'Our company is in a recession-proof sector'

Q&A: VP MAHENDRU

Indo Asian Fusegear, a manufacturer of electrical products like circuit breakers, switches, fuses and compact fluorescent lamps (CFLs), has recently made a foray into services by bagging the power distribution franchise for Jabalpur (East) and Prithipura in Madhya Pradesh. The company will be pitching for other distribution projects "" which make use of its own manufactured products to reduce transmission and distribution losses "" as it looks at growth opportunities in new areas like design outsourcing, Chairman and Managing Director VP Mahendru tells Business Standard in an interview. Excerpts:

Product manufacturers have been facing severe competition from China. In CFLs, for instance, the market is flooded with sub-standard Chinese products which sell for a fraction of the price of branded products. And India is a price-sensitive market. How do you penetrate the market?

Indo Asian is the first company in India to start producing CFLs indigenously, way back in 1997. The initial demand volumes were so low that even at Rs 500 a piece, we would lose money. With the message of energy conservation getting through, our volumes have grown and the cost of production and consequent selling prices have come down sharply. We now have committed buyers in state distribution utilities and domestic users all over the country. In fact, we are even exporting CFLs to the UK and Europe. Three million homes in the UK alone are protected by our circuit breakers (MCBs) and lit by our CFLs. So you have managed to get ahead of China?

China has some strengths. It has good capability of mass production with regimented, disciplined labour. That cannot be denied. We would like to work with them and are looking at some joint manufacturing initiatives. We believe that our high quality and technology standards and their cost-effective setup can blend into unique strengths.

Is this part-partnership with China part of the overall strategy to counter the global slowdown?

Indo Asian is in a recession-proof sector. We are adopting new technologies, entering new geographies and new related businesses to accelerate our growth in the fast growing Indian market. We have also made foray into the power distribution business in some areas of Madhya Pradesh a few months ago. We have special strengths in the business, where we have committed to improve net realisations for the state distribution utility (from 35 paisa per unit in the first year to 75 paisa in the second year to 85 paisa and above). We are also looking at additional distribution assignments in other states, including Uttar Pradesh and Haryana. The return on investments for such projects is anywhere from 15-30 per cent. We are also looking at forward integration with power generation. We are targetting new exports markets in Europe, the US, West Asia and Africa, and are exploring the opportunities in electrical switchgear design outsourcing.

What are the numbers looking like for the current fiscal, which is ending in the next few days?

Our topline has been growing at 30-40 per cent for the last few years. We expect this to go up to 60-70 per cent year-on-year in the next few years as new plants come on stream. Of course, bottomline growth takes some time to catch up with the topline, given that we are in an investment-intensive phase. We are actually in for substantial growth. For this year, we are expecting sales growth of almost 30 per cent and 8-10 per cent net profit. Sales should increase to Rs 450-500 crore next year, factoring in supplies from the new plant at Hardwar, a tax-free industrial area.

There was a dip in profit in the last quarter?

That was partly due to the unexpected dollar-drop and increase in prices of copper and steel. We have protected ourselves now. The contracts have a quarterly review mechanism built in which takes care of the input commodity price inflation as well as exchange rate variations.