 "We have not cut jobs so far but we are not hiring, either: Surinder Kapur")
The prolonged slump in the automobile industry is being touted as the worst one manufacturers have witnessed in recent times. As one of the leading companies in the auto component sector, how is the Sona Group dealing with such challenging times?
There has been virtually no growth for the last one and a half years. Usually the automotive sector registers growth rates 1.5 times of that of GDP. The industry is cyclical in nature and goes through phases of slowdown every 5-7 years. New launches create excitement even during times of slowdown as we have seen with models like the Maruti Suzuki Ertiga, Renault Duster and Mercedes Benz A-Class. But availability of liquidity is an issue. Besides, today customers are no longer sure if they should opt for diesel or petrol products. All these factors are affecting sales. We are going through a tough time and are facing challenges in growing both volumes and margins. These phases I think are addressed best through consolidation, cost-cutting programmes, improvement in manufacturing processes and upgradation of product line-up.
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When the latest set of sales numbers came in earlier this week, industry body SIAM hinted at possible job losses across the automobile and auto component sectors if the slowdown continues.....is that an option for you?
At Sona, we have not cut jobs so far. The attrition rate in any company is on an average about 8-10% every year. We are not hiring new employees to replace the ones leaving at present. Efforts are simultaneously being made to reduce overhead costs across the board be it in communications or travel or transportation.
One positive is that with the rupee depreciation, auto companies would look at localising faster to slash import costs. That will stand to benefit the auto component industry. We can use it as an opportunity and do more research and development work locally.
There has been a spate of production cuts in auto companies over the last one year. What are the capacity utilisation levels in your facilities currently?
We are no longer working 24X7, six days a week. We are utilising 65% of our capacity where as the regular level should be at around 80%. This is purely because of the current market conditions.
Are you realigning your capex plans because of the slowdown in the market?
In the last financial year, we had earmarked capex of Rs 100 crore to set up two new facilities which has been invested as scheduled. But this year, we have budgeted Rs 80 crore on a roll-over basis. We will review the requirements on a quarterly basis before going ahead with planned investments.
Would Sona Group diversify business in future to de-risk its exposure to automotive industry?
We do have an agri segment which makes components for tractors but our non-automotive business is negligible at present. I believe the strength we have in terms of technological know-how will be diluted if we go into different areas. Diversification has to be geographic, we are looking at entering new markets in South-east Asia and some details would be firmed up over the next one year. We will also expand our presence in commercial vehicles segment.
Given the macro-economic conditions, when do you expect a revival in the industry....
While recovery is important, what we need to register first is a bottoming out of the persistent decline in the industry. I believe that will happen post the monsoons. We should be able to see some signs of revival by the end of the calendar year. What the Prime Minister has set out to do in terms of increasing investments in the developing infrastructure should effect some improvement in the economy. In the meantime, companies have to better utilisation of capex, working capital and cash flows.
Car penetration levels in India stand at 12 per 1000 households as compared o 500 per 1000 households in Europe, 20 per 1000 households in Pakistan and over 150 per 1000 households in China. Even if the penetration levels in India increase to 35-36 cars per 1000 households, we would have added six million more vehicles by 2020. The potential for growth is tremendous.
Indian component manufacturers are said to be not self-reliant in terms of technology, with the slowdown now do you see that trend reversing?
It is true that more and more research and development (R&D) is beginning to happen in the industry. And this is not driven merely by tax concessions or for import substitution but is happening because of the market size. The passenger vehicle market in India is expected to grow to 9-10 million units per annum by 2020 from the current three million units. India has unique requirements in terms of suspension systems, because of prevalent fuel quality and demands for better fuel efficiency.
So earlier while localisation was being done largely for import substitution now companies are working on developing new products indigenously. There is a lot of developmental work going on in light-weighting components. At Sona, we have developed an electronic power steering for off-highway market along with John Deere. We have patented the product and will soon introduce it to our customers. At Sona Okegawa, we are designing new gears. Mahindra Sona is developing lobes for life for longer durability.
What proportion of net sales do you set aside for R&D activities at Sona Group?
At present, it is around one per cent. But I expect R&D spends to go up to 2.5% of net sales over the next few years. At this stage, we need to invest in people and software. The development of physical infrastructure would come later. We need to invest in young engineers and cultivate designing capabilities. Over the last 3-4 years we have developed an in-house R&D Centre in Gurgaon. We have recently put in place a R&D Steering Committee to direct and co-ordinate development efforts.