A year of resilience and new perspectives
FY21 was a year that defied normalcy. The COVID-19 pandemic upended the world andcaused unprecedented disruption in more ways than one could have imagined. And yet thisyear will define for many years to come the strength of our collective will. This saw usthrough a challenging year and I have no doubt that this strength will help us face whatlies ahead.
The world has been fighting the Covid-19 pandemic for more than a year now and thestruggle has had deleterious economic effects. In 2020 the global economy contracted by3.3% the largest contraction on record at least since World War-II. Much of it wasconcentrated in the first half of our fiscal year FY21 as several countries enforcedstrict lockdowns. Economies bounced back - albeit at differentiated speeds - in subsequentquarters on the back of large fiscal stimulus packages especially in the developedcountries restocking demand after dilution of lockdowns and improved confidence levelsfollowing the start of vaccination programmes. As per the recent forecasts fromInternational Monetary Fund (IMF) the US and China are expected to record a strongrecovery in 2021 resulting in a net positive expansion of their economies over the 2019levels. These two engines of growth are expected to boost demand for exports from othercountries. But Europe and Japan are projected to see only a partial recovery and willpossibly fail to erase their last year's contraction in the current year.
In response to the pandemic central banks resorted to strongly supportive monetarypolicies in most developed economies causing interest rates to go down to record lows. Atthe same time another consequence of this policy has been a surfeit of liquidity. Thathas led to a strong rally in prices of many industrial commodities which has also beensupported by the evolving economic recovery stimulus-related demand expectations andcertain supply-side disruptions. This has caused inflationary pressures on the costdynamic of several manufacturing industries.
The latest IMF forecast suggests a strong 6% growth in global GDP in 2021. But theoccurrence of second and third waves of Covid in different parts of the world and reportsof virus mutations have created downside risks to the outlook of a strong growth rebound.Recovery remains uneven and uncertain with the extent of fiscal support and level ofvaccination being key differentiators of the short-term economic outlook across countries.
Indian economy which was firmly on the path of recovery in the second half of FY21has been hit in recent months by a rather unexpectedly virulent second wave of Covid-19.It has caused a severe strain on healthcare facilities in many parts of the countryleading to localised lockdowns and a fall in mobility to levels seen a year ago. Thedouble-digit GDP growth expectations for India in FY22 have been pared back.
As a silver lining disruptions to production and supply chains have been far lesssevere during the second wave than during the first wave. Vaccination is expected to pickup pace in the coming months which would support normalisation of mobility levels and ofrelated economic activities. Continued accommodative monetary policy of the RBI and theexpected increase in capex from the Government will be the other supporting factorshelping the economy to steer through this difficult phase.
Of course sustaining such recovery will require the containment of any furtherevolution of the pandemic.
Quite in contrast to the near-term challenges the longer-term prospects for the Indianeconomy continue to be robust. Various initiatives including privatisation of publicsector enterprises monetisation of assets implementation of National InfrastructurePipeline targeted investment incentives through the Production-Linked Incentives Schemeand the new Labour Code are likely to spur a virtuous cycle of investments and growth inthe medium-term.
CTIL has been creating value for all its stakeholders for the past 124 years. Duringthis journey we have witnessed dramatic disruptions across businesses. And yet we haveemerged stronger every time. We owe our tenacity to the enduring values we abide by andwhich are part of our century-old legacy. Our former Chairman and my grandfather B.K.Birla always encouraged us to go beyond the call of duty and I feel proud to say that wehave responded with empathy maturity and agility during these challenging times.
The resilience that our business has shown reflects the indomitable spirit of TeamCTIL. While business was understandably impacted and the company's revenues andprofitability dipped but cash flows have been comfortable and CTIL has remained costcompetitive. One of the company's biggest advantages is its diversified portfolio. Itprovides a natural hedge against cyclical and industry-specific disturbances. The companyhas kept a keen focus on conserving cash and controlling fixed costs. Deferring capitalexpenditure and new deals in the real estate business in the interim has also helped CTILremain buoyant and devote all energies to delivering best-in-class products and services.
We continue to focus on deploying cutting-edge technologies that enable greaterefficiencies and lower costs.
An agile business
Birla Estates - The Indian real estate sector was already seeing a rough patch when thepandemic struck. However government stimulus supplemented by factors such as decadal lowinterest rates and market-specific measures such as Maharashtra's reduction in stamp dutyhelped revive demand.
In fact the pandemic has increased preference for home ownership as the workplace hasshifted to home making it imperative for organised players to come up with qualityofferings to capture the market.
During FY21 Birla Estates performed quite well in terms of revenues and collectionswitnessed decent traction with the expansion of our footprint to Gurugram NCR. Wereceived Platinum certification from Leadership in Energy and Environmental Design (LEED)for both our commercial projects while our residential projects are IGBC Goldpre-certified. This further attests to our commitment to sustainability.
The company also accelerated its digitalisation drive arranged virtual walk-throughsand launched an online sales platform. These initiatives enabled the company to engagemore closely with customers raising their satisfaction levels and continuing the growthtrajectory.
Century Pulp and Paper - The global pulp industry witnessed price volatility due todisruptions caused by the pandemic that affected the entire supply chain. The pandemicalso accelerated the de-growth of writing/ printing paper and newsprint given theincreased pace of digital adoption across businesses and the closure of educationalinstitutions malls shops theatres and other commercial establishments. On the domesticfront Indian paper and board prices will be highly dependent on aggressive Chinesebuying given that environmental regulations have restricted Chinese pulp manufacturing.
The year saw Century Pulp and Paper increase its offering of value-added products suchas tissue and paperboard a trend that will continue going forward. While rising consumerconsciousness for health and hygiene led to higher demand for tissues the growth indemand for pharmaceutical products raised the demand for paperboard. Given the agility ofoperations the business was able to make the necessary changes to shift to paperboardmanufacturing with greater focus. The company was thus able to sustain higher utilisationlevels and even undertake planned expansion for tissue manufacturing to cater to theincreased demand.
Birla Century - The global textile market witnessed significant changes with the shiftfrom luxury apparels to home decor amidst the new normal created by the pandemic. Indiantextile exports declined in the face of increased competition from Pakistan Bangladeshand Vietnam in the long-established markets of the US and EU regions. Preference forsustainable textiles was another industry trend that saw growing preference for organicspecial finishes and eco-friendly textiles.
Since our apparel fabrics directly or indirectly supply to international brands themarket disruption has affected this business. However with a steadfast emphasis oninnovation and research efficiencies the business launched the Birla Care range ofproducts focused on health and hygiene which was the need of the hour. The companycontinues to work with major international brands. With the return of normalcy in the USthe home linen segment which specifically caters to the US market is likely to pick up.Exports are gradually recovering and as the situation in the domestic market limps backto normal we will see a sharper recovery of the business. The company is now focusing onmargin accretive products and exports. It is also planning to expand the footprint in theUS hospitality sector with emphasis on the made-up segment.
We continue to focus on deploying cutting-edge technologies that enable greaterefficiencies and lower costs. With technology enabling greater integration of the customerservice process we are also able to gauge customer satisfaction and address the feedbackreceived. The pandemic has given us the opportunity to upgrade and enhance our technologyadoption. We will continue on this path as it helps us retain our competitive edge whileremaining true to our core value of customer-centricity.
The last 12 months have given an impetus to the process of renewal at CTIL. Theplumbing work has been done. I am confident that CTIL will emerge even stronger in thepost-COVID world with the customer at the core.
|KUMAR MANGALAM BIRLA |