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The Coronavirus Economy

Car companies are making ventilators, sugar mills and liquor producers are bottling hand sanitisers, apparel makers are diversifying into masks and protective clothing, drug and drone makers are witnessing a surge in demand
twitter-logo Sumant Banerji   New Delhi     Print Edition: May 3, 2020
The Coronavirus Economy
Illustration by Raj Verma

In 2016 when Delhi-based neurosurgeon Deepak Agrawal teamed up with robotics engineer Diwakar Vaish to set up a company to make portable ventilators in Noida, the aim was small. India needed about 6,000-8,000 additional ventilators every year and AgVa Healthcare, the company they founded, had a peak capacity of 5,000 units (though it has since then been producing around 300 units) every month.

The coronavirus pandemic outbreak earlier this year has completely changed the script. While overall mortality rate of the virus is low, in its most fatal form, it attacks lungs, which necessitates use of a ventilator. India has barely around 57,000 ventilators and the pandemic has opened up floodgates for companies like AgVa to scale up their business. Almost overnight.

"We were producing about 300 of our low-cost ventilators. Now the demand is to ramp it up to 20,000. Never in our dreams did we anticipate this," says Vaish.

AgVa is getting help from India's largest carmaker Maruti Suzuki India (MSIL). The Japanese firm makes close to 1.7 million cars every year and knows a thing or two about sourcing components and scaling up. "In the one-odd week that we have been together, we have been able to get domestic supplies organised along with manpower and logistics to scale up their production 30-50 times," says R.C. Bhargava, Chairman, MSIL. We are now trying to arrange parts from China where there is a bit of a delay. Still, we should be able to manufacture about 400 ventilators a day before the end of this month."

The threat of the pandemic spreading in India has led to a number of disparate companies joining hands or diversifying. If car companies like Maruti are helping the likes of AgVa to scale up, liquor maker Diageo or Triveni Sugar's mills in Uttar Pradesh are producing hand sanitisers, while garment companies like Arvind have put everything aside to make masks and coveralls. At the same time, pharmaceutical companies have ramped up capacities for drugs like hydroxychloroquine and azithromycin and drone manufacturers are witnessing a virtual flood of orders as authorities line up to procure them for surveillance and aerial sanitising purposes. Together, across a variety of sectors, the opportunity from the pandemic is valued upwards of Rs 12,000 crore. And this is just a conservative estimate.

If the virus has, on the one hand necessitated a lockdown of the entire country and brought traditional economic activity to near-standstill, it has also created a war-like economy of its own.

Mad Rush for Ventilators

One of the biggest and most urgent opportunities for manufacturing that the pandemic has presented not only in India but across the world is for ventilators. There are no sure-shot figures available for India but estimates suggest a figure of 57,000 units. What is certain is that for a country of 1.3 billion-plus, this is grossly inadequate. According to a Brookings report, if cases spiral in India, it may need as many as 110,000-220,000 ventilators as early as mid-May. Even at the lower end of the spectrum, this is a Rs 1,000 crore industry in the making.

"An estimated 5-10 per cent of all patients will require critical care in form of ventilator support. In a worst-case scenario, according to one estimate at least, we may end up with 2.2 million cases in India by May 15. Clearly, the growing demand for ventilators is going to outstrip the limited supply really soon," the report said.

India needs ventilators by the truckload and it needs them fast. The trouble is, not too many are made here and the most sophisticated ones used in ICUs are imported. They cost a lot - Rs 5-10 lakh - and purse strings are tight. So when Anand Mahindra tweeted on March 26 that a team of employees at the company's Igatpuri and Kandivali factories have developed an interim life saver for as low as Rs 7,500, it created quite a flutter.

"Cases could rise exponentially with millions of casualties, putting a huge strain on medical infrastructure. We need to create scores of temporary hospitals and we have a scarcity of ventilators," he had tweeted. "To help in the response to this unprecedented threat, we at the Mahindra Group will immediately begin work on how our manufacturing facilities can make ventilators."

