Financial Daily from THE HINDU group of publications
Wednesday, Jun 11, 2003
`We are targeting Rs 80-cr exports in the current year' Mr K Balasubramanian, VP-Finance, Tube Investment of India
CHENNAI, June 10
A NUMBER of changes have occurred at Tube Investments of India Ltd in the last couple of years, particularly in the cycles division of the company. The flagship company of the Chennai-based Murugappa group, has consciously made cycles production multi-locational, for proximity to vendors and the market.
The consequent cost reduction, effectively thwarted any major threat from the Chinese. Now, with the supply chain revamped, the company is looking to begin exports of cycles again. Tube Investments also manufactures doorframes for Maruti and Hyundai and the sales of both car manufacturers appear to be on the uptick. The third division, viz., strips and tubes, is looking at growing big in the overseas markets.
Senior officials believe that the company is at the threshold of a high growth phase an exciting phase for the one who manages the finances of the company. The Vice-President - Finance, Mr K Balasubramanian, allowed Business Line a peek into the workings of his department. Excerpts from the interview:
You have just received Rs 24 crore from Mitsui, for renouncing the rights shares in Cholamandalam MS General Insurance Company (the newly set up non-life insurance company of the Murugappa group). Where is the money deployed?
We have for the time being put the money in short term liquid mutual funds. That will earn us some 6-7 per cent. Eventually, it will be used for our capital expenditure programmes. Also, Rs 32 crore of loans are coming up for replacement this year. We had planned to use the cash generated by the operations for these, but this Rs 24 crore that we have received from Mitsui will come in handy for these purpose.
What is the capital expenditure going to be on? Any capacity additions?
No, there will be no addition to capacity. But we will spend on equipment that will improve the quality of the products. For example, in our strips business we need high precision equipment that will cut the tubes and strips. We are also buying such equipment, called Sinico cutting machines, for our CDW (cold drawn welded) tubes business. The CDW tubes go for automotive applications and we need a very high degree of precision in our products. Besides, we are investing Rs 6 crore on a paint shop for our new cycles plant at Noida.
What is the order of your working capital? Has it come down over the last few years?
No, working capital has not come down, but has remained at the same level, although our business has grown. Our working capital is of the order of Rs 200 crore. We were able to bring down our inventory levels, because we have put up plants near components suppliers, but on the other hand, the debtors' level has gone up, because of business conditions.
But are you able to get longer credit from your suppliers than you give your buyers?
No, not really. We are still working capital positive. Our creditors' and debtors' position more or less balance each other, although there may be some individual cases where we get a longer credit period.
You also export. Does your ability to earn in foreign exchange give you access to overseas funds?
Basically, our exports give us a natural hedge, because we also import.
In what currency are the exports denominated?
In dollars. We have to go by what the customer wants. When the euro was weak, some of the European buyers wanted to denominate their imports in the euro, but today everybody wants dollar-denominated business.
What is the order of your exports?
Last year, it was Rs 55 crore. In the current year, we expect it to grow to Rs 80 crore.
What do you think will cause such a significant jump in exports?
That is because, in the last three years or so, we were seeding the markets. We used to get orders for small quantities. Mainly for strips and CDW tubes. But now the customers have seen our products and are satisfied with them. There is a more regular flow of orders.
Do you now cover your exports?
We do not cover the entire export proceeds. We net the exports against imports and take a view on the net, in consultation with our consultants.
You recently liquidated your investment subsidiary, Teeaye Investments Ltd. Why was that necessary and what are the implications of the move?
Yes, we liquidated Teeaye Investments because today there is no need for an investment arm for cross holdings within a group. While there is no advantage in having an investment subsidiary, it costs money and time to keep the company running you have to maintain separate accounts, file returns, etc. That is why we decided to liquidate the company. We could have merged the company with TI. But a merger is a much more complicated and time-consuming process.
The liquidation would have no impact on TI.
What will happen to the Rs 24-crore paid-up equity of Teeaye?
That will be set off against the loan we (TI) have received from Teeaye Investments. We had earlier got a loan for the same amount as our investment in the company. Now, we don't have to pay the loan back. The investments held by Teeaye will be transferred to our books.
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