Some customers are talking about delaying payments: Siemens MD & CEO

Clients are deferring certain orders, payments are delayed and cost of production is on a rise, says MD & CEO Sunil Mathur

With a debt-free balance sheet, Siemens is focussing on profitability than revenue. However, at the sectoral level, Sunil Mathur, managing director and chief executive officer, Siemens Ltd, India, points out to the financial stress that is showing up in receivables. In an interview with Amritha Pillay, Mathur says clients are deferring certain orders, payments are delayed and cost of production is on a rise. 

How has been the first month of operations since lockdown was eased for industry?

In general, the entire process of opening factories has become difficult and very complicated. One needs to ensure social distancing without upsetting the machinery process in a factory. Then, there is your supply chain, their capacity utilisation, logistics and labour-related concerns. There are logistic issues of receiving raw material and dispatching orders. Lastly, why are you manufacturing? Is it for building a stock and hence blocking your funds? Or, are you manufacturing because there is a customer who wants an offtake?

Are customers deferring existing orders? Is it due to the lockdown or financial concerns?

There are some customers who want to wait for things to normalise and then take delivery of material, as their projects have not advanced due to the lockdown. There are others who are saying, I know we had ordered this, but now we have a different view of the business. Covid has brought in a new dimension and we will now need to rethink whether we want to continue with that capital expenditure or whether we want to stop it or defer it by a couple of months. These are different conversations we are having with our customers.

Are you receiving new orders?

Yes. Our business is very varied and we are heavily into digitisation. Overall, it is fair to say ordering in general has slowed down because companies are not in their offices to provide physical signatures to book an order. Many customers say wait till we get back to our offices and we will formally sign these orders.

Are there more digitisation orders?

Absolutely. In the current Covid crisis, the top three priorities (for companies) are –conserve cash, reduce capex and third is to lower cost and digitisation provides a solution for all three. Companies are looking for ways to replace capital expenditure with operational expenditure.

In terms of revenue recognition and new orders, is it going to be one of the worst years the industry has seen?

Difficult to predict how the year will end, we do not know how Covid will pan out; it has been a highly unusual and challenging year. We are learning to adapt, be agile and flexible.

Are you facing delays in payments from customers? Have you extended your payables cycle for suppliers?

Some customers are talking about delaying our payments and we are in conversation with them. For now, we have not delayed any payment to our suppliers. But this is a fine balance to strike, if our customers are not paying us in time, at some point we may have to take a call for our suppliers, too.

Is the cost of production on a rise with labour now scarce and other issues?

This is a time, where the entire ecosystem - our customers, suppliers and ourselves-all are under stress for cost; demand and supply is unclear. We are talking to our customers and suppliers to gauge what are the issues and we will have to adjust our cost structure, accordingly.  Labour cost is not a major component, but insignificant either.

Is a pass-through of the higher cost feasible?

Currently, our understanding is no customer is going to agree to an increase in prices, and no supplier will agree to a reduction in cost. You will have to balance the two and deliver and still be profitable. Our strategy for the last seven years has been to focus only on profitable growth. That will not change. Orders need to be profitable and our customers need to be paying us.

What is your guidance for order inflow this year? What is the expected mix of domestic and export orders?

We need to see what is the impact of Covid both world-over and here in India. We are still very much in the middle of the crisis. India’s overall story and potential has not changed due to COVID. This is a hiccup, but the intrinsic growth story of the country does not change. We expect orders across segments. The country needs green energy, efficient power transmission, state of the art power distribution, metros, railways need to be ramped up and factories have a huge potential to turn more competitive.

Will the finance minister’s Rs 20 trillion worth stimulus package help in rebooting the economy?

Some of the measures are a step in the right direction, for certain others the fine print is awaited. For instance, the Rs 90,000-crore packages for distribution companies is a step in the right direction, support for agriculture is a good measure. I would have wished for more clear guidance on infrastructure spends. I believe the government needs to concretely step up infra spends as it will fuel the economy. It was mentioned in the package, now we need to see that convert to actual tendering on ground.