Pawan Goenka, Managing Director of the companys automotive division, later elaborated on Mahindra's two pronged ventilator manufacturing plans. "At one end, we along with two large PSUs, are working with an existing manufacturer of high spec ventilators to help them simplify design and scale up capacity. Our engineering team is right now with them working on it," his tweet read. "At (the) other end, we are working on an automated version of the Bag Valve Mask ventilator (commonly known as Ambu bag). We hope to have a proto ready in three days for approval. Once proven, this design will be made available to all for manufacturing."

Mahindra and Maruti are not the only ones. Other carmakers like Tata Motors and Hyundai have also said they are looking at the possibility of making ventilators. One of the possible partners for them is Indias largest domestic medical devices manufacturer, Trivitron Healthcare. The company was making only 500-700 portable and hospital specific ventilators in a year but is targeting 10,000 a year and is in advanced discussions with two auto majors.

Even automotive component manufacturers have thrown their hat in the ring. S. Vijayanand, CEO of automotive and industrial battery maker Amara Raja Batteries, says the company is working on a solution where any available ventilator can be used for multiple patients. "It is an in-house effort at the moment and we have set for ourselves a two-week deadline to come up with a prototype that can be used on any ventilator used in ICUs by hospitals," Vijayanand says. "Once it is ready, we will get it validated by the regulatory authority and take the required expert help to scale it up fast. Like the World War threw up many innovations, if this does emerge as a unique solution, then we could look at it as a business opportunity but not at the moment. Right now, the focus is doing our bit."

Sanitisers Go Big

The opportunity in ventilators is, however, small fry compared to the one in hand sanitisers and hand washes in the personal hygiene category of the larger FMCG sector. Hand sanitisers have been in India for over a decade, but it is only now that they have gone mainstream.

Market research firm Nielsen says sale of hand sanitisers grew 53 per cent in February, far outstripping growth in the overall FMCG space, which was in low single digits. Personal hygiene products as a category did particularly well on e-commerce platforms with an over 1,400 per cent jump in sanitiser orders between February and the first two weeks of March.

This growth has become more explosive as the pandemic deepens. With doctors and experts prescribing washing hands repeatedly during the day as a way to keep the virus away, FMCG majors are scrambling to increase capacity. By the end of this year, experts believe sanitisers and hand washes would corner 16 per cent of the personal hygiene market from just 2 per cent right now. In outright value terms that is an eight-fold jump to Rs 8,000 crore.

It is not surprising then that new players like CavinKare, Dabur and VLCC have entered this segment recently. More are likely to follow suit. "Sanitisers are the need of the hour," says C.K. Ranganathan, CMD, CavinKare. His company forayed into the segment with an innovative and affordable Rs 1 sachet sanitisers. The company was already working on its hand sanitiser portfolio but fast tracked it in view of the opportunity in the market. "Packaging them in sachets was not too much of a challenge as we sell perfumes in Rs 1 sachets. Perfumes contain alcohol, so do sanitisers. We know the technology," he says.

Ranganathan says sanitisers are going to become a way of life and hence a substantial part of most FMCG companies portfolio (sanitisers and hand wash are currently just 1-2 per cent of most FMCG companies portfolio and this is expected to go up by 15-16 per cent in the future).

"Coronavirus will see huge long-term shifts in habits. Mothers will force children to use sanitisers and wash their hands multiple times a day with hand wash," he says, adding that sanitisers is only a start. The company will innovate substantially in this category over the next few months.

Similarly, India's largest ayurvedic and natural consumer products manufacturer Dabur has forayed into the category with its hand sanitiser Dabur Sanitize that will initially be available on e-commerce platforms and subsequently in modern retail and offline stores. Another new entrant is fitness and skincare company VLCC, which has decided to divert part of its production capacity in Haridwar for sanitisers.

"Indeed, demand is likely to grow for hand washes and soaps. This is not something we are obsessing about right now. The priority for the time being is to try and get as much of the finished goods as possible out to those who need them. In the last 10 days or so since we diverted part of our production capacity and started making hand sanitisers, we have shipped out about 200,000 pieces," says Jayant Khosla, MD and Group Head, VLCC.

