The Hindu Business Line : ‘In the long term, what else can there be but growth?’

If you look at a scenario, say 2020 or 2025, what else can be there except growth? India has so much to catch up, so many bridges to build, so much roads to be laid, airports and commercial buildings to be built. Everything has to be transported. So we are right at the tip of the iceberg.

MR SURESH KRISHNA, CMD, SUNDRAM FASTENERS

Raghuvir Srinivasan
C. Parvatha Vardhini

Successful entrepreneurs are often visionaries. They focus on the long-term and are not blinded by near-term worries. To them, the latter are storm clouds that will pass away while they focus on navigating the business to higher levels of excellence. Mr Suresh Krishna, Chairman and Managing Director, Sundram Fasteners Ltd. is one such businessman. In a recent interview with Business Line, Mr Krishna brushed off concerns on the rupee and the demand recession in the automobile industry though his own company is hit by both, and chose instead to focus on the long-term potential for the industry and indeed, the economy. Mr Krishna also had an interesting, different take on the employee attrition faced by most companies today.

Excerpts from the interview:

How has the industry been in the past few months?

The industry has been confronted with two problems. One, certain amount of saturation in heavy commercial vehicles and, two, problems in financing. So, there is definitely a slowdown but it is not something that is totally unexpected. We have a three-year boom and then it flattens out. And, then, it starts all over again.

The industry has been performing like that for the last 25-30 years. So I think it is very unrealistic to expect that the auto and auto component industry will always be on a boom. May be the average time between the high point and the low point is extended. But right now, we are in a slight lethargic state.

Second, exports have taken a hit. There are two reasons for this - one is that the auto industry itself has slowed down. Second is the dollar-rupee parity. It has not affected Sundram Fasteners in terms of quantity but it has definitely affected the top line.

Instead of getting Rs 45 to a dollar we are getting Rs 39. But we will make that up. We need to do a lot of internal cost control and see that the profitability is intact. I would not say I am not worried about it. But I am not disappointed because that is the way things are. That is the way it has to go. One of these days the rupee will become 30, 25 or 20 to a dollar. And you hope it does. Because that is the true measure of the economy really growing and becoming stronger. When I was a student in America, it was Rs 4 to a dollar. One of these days, the dollar-rupee has to come to that kind of parity. So we might as well be prepared. The only thing is that we are so used to the rupee depreciating that when it suddenly starts appreciating nobody is prepared.and it has happened very quickly also.

There is a lot of talk that the current slowdown in the domestic market is not cyclical but caused by interest rates and because of commercial vehicle market shifting to higher tonnage vehicles. .

No, I think it is cyclical but the cycle itself is difficult to define. But I think we are all aware that addressing the infrastructural problems cannot be postponed. At some point, India has to make an enormous amount of investment in infrastructure.

If infrastructure is given the kind of importance it needs to get, then we have to move material. Once the infrastructure becomes okay, when roads are better, there will be lot more movement of material. It will become more efficient. Instead of smaller lorries, you may have bigger lorries, but more of them moving a lot of material.

So my feeling is that what you see in terms of transportation is not even 5-10 per cent of what it should be. It has to be like the cell phone market at some point in time. I am not looking at two years, three years. I am looking at five, 10, 15 years. For a company, 15 years is nothing. If you look at a scenario, say 2020 or 2025, what else can be there except growth? India has so much to catch up, so many bridges to build, so much roads to be laid, airports and commercial buildings to be built. Everything has to be transported. We'll have to transport so many things. So we are right at the tip of the iceberg. We don't even see how much more is to come. I am very sanguine that in the next 20-25 years, this is going to be a boom industry.

It is a very interesting comment that you made that transportation has to be like cell phones.

True. Look at the kind of population we have. Look at America. They have a population approaching 300 million people and they are absorbing 10-15 million cars a year.

But that is also a country of distances.

Ours is too! We are large enough to be able to absorb a billion people. Look at the way cell phones are flying. Amazing! We've just leap-frogged. We've saved copper and aluminium that goes under the ground to lay landlines unlike America. Look at all the resources we saved, of course unintentionally. But still we saved.

