The Hindu Business Line : Sona Koyo may source from Thailand post-FTA

IN the wake of the opportunities thrown up by the Free Trade Agreement (FTA) with Thailand, auto components major Sona Koyo Steering Systems Ltd has decided to set up a buying office in Thailand.

The company's Chairman and Managing Director, Dr Surinder Kapur, did not rule out the possibility of sourcing smaller components from Thai companies if they prove to be cost-effective.

He added that Sona Koyo could also look at exporting its products to primarily Japanese companies based in Thailand. "Thailand would not only be a sourcing base but would also serve as a destination for exports by Indian manufacturers," Dr Kapur said. He, however, admitted that the tier-1 auto component manufacturers are likely to benefit more from the FTA than the tier-2 suppliers, unless the Government made efforts to provide them with a level playing field.

Meanwhile, Sona Koyo is also making significant investments towards expanding capacity, particularly at its Chennai plant, where it has set up an EOU unit. "We plan to spend about Rs 125 crore towards capacity expansion by the end of the next fiscal," Dr Kapur said.

On the revenue side, Sona Koyo is targeting a turnover of Rs 500 crore by 2007, up from Rs 230 crore last year with exports contributing significantly to sales.

"While last year our exports were only Rs 6 crore, we are targeting exports of Rs 30 crore this year and Rs 100 crore in two years. We have about 7-8 major customers, including Koyo, Mando, and a tractor company in North America. We are at present in talks for exports of components with a vehicle manufacturer in Europe," Dr Kapur said.

In addition to exports, Dr Kapur was also upbeat about the domestic industry despite concerns about the hike in raw material prices impacting margins and the looming threat of Thailand becoming an attractive low-cost source of components following the FTA. "We see this year as a good one for the industry. The domestic growth is expected to be robust with a revival now seen in the monsoon. Also there has been a pick-up in enquiries from overseas customers. As far as the prices of raw materials are concerned, we are in talks for price increases with our major customers and are confident of getting it. We have already given price increases to our smaller suppliers," he said.

Mr Kapur stressed that building design and development capabilities will provide a definite impetus to industry growth and spur significant cost savings. Incidentally, Sona Koyo is stepping up its focus on R&D this year. "In fact, we have seen cost reductions of about 15-20 per cent on some products by changing the design," he said.

Overall, the Sona Group, which also consists of several joint venture companies such as Mahindra Sona and Sona Okegawa, is targeting a turnover of Rs 550 crore this year and combined exports of Rs 80 crore.

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