Existing players have also ramped up capacity giving priority to sanitiser production. ITC has converted its perfume manufacturing facility in Manpura in Himachal Pradesh into a Savlon sanitiser factory. The perfume factory has been repurposed to make an additional 125,000 litres of Savlon hand sanitisers. "This initiative reinforces our efforts to enable enhanced production and supply of Savlon range of hygiene products in the market which is the need of the hour," says Sameer Satpathy, CEO (Personal Care Products), ITC.

Sugar Mills, Distillers Too Get Into the Act

The demand for sanitisers over the next few weeks and months is expected to be such that FMCG companies aside, liquor companies and sugar mills too have stepped in offering to use their supply of extra neutral alcohol (ENA) - a key raw material derived from sugar molasses and grain - to make sanitisers.

Global spirits maker Bacardi started production of 70,000 litres of hand sanitisers in India to help cope with growing demand. Globally, the American firm will produce more than 267,000 gallons (1.1 million litres) of hand sanitisers across its manufacturing facilities in the US, Mexico, France, England, Italy, Scotland and Puerto Rico. In India, sanitisers are being produced at its co-packing facility in Telangana. It intends to roll out in additional states where it has co-packing manufacturing facilities.

"We, at Bacardi, have always endeavoured to support local communities, especially during difficult times like these. By boosting the supply of hand sanitisers, we hope to strengthen the fight against Covid-19," says V. Muthukumar, Operations Director, Bacardi India.

Bacardi is part of a long list of alcoholic beverage makers in India such as Diageo, Jagatjit Industries, Radico Khaitan and a number of sugar mills, mostly in Uttar Pradesh, including Triveni Sugars, Balrampur Chini Mills, Bajaj Hindusthan Sugar, DCM Shriram and Dalmia Bharat Sugar Mills that have started producing hand sanitisers. The sugar mills will together produce 38,054 liters of sanitiser daily.

Jagatjit Industries, which makes brands such as Aristocrat whisky, has started supplying 5,000 litres of hand sanitisers to the Punjab government. Diageo India that makes Smirnoff Vodka and Johnnie Walker whisky is producing around 300,000 litres of bulk hand sanitiser across 15 manufacturing units for use by public healthcare workers. It will also donate 500,000 litres ENA to the sanitiser industry to enable the production of more than two million units (250 ml each) of hand sanitisers.

Similarly, Radico Khaitan, which makes 8PM whisky and Magic Moments vodka, is expanding the use of ENA at its mother distillery in Rampur. The product - 8PM Extra Strong Hand Sanitiser - will be distributed free to government offices and hospitals in and around Rampur.

Masking the Epidemic

Like hand sanitisers, the spread of the epidemic has also seen a boom in demand for personal protective equipment like face shields, coveralls and masks. The shortage of these in India is almost as grave as ventilators. So is the lack of domestic production. About 15 lakh PPEs (coveralls), 50 lakh N95 masks and another 10 million three-ply masks are required. The availability is only a fraction of that.

Orders have been placed for more than 10 million N95 masks but it may be too late by the time all of it is made available. For overall PPEs, availability is 3.34 lakh. The requirement is for 15 lakh. This acute shortfall has seen various companies jump into manufacturing of masks and coveralls, either as a diversification and a business opportunity or as a temporary measure for CSR.

This is largely an unorganised segment split into two halves. One consists of high-end equipment used for medical purposes that are mostly imported. The other is the basic kit manufactured by sundry cottage industries. The potential of the Rs 200 crore business opportunity could be the start of serious players entering the fray and the segment becoming organised.

India's largest apparel manufacturer, Arvind, has started making protective coveralls and masks (non-N95) after it was approached for help by the government. The company says this category was so well supplied by Chinese manufacturers that there was no need for any domestic firm to venture into this. The lockdown and the impact on supply has opened up the opportunity for domestic players.

