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MSME sector under the yoke of COVID-19 lockdown; agencies bear the brunt

Small and independent agencies might be forced to shut shop.

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NEW DELHI/MUMBAI: India, just like the rest of the world, is staring at a bleak economic future on account of the nationwide lockdown caused by COVID-19. Already its GDP growth is at a decadal low. Adding to the cup of woes, productions are now being shut and many businesses are expecting a substantial dipping of numbers in their cash registers. The fear of an extension of the ongoing 21-day lockdown is making things worse.

The MSME sector, which has been bearing the brunt of dipping demands for the past couple of quarters, has found itself in a dark spot.

SBICap Securities institutional equity research head Rajiv Sharma notes that leveraged SMEs with outstanding debts will be vulnerable. Because of current projects getting delayed or cancelled, a payment crunch is expected.

Sharma, however, notes that smaller agencies can be smarter to leverage the digital side. “Small agencies can still find some business on the digital side if they have made that transition,” he says. The recently-released BARC data shows that digital viewership is spurting because of the lockdown with the first week showing smartphone time spent up by 6.2 per cent.

With its own prospects impacted, these businesses are pushing their agency partners over the edge as well. Many independent agencies have been complaining about delayed payments and closing of ongoing projects because of the lockdown, putting great pressure on their businesses.

The Media Ant co-founder Samir Chaudhary admits that business loss across the spectrum is inevitable, especially for services-based companies where manpower is low. He, too, is expecting at least two months worth of turnover loss, as the agency is experiencing a stretch in its payment cycles.

Founder-director of Punjab-based OOH agency, Kanhiya Advertisers, Deepak Singla feels that business is almost shut these days. “All ongoing campaigns have been dropped with the announcement of the curfew and lockdown and payments have either been cancelled or delayed indefinitely,” he tells Indiantelevision.com.

Singla says that he can’t calculate the loss right now, but is expecting that bigger problems will arise once the market reopens. “Lots of business houses will wipe out. Indian Outdoor Advertising Association is working on arranging a meeting with government officials regarding some relaxations as we don’t fall under the purview of any benefits announced by the finance minister,” he adds.

CIDROY and Dronsena co-founder AMJ Ramaraju, who has been developing an AI-tech for billboards that can make OOH advertising similar to digital with targeting and counting of reach and impressions, says, “We were all set with the working prototype for showing demos and getting leads, but then things turned out not as we thought due to COVID-19.”

He was in touch with many small agencies in Goa and pan-media aggregator The Media Ant as well, but with the current hiccup, he is now expecting a loss of Rs 2-3 lakh in March-April. If the situation continues, the month of May might see an additional loss of around Rs 8-10 lakh.

Another freelancer and founder of a small-time agency in New Delhi, on condition of anonymity, admitted that many clients have stopped payments causing great stress on the business.

Elaborating on the sales cycle, Sharma notes, “Every month contributes to eight to nine per cent of sales. This 21-day lockdown is about six to seven per cent of sales. If you are a seasonal business or a cyclical business, there will be a gradual loss. We are talking about at least 10 per cent revenue pressure.”  

Reviewing the situation, Elara Capital VP – research analyst (media) Karan Taurani feels that smaller agencies might be shutting shops by the end of the lockdown.

“The amount of support in the market, liquidity and advertising condition is very poor. So, the advertising industry is going to be highly competitive. The larger ones have the scale and they can definitely give a tough competition to smaller ones. Whenever there is a liquidity crunch and poor ad spend, the competition intensifies. You will see a smaller player having a more negative impact. So, there will be some small players with niche offerings who will survive but the larger portion will wind up,” points out Taurani.

Sharma agrees with this viewpoint. “India may have one to two bad quarters, not more. If the lockdown extends, more businesses will collapse and that will lead to layoffs, direct and indirect,” he says grimly.

There is one glimmer of hope though. “I don’t see any kind of layoff in the near term for at least the next three to six months. They will save other costs and protect employee interest,” says Taurani.

Chaudhary supports the prediction as he notes, “If the situation improves by April end, most of the agencies with sound fundamentals will recover. However, if the lockdown goes beyond April we will be forced to downsize or cut costs.”

SBICap’s Sharma is hopeful that the government will announce relief measures for SMEs in the coming days. With the government’s relief package for banks and EMI payments, it can serve as a temporary fix for agencies and employees.

An extension of the lockdown might offer a big blow to the smaller agencies, which form the core of extensive regional and targeted marketing. Only time will tell, how will they fare in adversities, but they are expecting some government initiatives to rescue them.

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