While the entire supply chain of Minda Industries functions on bank financing and has limited cash dealings, the final retail product sales have seen an impact of demonetisation, says Group CFO Sudhir Jain. He expects 13-14 percent hit on revenues during November due to the move.
Minda supplies a wide range of ancillary products to the auto industry with 50 percent of its turnover coming from the two and three-wheeler segments. Two-wheeler sales with nearly 15-20 percent decline has been hit more than four-wheelers which has seen 5 percent drop in sales.
Exports, however, are doing fine, Jain says.
Jain does not expect the impact on sales to last beyond the fourth quarter of this year and says production of components have already been adjusted accordingly.
Below is the transcript of Sudhir Jain’s interview to Latha Venkatesh and Reema Tendulkar on CNBC-TV18.
Latha: We understand two-wheeler sales have been impacted even more than four-wheelers. What is the situation that you are facing? Are original equipment manufacturers (OEM) buying or not buying?
A: Yes, after demonetisation shock treatment given to the economy, definitely sales are adversely affected. Till date, our estimate is also that two-wheeler sales are affected to the extent of 20-25 percent. Impact on four-wheeler is not that much which is a positive sign. So, maybe around 10 percent four-wheeler sales are affected.
Reema: What would this mean for Mind Industries? What percentage of your sales are supplied to two-wheelers where we have seen a drop of 20-25 percent? What percentage of to four-wheelers and therefore, on a quarterly basis, this quarter, what will be the net impact on the company’s revenues?
A: As you know, we are a multi-product, multi-component company that supplies switches, lamps, horns, etc. about 15 components to various segments of the auto segments. And we cater to all segments which two, three, four-wheelers including commercial as well as off-road. Now the total sales, about 50 percent of the group turnover comes from two-wheeler and three-wheeler and balance 50 percent comes from four-wheeler segment. So, that way, it is evenly distributed between the two. Since two-wheeler sales is more affected so far, it will have some impact on our turnover also, but as we estimate, about 20 percent would be to the two-wheeler component and to the four-wheeler, it should be in the range of 7-10 percent. Overall, our sales should be affected or would be affected from November 8 onwards to the extent of 13-14 percent.
Latha: You export 19 percent.
A: 13-14 percent I said and I am taking average 9-10 percent to the four-wheeler and 20 percent to the two-wheeler. And 50-50 is the sale.
Latha: How is the export market doing?
A: Exports are okay. About 20 percent of the group turnover comes from the international business and exports markets are okay. That is as per the plan and schedules and there is no impact as far as exports are concerned. As we see, we see the immediate impact in November or maybe in December. Definitely it will have an adverse impact. But we see, things should start improving, if not in Q4, which is January, February, March, but definitely from April onwards. So, accordingly, we are also adjusting our internal working and cost management and trying to see how to defer the expenses or some recalibrating capital expenditure (Capex), etc. in order to have a least impact on the bottomline and cash flow at least during these two months of November and December.
Reema: Have your clients, two-wheelers as well as four-wheelers, deferred their launches which we scheduled for the next three months or have they brought down production which basically means Minda Industries performance will be impacted not just in November and December, but maybe even in the coming quarters.
A: As far as coming quarters are concerned, we see and feel that maybe Q4 would be affected to some extent. Till the time there is enough liquidity into the system, as per the reports which might take Q4 also. But having said that, even in November and December, the impact is not as much as was the initial reaction. Once any shock treatment is given to any economy or any institution, the immediate reaction is very negative. But having said that, we feel Q4, things should be better than November and December. And definitely, in first quarter of the next year, things should be towards normalisation. To what extent it will happen and whether it will get delayed is anybody’s guess.
Latha: How much of your business is cash and are you seeing people moving from cash to non-cash?
A: Our total business is cheque and banking system. We supply to all OEMs practically all OEMs in India. So our complete supply chain is financed through banking channels only. So, that way, there is no impact at all as far as cash versus cheque or banking system is concerned. Yes, to the extent, final product sales will get affected. Naturally, our supplies with OEMs will also get affected to that extent.
Reema: We have seen an increase in raw material prices in the last few months, right?
A: Yes, to some extent, but I do not see it is related to demonetisation.
Reema: No, it is not related. It is of course global factors.
A: Yes, some increase is there, we are also feeling it.
Reema: What is the blended is increase?
A: As far as the overall blend is concerned, maybe 1-2 percent, but then we have a long-term player and long-term understanding with the OEMs and depending from OEM to OEM, product to product, we also adjust prices to the basis raw material, foreign exchange variations, etc.