"We will be making protective coveralls. We are also making some masks, which are not N-95. We do not have the appropriate machinery for N-95 masks. But these will be masks that can be used by essential service workers and not the frontline workers. For frontline workers we are only making coveralls," says Punit Lalbhai, Executive Director at Arvind, who leads the companys Advanced Materials and Engineering unit.

Lalbhai is unsure of the demand but given the rapid spread of the disease, he believes it could run into lakhs. The ramp-up, however, is slow as machines to manufacture these specialised products are hard to procure.

"There will be small supplies and it will take two to three weeks to ramp up capacity of the machines we have. We have procured as many specialised machines as were available and the raw material is just starting to come in. It was taking time but the government is moving mountains to facilitate this," he says, adding that they will begin by making around 1,000 a day and subsequently double that. "We are also working with the health ministry to adopt design changes or alternatives that could help ramp up production even further," he says.

Another company that has diverted its existing production to make masks and disinfectant wipes is Welspun. The company's factory at Anjar in Gujarat that makes home textile products largely for exports is today building a pipeline of a few hundred thousand masks and wipes. The company feels it is a natural extension of its core business, which included technical textile durables for automobiles.

Smaller firms and start-ups are joining in. Mumbai-based social start-up Saral Designs has tied up with Mahindra to modify its sanitary pad making machine to produce 3-ply surgical masks. These are being produced at Mahindra's Kandivali factory that is being prepped up to produce 10,000 masks per day. Along with ventilators and masks, Mahindra is also making face shields at the factory for medical practitioners. The design for these shields was sourced from Ford with whom Mahindra tied up last year for cars.

Bata India has in the past 10 days manufactured around 5,000 masks with fabric used in shoe linings, at its Batanagar plant near Kolkata. These masks have been donated to Kolkata Police. Sandeep Kataria, CEO, Bata India, is waiting for the lockdown to be lifted so that fresh stock comes and masks are made on a large scale. "We can make both basic and medical masks once we get fresh stocks," he says. But it is not a new business opportunity for the company. "We wont look at it as long-term business but we will certainly manufacture in large scale in the short-term to help the government. This initiative will not give us revenue or profits," Kataria says.

On a smaller scale, global engineering and tech solutions company Cyient has converted its manufacturing line in Mysore to produce medical equipment used in diagnostics for Covid-19. Cyient is producing assemblies used in X-ray generators from GE Healthcare and diagnosis units from Molbio Diagnostics to enable rapid disease testing in India.

Of Drugs and Drones

On April 7, as the BSE Sensex recorded its biggest-ever single-day gain of 2,476 points, the rally was led by pharmaceutical companies. Following the government decision to lift the ban on export of 24 drugs, including the much in demand anti-malarial drug hydroxychloroquine (HCQ), Nifty Pharma recorded its biggest jump in history gaining 10.43 per cent on the day.

Hydroxychloroquine has fast gai-ned reputation as one of the potential cures for coronavirus and presents a big upside for Indian pharma. India is the largest producer of this drug and accounts for nearly 80-85 per cent of the drug's global supply to 70-80 countries, including combinations/formulations. Not surprising then that leading manufacturers of the drug aim to increase capacity four times to 40 metric tonnes (MT) by the end of this month and to over 70 MT by next month. This on its own has the potential to inflate revenues for India's pharmaceutical industry by Rs 1,500 crore.

Unlike ventilators, masks or sanitisers, where there is a shortage in India, this is an area which promises a definite windfall for domestic companies. The country has a peak capacity to produce 350 million tablets of 200 mg dosage every month. Indias own requirement is unlikely to exceed 100 million tablets for which the government has already placed an order with leading domestic manufacturers Zydus Cadila and Ipca Labs. Industry experts say 100 million tablets are good enough to treat about seven million people, if required. In India, HCQ costs less than Rs 3 per tablet.

The opening up of the market for exports enables companies to go full throttle. The demand from overseas is likely to be immense. The remaining production will be exported to neighbouring countries as well as others such as the US and Brazil. According to some studies, HCQ has shown strong anti-viral effects on the coronavirus infection, which prompted US President Donald Trump to seek Indias help in procuring the drug.

