Bosch suspends prod; expects demand growth in Aug-Sep

The automobile and auto-ancillary stocks have been taking a beating for quite some time. News suggests that inventories are getting piled up both at the assembled vehicles level as well as at the ancillary level. Companies like Bosch have been forced to suspend operations in two plants to prevent inventory pile up caused due to a temporary reduction of demand in this quarter. The company has for the first time suspended production since 2009.

In an interview with CNBC-TV18, VK Vishwanathan, MD of Bosch reiterates the fact and confirmed that its Bangalore and Jaipur plants will suspend operations for two and five days respectively. According to him, slowing demand has led the company to take such a step.
Although, Vishwanathan is not very positive about demand picking up during the monsoon, he is optimistic about the August-September season when pre-festival buying starts. He considers a sluggishness in the tractor and heavy-medium commercial vehicle segment responsible for the pile up. However, he is hopeful of not suspending operations further in July. Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video. Q: Can you confirm to us that you have ensured your plants in Bangalore will be temporarily shut, in fact even Jaipur and Bangalore plants will be shut for three days in June to lessen the inventory pile up and will it be only three days?
A: Yes, we are basically talking about two plants out of the five plants that we have, one in Bangalore and one in Jaipur. We are suspending production for two days in Bangalore plant and three days in our Jaipur plant. Basically, it is to reduce the inventories as the demand has come down temporarily in this quarter. Q: How do you think the situation will pan out, you will have some idea of how the next month or even the quarter looks like, do you think that the inventory pile up situation will continue and you may have to perhaps work probably 70-80% in the coming months as well?
A: It is very difficult to say at this point in time. But I can only tell you that we are optimistic that from August-September onwards, the market is likely to pick up because the normal season starts and the pre-festival season buying also will start. But, for the next month or two, typically during the monsoon time, the sluggishness is expected to continue. Q: What do both these plants cater to Jaipur and Bangalore, is this with relation to tractors and because you are a pioneer in the diesel segment, is diesel also witnessing a slowdown because there are lot of reports about how difference between petrol and diesel is so high and so diesel should be doing better but is diesel also slowing down?
A: Basically, we see significant sluggishness in two segments of the total automotive market. One is the tractor segment which primarily uses the multi-cylinder in-line pumps, produced in Bangalore and therefore, we have decided to suspend production in that plant for two days.
The other segment that is also showing sluggishness is the heavy and medium commercial vehicle segment. It primarily uses what we call distributor pumps. These primarily go into the commercial vehicle segment and again, we have taken a suspension of production for three days in the month of June.
But hopefully, this will help us to bring the levels more closer to the demand and hopefully, we don't have to defer the suspension in the month of July. But, we are watching the markets closely. Q: Net-net can you give us an idea of what might be the revenue growth, if any in the current quarter i.e. June 30. Is it possible that it will be lower than the comparable quarter?
A: This quarter is likely to be similar to the January-March quarter that we had seen. But, September quarter and December quarter could perhaps see slightly higher growth rates because last year, the base of third and fourth quarter calendar year was nowhere. I believe, we will have a growth rate, we will have a positive growth in the June quarter very similar to the March quarter. Q: After how many months are you witnessing this kind of necessity to close down plants, is this happening first time after 2009?
A: Yes in 2009 we had suspended production. I think almost after three years we are seeing the need to cut down our production. Q: Is this sluggishness only in the domestic offtake or are you witnessing it in export markets as well?
A: Export markets have been sluggish for sometime, particularly the European markets. But the production cuts are more due to the domestic demand being lower than what we had anticipated. Q: Are you getting any relief because of probably better margins, any impact of raw material prices easing?
A: Not really. Basically because of some amount of variable cost and there is no point in producing just for the sake of production and allowing the inventories to go up. This is basically a measure to prepare the inventories to meet the demand.