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Sep 07, 2011, 05.02 PM IST
Sona Koyo Steering Systems, which heavily depends on Maruti for its revenues, has seen a dip in sales. But recent news suggested that the company was looking to invest around Rs 100 crore this year for capacity expansion, which indicates that the company is expecting good demand.
In an exclusive interview to CNBC-TV18, Surinder Kapur chairman and managing director of the company said that he is expecting sales to pick up once the festive season begins. “In my view, this slowdown is based on the increase in interest rates and fuel prices. Therefore, buyers of cars prefer to postpone their investment rather than not investing at all” he said. According to him, the festive season will change things and the current slowdown will be a thing of the past.
Talking about the company’s expansion plan, Kapur says that they want to improve capacity and in source a few processes that they were outsourcing. Therefore, they plan to invest Rs 30 crore for an aluminium die casting plant, Rs30 crore for in sourcing a lot of the processes that were initially outsourced and Rs 40 crore for expanding the hydraulic power steering capacity.
Below is an edited transcript of his interview with Sonia Shenoy and Gautam Broker. Also watch the accompanying videos.
Q: Before we talk about your capex plans, 60% of your revenues come from Maruti and we have seen Maruti go through so much chaos at Manesar. What is the situation now over there, how much of a production loss is Maruti really facing and what are the repercussions for companies like yourself?
A: First of all let me say it’s not 60%, its 50% that we depend on Maruti for. Having said that, it is the largest customer base we have and we are a joint venture of Maruti. But currently, as you all know, there is a labour situation at Manesar. Their Gurgaon plant is working full capacity and I am told some of the products may be shifted. But on the other hand, there is talk that this labour situation should get resolved soon.
We as a company for some strange reason are much more dependent on Gurgaon than we are on Manesar. The new plant in Manesar is where they are coming out with the new Swift and I think we will be heavily dependent on that. So we are actually waiting for the production of Swift to start in Manesar plant two. I am sure that if the industrial relations get sorted by the next few days, we will kick start with higher volume production for them.
So we have seen a dip in our sales to some extend. I think this is evident from the data which is available. Smaller cars are facing a slowdown in the sales side, but utility vehicles are not and that is good for us because we are a major supplier in the utility vehicle sector. Therefore, the situation to look at is how the festive season will overtake this so called slowdown right now.
In my view, this slowdown is based on the increase in interest rates and fuel prices. Therefore, buyers of cars prefer to postpone their investment rather than not investing at all. I think everybody is aware that liquidity is very good right now in the markets; the banks are flush with funds and therefore I think the festive season will bring about a change and this slowdown will be a thing of the past.
Q: In the economy there is a wider expectation that since inflation is not cooling down, you could have RBI tightening further. At what point do you think demand will really start getting hit and the slowdown that you are not talking about right now could actually start materializing?
A: If interest rates had not been touched at all in the last 18 months, I think we would have continued to see growth at about 25-30%. The fact that there was an interest rate hike recently indicates that the growth story will certainly be nowhere in the 20’s, but probably around 10. My personal view is that it will probably be around 10-12 % growth l this year.
We have seen in the past that when we had high growth, the next year was flat. So it may end up being that. But I believe that excitement in the automotive industry is created with new products and I think the new buyers and existing buyers want new products. I don’t see anything less than 10%, but if you’d say that there might be another price increase, one will have to really understand what impact it will have.
I think the economy is still growing and is growing at 7.5-8%. Historically, we have seen that whenever the growth is 8%, the automotive market grows by at least 1.5 times that number, which should be 12%. So that’s why I am pegging the growth this year around 10-12%. But this is considering that there are no more hikes in interest rates.
Q: So then tell us about your own capacity expansion plans. We understand that you are going to open a new unit to cater to the commercial vehicle space. What's the status over there? How much will you be pumping in?
A: This investment of Rs 100 crore does not have anything to do with commercial vehicles. Commercial vehicles is a focus area for us for the future we are currently trying to identify and finalize the technology partner for this. In the medium and long term, we want to be in all the segments and therefore we have identified agriculture tractors and LC as markets which we must enter into and therefore we are working on that.
From the Rs 100 crore investments, Rs 30 crore is for a new aluminium die casting plant which we are putting up. We are putting in Rs30 crore for in sourcing a lot of the processes that we outsourced in the past, because we now find it more economical to manufacture or do those processes internally. This is one of our action points or tactics to get a better margin in the company. The balance Rs 40 crore is for expanding our hydraulic power steering capacity; manual steering and electronic power steering evenly spread between Gurgaon, Darukheda as well as Chennai.
Q: So when can we hear more about the foray to the commercial vehicles space?
A: Before the end of this financial year, we would have our plan, technology and anchor customer in place. So we are working on that and I think in the last quarter of this financial year we’ll do that.
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