"Together, we estimate active pharmaceutical ingredient (API) production can be augmented to 40MT this month and to 70MT per month in two months," said a top executive with a leading HCQ drug manufacturer.

Three Indian manufacturers - Zydus Cadila, Ipca Labs and Laurus Labs - have backward integrated production capacity from key raw materials that can be converted to intermediates and then to APIs and to final formulations.

Other leading manufacturers of HCQ include Intas Pharma, McW Healthcare, Macleods Pharmaceuticals, Cipla and Lupin. API suppliers for the drug include Abbott India, Rusan Pharma, Mangalam Drugs, Unichem Remedies, Vijayasri Organics, etc.

"We have ramped up production to 20MT to meet requirements and will be scaling up further to 40-50MT in coming months, if the need arises. As we are fully integrated, this should not pose a challenge. The priority is to ensure all patients who need the drug get it," Zydus Cadila Managing Director Sharvil Patel said in a statement.

The current increase in production is already 10-fold from about 4MT. This enhanced capacity is good enough to make about 150-200 million tablets. The US Food and Drug Administration (US FDA) has temporarily cleared the over three-year ban on Ipcas API manufacturing unit at Ratlam in Madhya Pradesh and two formulation facilities in Pithampur in Madhya Pradesh and Silvassa. Ipca, which earned 18 per cent of its revenues in FY19 from sale of anti-malarials, had sales of API and intermediates worth Rs 885 crore. About 77 per cent of this was exports, except to the US due to the ban. With the US added to the mix, the numbers can inflate substantially.

Indias exports of HCQ in FY19 was estimated at just $51 million and the current size of the US market is $220 million, generating about 5.5 million annual prescriptions. Zydus Cadila is the largest player in the US with 32 per cent market share by volume. The top 10 players include Dr Reddys Lab (10 per cent) and Sun Pharma (7 per cent).

Drones Take off

If the drugs are meant to cure, the lockdown has benefited another sector that helps contain the spread of the disease-drone manufacturing. There are no official numbers but the spike in demand is led by state governments and police forces. Drones are largely being used for public safety, surveillance, communications, delivery of medical equipment and disinfectant spraying. They are reportedly being used by police forces in Kochi and Punjab to nab lockdown violators. Chennai Police is using them to make announcements. Authorities in Telangana have gone a step ahead by using drones with mounted thermal cameras to monitor real-time body temperatures, especially in coronavirus hotspots. Nearly all state governments are using drones in some form or the other.

"Drones were always used for surveillance but as the situation is evolving, we are seeing new use cases emerging. The most promising are using megaphones for public announcements and thermal cameras. In India, thermal cameras can be a game-changer in the fight against coronavirus," says Ankit Mehta, co-founder of a leading drone manufacturer ideaForge. Mehta, who has sold drones to over 12 state governments, primarily police departments of Maharashtra, Assam, Gujarat and Rajasthan, says the number of queries has shot up over the past two weeks. "We got 100-plus enquiries but conversions have not been necessarily big. Also, most drone manufacturers are not sitting on large inventories but we have a huge capacity to make drones if large orders come," he says.

As per estimates, sale of drones in the grey market has jumped three-four times over the past month. The demand from legal channels remains weak due to lengthy procedures laid out by Ministry of Civil Aviation (MoCA) to acquire drones. India is a nearly 2-lakh drone market, where about 20,000 machines are legally registered with the ministry. The rest of the operators are working under shadows. The pandemic is expected to give a Rs 600 crore fillip to the nascent industry, including sales in the grey market.

A large drone manufacturer says every district in India should have at least three drones in the current scenario. This translates into 2,200 drones whereas the actual number would be around 200. "To facilitate deployment of drones for critical uses, the central government must immediately waive NPNT (no permission, no take-off) and digital sky restrictions for local authorities that wish to deploy drones for the duration of the outbreak. These actions would speed up demand for legal channels," says the drone manufacturer.