But there is a dilemma here. We may have leapfrogged the communication part.but again, are we making the same mistake as the United States and other western countries so far as personal transportation vs. public transportation goes.you put more cars on the road, where is the infrastructure to handle that ?

I totally agree with you. I think somewhere along the line we missed the bus. We should have had a fantastic subway system. We are going to get into the same dilemma that Bangkok got into where people just sat in the car for hours and that forced Bangkok to realign their entire road system . I hope it doesn't come to that. When everything comes to a halt, then we start redressing the system. My personal feeling is that more than the pressure generated from inside, if we have to continue to attract foreign direct investment, the FDI will start pressurising you. Somebody is going to point a gun at your temple and say "unless you improve we are not going to make any more investment here". I hope it doesn't come to that. But you are right. I think we need efficient road transport system in terms of city transport, subway and airport system.

I don't think India will go wrong in the long run. Lets face it . There are only two countries in the world that have got any future opportunity-India and China. Even if we don't get all the pieces of the pie, we ought to get something. My personal feeling is until the year 2050, may be 2030, 2040, we've got to be on top.. before Africa takes over.then things will move the other way.

Getting back to exports, you are saying that India's currency should be much stronger.. so, how do companies like Sundram Fasteners prepare themselves for this?

The only way you can tackle this is to become a global company. If you de-link yourself from the global economy and global commercial practices, you are going to have a problem. That is why we purposefully went into China, England and Germany. So you have to spread your risk and keep going. Like all good companies that will survive, Sundram Fasteners will also have to survive.

And, what are exports? It is nothing but non-rupee revenue. Whether the non-rupee revenue comes from exports or from 100 per cent subsidiaries, it makes no difference. So, if you feel that rupee is depreciating and somewhere else its appreciating, you go there and arbitrage like everybody else arbitrages.

One of the things that we are doing now is, in Germany wage costs are 30-35 per cent of sales. In India, it is about 8-12 per cent. So, you'll have an arbitrage of about 20 per cent. So, what we are planning to do is to build a very robust pipeline between Sundram Fasteners and Sundram Fasteners Germany. And then, wherever we see an arbitrage possibility, we start pumping. Actually, it is very simple. You can't say that we did it differently in 1992 or 93..you need to evolve according to the requirements.

One of your philosophies in taking over Cramlington Precision and Peiner is the access to its customers which you would otherwise not have. What has been you experience in the last couple of years?

Very good. It has done two things. One is, the ability to get close to the customers. Second is that the customer not only knows that there is a base in India, there is also a base in China. These are the two countries that every body looks at. They also know that technology, as far as India is concerned, is in now way inferior when compared to what they are used to in Peiner. The entire Peiner staff is German. So, there is that feeling of comfort also. What we are trying to strengthen is how much more can we pump new technology or product lines from India into Peiner and make Peiner go into areas where the wage costs will still afford a profit .

Have you got access to any customers, specifically?

We got access to Daimler Benz in Germany .Even though they had been talking to us for a long time, we didn't have substantial access. Now, we have access through Peiner. We've been able to sell to them both from here and from Peiner. In the same way, we have a forging plant at Pondicherry -we have started selling these products through Cramlington.How is the Chinese subsidiary doing?

It is doing well. We are quite happy with the way it is growing .We are trying to diversify from fasteners into other areas. More and more multinational corporations are buying from us. We need to break into Chinese companies. That will take another two-three years as we are fairly new now.

Have you been able to handle the HR-related issues that you had in China?

Yes. We had attrition. It is the same story here in India also. It seems to be a continuous conveyor belt where people come, work for two years and go. We can't stop them because they have to improve their lives; and if the man is working with you and he has learnt skills and technology and he is going to get 50 per cent more salary from somewhere else, we have to send him as that's the only way he is going to improve. So, you are really helping him to rise higher and higher in society. He`ll become the potential owner of a car.that's how the economy moves.

As a company, I definitely lose. But this is a fact of life. It happens to everybody. The only thing that we are planning to do now is that people who work here must say, ``Sundram Fasteners is a fantastic company to work with''. All this never happened 10-15 years ago. If a man joined Sundram Fasteners, he retired from Sundram Fasteners. Since we are all used to that, this looks very new. That's the price you pay for growth.

