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The company's financial performance has been quite volatile in the past, despite a diversified product portfolio. What is the game plan for making it more sustainable in the long-term?
Our medium- to long-term growth strategy is to grow in three dimensions, namely product, market and geographies, for each of our five different products, namely automotive engines, industrial engines, agricultural equipment, construction equipment (roads and concrete) and power gensets. We want to reduce the sensitivity or fluctuation or impact of one sector on another, one country on another. We are also working on improving our efficiencies and cost control for sustainable profitability.
Globally, the environment is more challenging than in India. Then why expand in terms of geography?
If you are present in one market, you are sensitive to that market's ups and downs. We are present in five products and sectors, which has helped us in terms of less sensitivity as our portfolio is spread. We want to reduce it further with market (application) and even geographically as opportunity is quite huge in South East Asia, Middle East and Africa. We can have a reasonable share there. So, we are entering there and step by step we will establish our presence there. We plan to export our products to certain markets like the Middle East, North Africa and South East Asia. Exports are currently four per cent of our revenues. We plan to take it to 10 per cent in the next two to three years.
How is the scenario at the ground level in India given the slowdown, inflation and reforms?
Market scenario is depressing for sure in the last one year. I don't think the depression will go away so soon. At least for a year, I don't see it going away. The infrastructure sector has been bad overall and will continue to do so. I don't see any major improvement. We do hope for some improvement next year (FY14) with certain initiatives taken by the government.
So, what's the guidance on capex in FY13 and FY14?
Last year, we talked about a capex of Rs 155 crore initially, but later scaled back due to the economic environment. We are closing FY13 with Rs 75 crore investments. For FY14, we talked about Rs 100-120 crore, but that number is still work-in-progress.
Which businesses do you see growing faster? Will the revenue mix change substantially?
Currently, automotive engines are our largest business, contributing about 55 per cent of revenues. That will continue for some more time. But other businesses will also grow more rapidly and acquire more share in revenues. Our power gensets business is doing well, as there is huge demand given the shortages. If reforms continue, then even infra business has huge potential. Thus, as we go along in the next three to five years, the share of auto business will come down below 50 per cent.
How are you placed in terms of margins?
Structurally auto engines and farm equipment have better margins. The construction segment right now is not even breaking even. The other two businesses are also profitable, but these are yet to come to a scale where their cost base is meaningfully absorbed and give good profit margin.
When do you expect your infra business to break even?
We maintain that if the business does more than Rs 200 crore top line, it will break even. That is the minimum to absorb the fixed cost. We are coming closer to that. The market is also yet to recover. If the interest rate environment and policy measures continue, in FY14 we should break even. We are working on material cost and product portfolio enhancement.
Though top line growth was impressive in the December 2012 quarter, profit growth was flat? What went wrong?
Q3 (December quarter) is generally a good quarter because of festival season demand and peaking of farm activity. Construction also does well after monsoon. So, it is a good quarter for most of our businesses, except gensets, which peaks in the summer season. Sales in the December 2012 quarter were the highest in our history. However, profit after tax was affected because of investment impairment (Rs 14 crore) in the German subsidiary (a very small entity catering to defence and marine engines). We have impaired the entire investment and are working on its future plan.
