After posting a net loss of Rs 31.6 crore last year, the largest manufacturer of steering systems in the country — Sona Koyo Steering Ltd — turned in a net profit of Rs 87 lakh in the first quarter of this year. Analysts estimate the company to close the current financial year with a net profit of around Rs 14.3 crore. In an interview with Danny Goodman, the company’s CMD Surinder Kapur says future growth will come largely from the spate of new car models that will be launched in the domestic market and increasing volumes from Tata Motor’s Nano. The company is the largest supplier to the Nano project. Growth will also come from forays into the light commercial vehicle segment, and from increasing exports. Excerpts:
You have bagged 50 per cent of Tata Motors’ Nano steering system business, and up to 100 per cent of the car’s differential assembly contract. How much of profit margins have you agreed to forego?
Look, we have agreed at prices based on the large volumes of business the Nano would get us. The price at which we would offer steering systems for the Maruti 800 is the same price we have agreed for Tata’s Nano. In any case, Tata Motors’ passenger vehicle segment currently contributes 3 per cent to our total revenues.
You derive around 54 per cent of your revenues from a single company, Maruti Suzuki. Are you diversifying the risks which come from being too dependent on a single company?
We supply to GM India, which is 2 per cent of our revenues, as well as to Hyundai (20 per cent) and to M&M (12 per cent). We are also in talks with Ford and Nissan in the domestic market. Light commercial vehicles, like Tata's Ace, hold tremendous potential and we will supply to this segment, too. In addition, our steering systems are currently being tested by Tata Motors for their World Truck. So there’s diversification of business.
Power steering is increasingly being offered in the new cars being launched. Are you ready for the change?
Usage of electronic power steering and hydraulic power steering will rise sharply and we are geared to meet domestic OEM's (original equipment manufacturer) demands. But 95 per cent of the Nano’s steering will be manual. In addition, in association with our joint venture partner, JTEKT, we have developed a hydraulic power steering that can reduce power and fuel usage in the car by 3 per cent. This system will be launched in 2010.
Will growth also come from your four subsidiary companies?
Production at both JTEKT Sona Automotive and Sona Fuji Kiko Automotive will commence by the year-end. Our JV with Arjan Auto, Arjan Stampings Limited, is producing parts for light commercial vehicles. Our joint venture with American Axle called AAM Sona Axle will produce light axles for vehicles like Tata Motors Ace in 2010.
As of March, your debt was Rs 239 crore — 12 times your share capital. Is that a concern?
Our debt-equity ratio currently stands at 1.5 and we intend to bring it to 1 in the next three years. This will be achieved by the earnings that would accrue to the company in the coming years. Since all investments in capital expenditure has already been done, future revenues would go to retire debts.
