The Hindu Business Line : Dip in 2-wheeler sales hits India Nippon margins

Snapshot
Intense competition among the vehicle producers with each trying to retain or gain market share.
Successful R&D efforts have helped in the development of electronic parts for new two and four wheeler engines.

R.Y. Narayanan

Coimbatore, Sept. 13 India Nippon Electricals Ltd (INEL), a joint venture company of Lucas Indian Service Ltd and Kokusan Denki Company Ltd of Japan, engaged in the manufacture of electronic ignition system for two and three wheelers, said that the decline in motorcycle sales is putting pressure on sales and margin.

The company also is concerned about the indication given by one of its major customers that it may discontinue purchases by the year end due to shift in the procurement of parts to its associate company.

In his address at the AGM of the company held on August 31, Mr T.K. Balaji, Chairman, INEL, said the company has developed electronic parts for “new two and four wheeler engines” which had attracted enquiries from India and abroad which could improve the prospects of the company during 2009.

Intense competition

He said during 2006-07, there was intense competition among the vehicle producers with each trying to “retain or gain market share.” INEL, being a tier I supplier, faced acute competition from other suppliers “some of whom enjoy a preferred status with customers.”

He said though the sale of flywheel magnetos dropped by 3 per cent last year compared to the previous year, the company was able to increase the sale of electronic products by four per cent due to actions initiated by it.

The company was continuing efforts to launch new products for TVS Motor, Greaves Cotton, Honda Siel Power Products and Modenas (Malaysia).

The margins during 2006-07 were under great pressure due to increase in the price of prominent inputs like copper, aluminium and steel which could not be “fully recouped from customers.” The company focused on cost control to maintain its competitive position.

Referring to the current year (2007-08), Mr Balaji said the two-wheeler industry, particularly the motorcycle segment, was experiencing decline in sales this year and consequently, INEL was facing “severe pressures on sales and margin.”

Successful R&D efforts

INEL, because of its efforts in R&D, has been successful in the development of “electronic parts for new two and four wheeler engines” for which it had received enquires from potential customers in India, Europe and the US.

These were being actively pursued and it was expected that after completion of trials and approvals by customers, the company’s “prospects would brighten in 2009,” he said.

Indonesia unit

The INEL Chairman said “due to changed business conditions,” the plan for a new unit in Indonesia to meet the needs of clients in the Asean region “is likely to take more time than expected to implement” and said the “directors are reviewing the position and are taking appropriate steps.”

The pressure the company was facing was evident in the Q1 results of the current fiscal when the net sales dropped sharply to Rs 32.04 crore compared to Rs 42.37 crore in the first quarter of the previous fiscal. The net profit was Rs 3.67 crore (Rs 4.19 crore).

According to the data available, the last traded price of INEL in NSE on Thursday was Rs 165 and in BSE was Rs 161.05 on thin volume.

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