The Hindu Business Line : `We hope to do better in second half'

SCHWING Stetter (India) Pvt Ltd, a wholly-owned subsidiary of Schwing Stetter of Germany, makes concrete mixing equipment in its plant at Irungattukottai, near here. It expects market to pick up in the second half of 2004 once issues that are affecting the industry get sorted out.

Mr Anand Sundaresan, Managing Director, Schwing Stetter (India), with almost two decades experience in the engineering industry, talks about the market and the challenges ahead. Excerpts:

How is the market now and what is the outlook?

We lost some time this year because of steep increase in steel price, elections and availability of trucks. We streamlined our operations and took steps to increase production. Our customers are not able to pick up the mixers because trucks are not available. We are in discussion with Ashok Leyland and Tata Motors and plan to give them projections so that they are also ready to make these trucks available. Some of the orders we could not despatch because of elections. Now things will move and compensate for the shortfall in the last couple of months.

The market size now is about 700-750 units. This year we expected the market to touch about 1,000 units. But because of the non-availability of chassis...

Last year was a consolidation phase. We took a conscious decision last year to slow down on production. We wanted to strengthen various departments and also increase local content. This year we are looking for a 25-30 per cent growth. (In 2003, the company sold about 500 mixers, 70 batching plants and 200 pumps and recorded a turnover of about Rs 120 crore.)

Infrastructure projects are expected to take off once the new government settles down. Other sectors of construction activity are growing. Real estate is picking up quite well.

However, steel prices and availability have created a big problem. Steel prices have gone up from Rs 18,000 a tonne to Rs 32,000-36,000 tonne. Steel plates have gone from Rs 22,000 a tonne to Rs 38,000. And even after paying cash in advance you don't get steel.

Have you been able to recover that kind of a price increase?

We will not pass on that price increase to the customer even though we have given a price increase to our suppliers. We have tried to take care of it in a different way. We have increased local content and that should have given us higher margins, which we have not realised. This is not the right time to increase prices even though we are under tremendous pressure as we are not able to meet our overheads and fixed costs with the pricing. We hope to further bring down our costs. Otherwise, we will have no choice but to increase the prices. If we increase prices now, contractors - who have taken projects at low prices - will be forced to using concrete mixed at the site, which is something we do not want.

Won't you be under pressure from your parent...

Our parent company has given us a lot of independence and it is looking at India as an important market for the whole group. It does not want to unnecessarily pressurise us into doing something that will be detrimental to our market share.

What are your plans?

We are going for an expansion. We have bought 10 acres of land and will start construction work shortly. The expansion, which will see our capacity to make mixers double from about 60-70 units a month now, will cost Rs 18 crore. We hope to complete the expansion by 2004-end. It will be funded largely out of internal accruals and some bank borrowing.

Is there a market for the expanded capacity?

Yes, definitely. Thanks to the highway projects, use of ready-mix concrete is spreading beyond the metros to second and third level cities and towns. Also, with increased real estate activity and various infrastructure projects like ports, power plants (both hydel and nuclear) and airports expected to take off, ready mix concrete will be more in use. And, this will have substantial demand for our products.

What about orders on hand?

We have a healthy backlog. There was a slowdown in April and May because of truck availability and elections. Things have started moving. Contractors have got letters of intent and they will start mobilising their equipment now. We are anticipating that there will be good demand for all these products and second half should be really quite good.

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