Supply chain hit by COVID-19, sales may be affected adversely: Kirloskar Oil Engines

New Delhi, Jul 9 () Kirloskar Oil Engines Ltd (KOEL) on Thursday said that a few COVID-19 cases in its critical supplier organisations have impacted their production, thereby affecting the company's supply chain to some extent, which can hamper timely deliveries to some of its customers.

In a regulatory filing disclosing the impact of the coronavirus pandemic, the Kirloskar Group flagship firm said its supply chain was also affected to some extent due to constraints in availability of a few raw materials, transportation and workers at suppliers' manufacturing locations.

"Currently, we see some improvement in inward and outward supply chain operations. That said, due to constant and unpredictable eruptions of COVID-19 cases in different locations even now, we expect some disruptions in our supplies which may affect sales adversely," the company said.

KOEL further said, "Few COVID-19 cases have been noticed in our critical supplier organisations. This has impacted their production and which, in turn, impacted KOEL supply chain to some extent."

The company said it has taken all the necessary actions to deal with the situation. However, it added, "this may impact timely deliveries to some of our customers. It may be noted that it is a contextual impact and the company is taking optimal decisions on a case to case basis."

In terms of current demand, considering the month-on-month improvement observed during Q1, the company expects further pick up in the coming months/quarters. However, the uncertainties with reference to the spread/containment of COVID-19 remain.

"Depending upon the further relaxations/developments relating to COVID-19, the company expects to gradually come back to its original level of operations, in the coming months and quarters.

"However, lower performance during Q1 of FY21 is likely to have its impact on the overall performance/profitability of the company for the financial year 2020-21," the filing said.

The company, a leading manufacturer of engines and gensets, had posted a revenue of Rs 710.62 crore in the quarter ended March 31, 2020 with a net profit of Rs 46.6 crore.

For fiscal year 2019-20, its revenue stood at Rs 2,877.48 crore and net profit was at Rs 170.38 crore.

KOEL said its factories and those of its subsidiaries are functioning in line with order position and the quantum of manpower permitted by the government.

"There has been good improvement with reference to sales in large engine business. Similar buoyancy in sales was seen in exports. The customer support, agriculture and allied businesses are slowly coming back on track," it said.

Power generation and industrial businesses are recovering, but the pace of recovery is slower, and this would impact the profitability of the company, it added.

Although there is an uptick in demand in few of its businesses, KOEL said, "The full level of production/sales could not be achieved due to various operational challenges faced such as restricted movement of men and material. However, the early indications are positive and the company hopes to improve the performance in the coming months/quarters."

The company also said there could be an impact of increased input costs due to changes in current market scenario. However, it is difficult to assess the exact quantum at this stage.

Stating that it has taken adequate measures across the organisation to control costs and address any evolving situation resulting from the pandemic, KOEL said it "does not foresee any significant challenge in realising/recovering its debtors, inventory, and other assets." RKL RVK