warns.

Output at the factory is not expected to fall and Maruti has agreed to salary increases at the plant,the union leader says. But Anil Kumar,head of the All India Trade Union Congress in Gurgaon,feels that some of the factory’s nearly 2,000 contracted workers would lose their jobs next year.

Increases in interest rates have hurt parts-makers,who often deliver larger orders on credit,says Harbhajan Singh. Rajkumar Sharma,a union leader at component-maker Rico,insists that the company’s books are full. But Harbhajan Singh says smaller suppliers are increasingly unable to meet Honda’s orders. A spike in fuel prices has hurt the entire industry,he says. Input costs increase and customers find that the purchase of a two-wheeler makes less sense when it takes up a larger share of their daily expenses. A falling rupee raises costs of imported parts.

Buyers are a little less willing to part with their money. Government figures released last week showed output of motor vehicles in October 7.1 per cent lower than 12 months earlier.

“It’s always the market,” says the Maruti worker at the tea stall. Does he fear for his job? He shrugs and slips away.

(Gopal Kateshyia in Rajkot,Tanvir A Siddiqui in Ahmedabad,Ishfaq Naseem in Pune and Atideb Sarkar in Manesar)