Drones are important as they can do much more than existing technologies. A back-of-the-envelope calculation suggests 5,000 CCTVs can cover just about 5 per cent of a city area. To cover a whole city, about a lakh CCTVs are needed. This is expensive due to the supporting infrastructure and fibre network that is required. Use of drones reduces dependence on CCTVs. "The biggest utility of drones is that they can fly over a vast area which cannot be covered with physical patrolling. The data can be captured and analysed in real-time. Drones have significantly reduced the response time of local authorities," says a drone association member.

Drones makers and other agencies foresee some of these new technologies, especially megaphones, thermal sensing and spraying, to develop into bigger businesses going forward. For instance, the commercial use of drones mounted with megaphones can be found in infrastructure, telecom and agriculture where these machines can be used to communicate messages over a larger area. Similarly, the police can continue to use thermal cameras to prevent crimes, and drones could also be deployed in solar grids and coal mining sectors to gauge temperature of critical areas.

An April KPMG report titled Potential Impact of Covid-19 on the Indian Economy says drone-based crop spraying can be tried in future if labour shortages arise. The learnings from the delivery of medical supplies at this moment could be a reference point for other sectors - e-commerce, food delivery, public transport - to tap into the opportunities that exist in their areas. Although some companies (and drone makers) are ready with drone-delivery tech - and are waiting for the government's nod - the crucial application of the tech in the current crisis would make their case stronger.

"Currently, thermal imaging technology is not widely available in CCTVs. Besides, CCTVs can only see faces from the ground-level. Drones have proved to be effective in covering a large area with highly accurate results of catching suspected people with diseases. I see possibility of every police department using thermal cameras on drones to become a norm in the country," says a drone manufacturer quoted above.

IT to the Rescue

India's three-week lockdown has also acted as a benefactor to the IT sector with work from home option being exercised on a scale never tried before. On one hand, Artificial Intelligence technology and platforms are being extensively used in prediction of coronavirus spread through processing huge data-sets across the world. On the other, large tech companies are witnessing green shoots in certain business segments with companies shifting to newer working models.

An example of using AI to fight the challenge at hand, is IBM's AI platform - WATSON. The 'IBM Watson Assistant for Citizens' brings together Watson Assistant, Natural Language Processing capabilities from IBM Research, and enterprise AI search capabilities with Watson Discovery, to understand and respond to common questions about coronavirus. "To introduce this in India, IBM Research has trained Watson Assistant to answer queries in English and Hindi to enable government agencies and departments to offer this service to constituents" says Gargi Dasgupta, Director - IBM Research India and CTO IBM India/South Asia.

Cisco India and SAARC region President Sameer Garde argues the role of AI in managing future crisis from this point will only accelerate. "Today, cognitive collaboration and AI are already reshaping the workplace. As workflows become complex, teams become diverse and distributed, cognitive collaboration platforms are used to remove a lot of common friction points and provide contextually relevant insights to enable people and organisations perform at a higher level," says Garde.

Deloitte's Paul Sallomi, Global Technology leader, in a note on the impact of coronavirus on the technology sector, points out that companies that are involved in delivering remote working technologies, hardware, security software (particularly Cloud-based tools), log management and VPNs will witness demand from increased remote working workforce. Cisco said in March that it witnessed over 14.3 billion minutes of Webex usage globally. In India, over 6 million meetings were held on Webex with nearly 20 million participants.

Every crisis, big or small, leads to a lot of destruction but also innovation. Nestle got wind in its sails when demand for its condensed milk soared during World War I. The Volkswagen Beetle, one of the German carmaker's all-time best-selling models, has its genesis in World War II. The economy that has come up in India, centred in and around the fight against coronavirus, which is also being referred to as the third World War in some quarters, could end up doing the same for any of these companies.

Necessity after all, is the mother of invention.

With inputs from P.B. Jayakumar, Ajita Shashidhar, Rukmini Rao, E. Kumar Sharma and Manu Kaushik

@sumantbanerji

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