Humankind is now facing a global crisis that has not just health, but also economic and geopolitical ramifications. Such extraordinary times require that people and governments take quick and decisive measures that are critical - while being cognizant of long-term consequences of these choices on personal freedom, democracy, and humanity as a whole.
The early months of the pandemic led countries to close borders and turn inwards - largely due to the inability of governments to collaborate, share information, data as well as insights, and learn from each other. World over, the pandemic wreaked havoc on economic activity, significantly impacting both industry and employment alike.
Despite these adversities, the collective human spirit to overcome all odds ensured that the setback was temporary. The easing of lockdowns resulted in almost immediate start of economic healing. The exemplary efforts by our scientific community in developing vaccines in record time will further accelerate the recovery process.
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The pandemic also brought to the fore the importance of a thriving scientific ecosystem to deal with global health crises. A sustained scientific environment is the backbone of cutting-edge advances and innovations. It is evident that the scientific investments made today will lead to tomorrow's powerhouse of knowledge, tools, and techniques equipped to better combat extraneous factors. A unified global approach with mutual cooperation and trust as its hallmarks will foster healthy inter-dependence.
History has proven that post every economic, political, or health crisis, the world has only emerged better and stronger. For instance, the Balance of Payments crisis in the early 1990s paved the way for the fabled liberalisation, privatisation, and globalisation reforms in India that forever transformed ways of doing business. Similarly, the Global Financial Crisis of 2008-09 set the ball rolling to strengthen and modernise India's financial markets and also led to an economic rally.
I believe that now only the fittest will survive these extraordinary times. Those with strong governance and corporate ethics, well-capitalised balance sheets and adequate liquidity to bear the shock, as well as the agility, adaptivity, authenticity, and resilience to radically transform their businesses in order to navigate through this volatile, uncertain, complex, and ambiguous (VUCA) world.
There is now an increased need for businesses to think on their feet, demonstrate flexibility, and re-visit their strategies. For example, in our pharma business, we accelerated securing the supply chain through alternative vendor development and backward integration activities at the onset of the pandemic to ensure business continuity across all our 14 manufacturing sites in the three continents that the business operates - North America, Europe, and Asia.
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In anticipation of the impact of the COVID-19 pandemic, we conducted a stress scenario analysis to prepare for a severely adverse scenario that assumed no sales, no collection, and no construction activity for the first and second quarter of the current year, followed by a minimal pickup starting during the third quarter. We significantly improved our capital adequacy ratio to 34% from 22% in March 2019 for our financial services business alone. This not only helped us steer through the current period but also provided an opportunity for both organic as well as inorganic growth.
The pandemic was also an opportunity to closely align with the Industrial Revolution 4.0, as it mandated the world to adopt and adapt to digital technologies. The shift in digital platforms from the realms of sheer convenience to now becoming basic hygiene factors is significantly transforming business models.
The macro situation in India is gradually improving as we are witnessing a steady decline in the growth rate of active COVID cases and a plateauing in corresponding death rates. Simultaneously, we are witnessing a bounce back in economic activity, suggesting that the worst is perhaps behind us.
There has been noticeable recovery across multiple macro variables in September and October 2020, as compared to previous months. For instance, industrial production growth year-on-year (YoY) in September 2020 turned positive for the first time since March this year. This growth was propelled by a strong positive YoY growth in electrical equipment (10%), rubber (6%), chemicals (5%), metals (4%), and vehicles (2%). The external sector is performing well too, with forex reserves at a record high of over $570 billion.
COVID-19 has rightly highlighted the importance of the pharma industry that witnessed an upswing during the pandemic. Global innovators have been gradually shifting their focus from China to markets such as India, which has led to an increase in the API business.
Furthermore, investments into India's pharmaceutical and healthcare companies have jumped more than fourfold so far this year. In October 2020, we closed one of the largest PE deals in the Indian Pharma sector with The Carlyle Group and raised $490 Million as fresh equity for a 20% stake in our pharma business. The deal valued our Pharma business at an Enterprise Value (EV) of $2.78 billion, with an upside component of up to $360 million.
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On its part, the government has demonstrated agility in extending immediate relief to the marginalised sections of society, as well as to small and medium businesses - the backbone of our economy, despite a tight fiscal situation. The 'Atma-Nirbhar Bharat' (Self-Reliant India) stimulus tranches were ingenious in their reach and impact.
In addition, the Reserve Bank of India (RBI) deserves a special mention for its efforts to support India's fragile financial market and bring down the cost of funding during these critical times. Together, these have improved the future outlook of the Indian economy, causing rating agencies including S&P and Moody's to re-affirm India's investment-grade sovereign rating with a stable outlook.
To emerge stronger, it is important for us as a country to bridge the gap between policy announcements and their implementation by strengthening and empowering institutions to bolster economic growth. As we strive towards creating an 'Atma-Nirbhar Bharat', we must look at our businesses differently to manage the balance between immediate survival and sustainable growth.
The Bhagavad Gita continues to be a great source of inspiration for me, and I would like to conclude by sharing a key management lesson that The Gita has taught me: to foster mindfulness and equanimity, irrespective of the external environment. During these challenging global dynamics, it is critical for each of us to cultivate both physical as well as mental well-being and focus on compassion, as we find our own inner anchor amidst uncertainty.
As we traverse uncertain roads today, our approach to this moment will define the way we lead tomorrow.
(The author is Chairman, Piramal Group.)
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