Beverage major Coca-Cola’s long-term investment plans in India remain intact despite coronavirus-induced economic turbulence, a key company executive said.

Accordingly, the beverage major is expected to complete the earlier announced $5 billion investment this year for creation of retail infrastructure, bottling plants and introduction of new products, amongst others.

Since its re-entry into India in 1993 till 2011, Coca-Cola had invested $2 billion in the country.

Additionally, the company has committed an investment of $1.7 billion towards creating a ‘Fruit Circular Economy’ to aid the Indian agri-ecosystem till 2023.

“We continue to invest in big bets and strategic priorities that will help us emerge stronger. Our investments of building a long-term presence in India remains intact,” T. Krishnakumar, President, Coca-Cola India & South W est Asia, told IANS.

“As the situation evolves, we will flex our business models to adapt to the new normal to deliver long-term shared value in India.”

On the Covid-19 induced economic turbulence, Krishnakumar said the pandemic’s ongoing evolution has led to uncertainty around its ultimate impact.

“Hence, any immediate outlook may not be complete or conclusive… Covid-19 has obviously impacted all businesses significantly. We are, however, witnessing improvement in both consumer sentiment and consumption,” he said.

“While away-from-home consumption in channels like travel, restaurants, entertainment and hospitality may take longer to come back to normal, ‘At Home’ consumption is robust and growing.”

In terms of demand, Krishnakumar expects a faster bounce-back in rural consumption on the back of reverse migration, better monsoon, improved agricultural income, and government support.

According to him, a change in consumer behaviour and consumption patterns have been witnessed.

“While consumers are conscious of what they are buying and dependent on what is available, there is a strong trend to purchase trusted brands,” he said.

“Coca-Cola’s heritage and its relationship with the consumer over the years has helped us continue to be a part of the consumer’s basket even during this pandemic.”

Furthermore, he noted a change in channel choice of consumers.

“Grocers, who have been the lifeline during the lockdown, are likely to continue to be a stronger channel, along with the newly-emerging chemists who are unaffected by the lockdown,” Krishnakumar said.

“Innovative ways to reach the consumer along with affordability will be important to drive the demand.”

Besides strategy to deal with the pandemic, the company has also committed an initial support of over Rs 100 crore for helping the healthcare system and communities to combat COVID-19 and contain its spread.

At present, it has activated more than 50 locations across 10 states in partnership with its bottlers to support the hydration needs of the underserved communities through distribution of beverages during the lockdown period.

Two consecutive years of double-digit decline in sales volume and a 50-100 basis points (bps) moderation in already thin operating profitability are expected to materially dent the credit metrics of automotive dealers this fiscal, a study of 2051 CRISIL-rated dealers indicates.

After declining 18 per cent in fiscal 2020, vehicle sales volume is expected to fall another 25 per cent this fiscal because of the Covid-19 pandemic and weak business environment that’s curtailing mobility and discretionary spending.

Moreover, the ability of automotive dealers to withstand such demand contraction has reduced because of lower sales volume per dealer, given the aggressive dealership expansions adopted by original equipment manufacturers (OEMs) over the past six fiscals. For instance, while OEM sales volume was 17 per cent higher last fiscal compared with fiscal 2015, average sales volume per dealership was 30 per cent lower.

“In fiscal 2021, a sharp decline in vehicle sales volume and ancillary income (through service, spare parts and insurance, amounting to 10-12 per cent of revenue) will lead to a 50-100 bps moderation in operating profitability because of suboptimal coverage of fixed costs. This drop is substantial, considering the thin operating margin of 3-4 per cent of dealers and 50 bps moderation already seen last fiscal. Dealers with own showrooms and those with higher mix of the more profitable ancillary services will be better placed to withstand the shock though,” said Gautam Shahi, Director, CRISIL Ratings.

Among business segments, commercial vehicle (CV) dealers, are expected to be the most impacted due to the sharpest drop expected in sale volumes and lower profitability of 2-3 per cent, compared with passenger vehicle (PV) and two-wheeler (2W) dealers.

Tepid sales, carry-over stocks of BS IV vehicles, and squeeze in profitability will lead to net losses in the first half of the fiscal, increasing their reliance on working capital lines, and impacting liquidity position for most dealers, the rating agency said in its report.

The moratorium offered by the Reserve Bank of India and support from OEMs in the form of early payment of incentives or part interest cost funding are expected to provide some respite on liquidity, but only temporarily.

According to Sushant Sarode, Associate Director, CRISIL Ratings, “With stress rising due to weak vehicle sales, credit metrics of automotive dealers are already deteriorating. With cash accrual expected to halve, credit metrics such as interest coverage ratio will moderate to 1.1-1.2 times this fiscal from 1.5 times in fiscal 2020 and two times in fiscal 2019.”

Since automotive dealers are a critical link in the overall supply chain, support from OEMs and their financing arms has been forthcoming, and this is critical for them to navigate the current stress. Moreover, increasing preference for personal vehicles to maintain social distancing may gradually revive sales from the second half of this fiscal, and will remain monitorable.