‘We are doing a lot internally to manage our costs better’
The automobile industry is riding a big trough. The commercial vehicle sector is especially struggling to negotiate a tricky turn, with volumes slumping under poor demand. This has obviously affected the component industry sharply, as is evident from the second quarter numbers of most companies. The third quarter, too, will be tough, says Srivats Ram, Managing Director of Wheels India, one of the biggest suppliers of steel wheels to commercial vehicles, passenger cars, tractors and construction equipment. “The commercial vehicle market is really looking down and is showing no signs of improvement in the near future. The fourth quarter could see a pick-up, though one quarter cannot quite change what has been the trend over nine months,” he says.
Excerpts from the interview:
The overall slowdown seems to be badly impacting the auto component industry…
It has already impacted us. But passenger car and utility vehicles have shown some growth; the utility vehicle segment has grown more. This trend will continue this year. Commercial vehicles have been bad with a decline of 18 per cent. We don’t see an improvement in the third quarter. In the fourth quarter, it should see some improvement because typically that is when it picks up. But it is difficult for the fourth quarter to change what has been the trend over nine months. Within commercial vehicles, the small trucks — Ace, Dost and Maximo — have done reasonably well. That will continue, based on indications from customers. In the longer haulage, there is a slowing down in demand.
Are smaller vehicles cannibalising the CV market?
Not really. Ace is a last mile type of vehicle. But the longer distance segment seems to have slowed down — this is the actual barometer of goods transport in the country. Three years ago, the average load on heavy commercial vehicles was 25 tonnes. It has gone up to 31 tonnes now. So, there is a movement towards higher load capacity vehicles. Which means with fewer vehicles, you can carry a greater load. So, unless there is a substantial improvement in demand, the number of vehicles will come down.
What are the long-term prospects?
In the CV vehicle market, you can’t have too many successive years of marginal growth.
Beyond a point, the law of averages will catch up. But I am a bit concerned about the growth in the economy, which in the 2000s was growing at 8 per cent and we took it for granted. In the future, 6-6.5 per cent growth will be something we aspire to.
What are you doing to tide over the challenges from the external environment?
The current year, the external environment does restrict opportunities for substantial growth in topline. We are doing a lot internally to manage our costs in a better way. We are looking at shifting production between plants to optimise on logistics. Going forward, we need to have plants closer to our customers. A plant in the West (Gujarat) and East (Jamshedpur would be good) would be things we need to consider. We are also looking at going into aftermarket in a big way through the brand Wilgo.
If we are able to manage our costs in the third quarter, in the fourth quarter we are hoping the March madness will see us through the year.
Our efforts in the energy sector will continue; we see this doubling in the current year. It is profitable. We are also seeing if we can introduce niche products and applications in each of our segments — passenger car, truck and tractor.
We have continuously invested in our people. We now have a culture that is continuously looking at learning and improving. We have good home-grown talent and energy levels in the company.
What about opportunities in defence? The offset clause can see huge spin-offs?
We are in discussions in these areas. I would like to call it closer to when it actually happens. There is no clarity on when it will happen. When that comes, we will benefit.
You supply to the global mining and construction industries. How are exports looking?
Till the last quarter, we were bullish on exports. We had a 40 per cent growth in the first half. We put in a lot of effort to grow exports. But now, exports are a big concern. We may achieve only the same level of exports as last year. Globally, no one saw it happening. Our customers one month say everything is hunky dory and the next month you see your schedules coming down by 80 per cent. Customers say it will be a 12-15 month window for things to improve.
What are the trends in the global markets which can work to Wheels India’s strengths?
Last time when the recession happened, we as a country disassociated ourselves from it saying we have a strong domestic economy. That myth is kind of broken now. We are still dependent on what happens in the external environment. Unfortunately, there is not too much of good news in the horizon. Going forward, we would like to have a near-market export strategy — South East Asia, Sri Lanka, Thailand, East Africa. We have to develop products for these markets. We are strong in the US, UK, Japan and Korea, in the construction sector.
Is this the toughest business environment you have faced in the last 10 years?
2008-09 was worse than this. This year, it is difficult because last year was not great. You had already started your cost-cutting last year. You have no low lying fruits.
How will the Jawaharlal Nehru National Urban Renewal Mission scheme help?
Last time (about three years ago), close to 15,000 buses were ordered across the country. There have been months when we produced more fitments as a company than what entire Europe did. We are hoping similar levels this time too. It is a one-time shot in the arm.
What about the rupee fluctuation?
That is anybody’s guess. Foreign exchange is a subject I studied academically. But I can safely say I know nothing about it. As far as hedging is concerned, we attempt to be conservative. But in a volatile market, when you are trying to be conservative you may be being adventurous, because policies may vary.