Currently, you are selling only to MNCs in China. Will your margins in China improve once you start selling to the domestic companies?

In the domestic companies, it is a cut-throat kind of situation. Their quality has to improve. When it improves, they will look at companies such as Sundram Fasteners more actively because they think that we are unnecessarily over-priced, which is not true.

We are priced right internationally but the Chinese companies are able to supply those parts at a cheaper price but maybe of indifferent quality. So, that will, automatically, over a period of time ease out. In the meantime, we have enough MNCs there to keep us going until the Chinese companies also realise that it is good to buy from companies such as Sundram fasteners.

What is the difference between Indian and Chinese work culture/practices?

In China, there is enormous hunger for money. That makes them more efficient. Another big difference is, the Chinese listen to and follow instructions to a T without questioning. Here, each one wants to experiment because he is new and he wants to reinvent the wheel. So, you have to spend so much time explaining what you want and why you want it that way. Sometimes, when you want to systematise things, and make things work like a clockwork, it dosen't help. Another thing I found was that the Chinese are also sensitive people like Indians. In China, they don't expect to be forgiven for mistakes. In India, all the time, they expect you to forgive. They don't differentiate between discharging their responsibility and the right of the manager to pull you up.

How has FTAs like the one with Thailand affected the industry?

I don't see any impact. I think people feel that proximity to a supplier has a lot of positives. For example, take Ashok Leyland, we are just half an hour away from them. No FTA can compete with that kind of proximity. Otherwise they must be some 20 per cent cheaper than us which they can't be. No ASEAN country can be that cheap.

I believe a lot of the OEMs in two-wheelers including group companies have shifted to Chinese suppliers...

Yes. That's business. That's arbitraging.

The same logic holds true for TVS motors. You are probably a few hours away from them. How is it that they find the Chinese components cheaper?

This is because of how they cost the components. The quality is reasonably ok. Even if there is a cost of quality, if the rejection is not too high, and the price is still attractive, it still attracts the OEMs. But the costing structure in China has to undergo a tremendous change. There the first priority is employment, social security. Most of them are public sector units and the idea of profit itself is not rooted. Anyway, we are into interesting times and there will be some clarity in about ten years time.

Where do you see Sundram Fasteners in five years' time? What kind of a network will it have globally?

There will definitely be more locations both in India and abroad. We've acquired in China, England..All this is new to us. We need to understand how to manage this effectively and how to integrate these companies. Your eyes should never be larger than your stomach. That's trouble. So we said we'll stop this. Take stock. Digest. Understand how to manage cross culture and once we get comfortable with this, start out again.

We see that Peiner is just about managing to make some profits ..

Just before Peiner was sold to us, they had told their customers that they were shutting down. So we had to recapture all these customers. Ditto with Cramlington. Dana Corporation said that they were shutting down.Of course, one advantage was that we got the companies cheap. What you gain in one thing you'll have to lose somewhere. We've got 50 per cent of the customers back. Because they also get into contracts, it will take more time.

What is the scene at Bleistahl ?

See, eventually it is only a matter of time ..manufacturing as we know in Europe and America will have to cease. Where can it go? It has to come here. So, all you need is patience and make the right nudges at the right time. I never had any doubt about this. All you got to do is, sit under the tree with your bag open.one by one, it will fall.When Bleistahl went to China, they had a huge problem. So they closed down China. Whatever they were making in China has come to India. So, they closed one door and the other opened. Eventually that will happen. It has to grow.

When do you expect the domestic markets to recover?

I don't want to take a call. I hope that next year will be a better year. Raw material prices have increased steeply. Steel producers, even now, they want price increases; customers are not willing to compensate. There is sheer squeezing of margins. In a way, it is good as it increases efficiencies. There is so much of excess burden to be thrown away by every company. On the whole, it makes the whole economy more efficient. There is going to be pain in that process. But it's ok. The old clich‚, as they say, ``Without pain, there is no gain''.

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