Vipin V. Nair
Kochi, March 29
FCI OEN Connectors Ltd, which makes electronic connectors for telecom, automotive and other industries, expects its exports to rise substantially in 2005 as the parent company, FCI France, has shifted manufacturing of many products to India to cut cost.
"Exports this year are expected to contribute 65-70 per cent of our sales," said Mr P. George Varghese, Managing Director of FCI OEN Connectors. In 2004, exports accounted for 56 per cent of the total sales.
Mr Varghese said the jump in the export volume is the result of FCI France's decision to relocate manufacturing of a number of its products to India from the US and Europe where it closed down factories.
FCI France undertook this restructuring exercise to pare costs when its business was hit by the downturn in such sectors as telecom equipment manufacturing. It will save 20-30 per cent in production costs by shifting manufacturing to India thanks to the country's low-cost labour. The company shifted manufacturing of products such as Millipacs, Modjacks and smart card reader to India and, to some extent, China.
"FCI France decided that every product will have a competency centre, and India has now become such a centre for these products," Mr Varghese said. Consequently, export volumes began to surge by the third and fourth quarters of last year, and the growth will continue for the whole of 2005, he said, adding that overall sales is expected to rise by 20-25 per cent during the year.
However, profit margins of FCI OEN are unlikely to benefit proportionately by this growth since the products are exported to the parent under a fixed transfer price. FCI France holds about 68 per cent stake in the company, and buys 90 per cent of the products exported from the Indian arm.
In 2004, the net profit of the company was almost stagnant at Rs 11.79 crore over Rs 11.72 in 2003, despite a 48 per cent growth in sales to Rs 113 crore. Higher provision for depreciation, coupled with rising raw material cost, impacted the profitability during the year.
Mr Varghese said FCI OEN's margins would improve with the increase in domestic business where the company has the leeway to price its products in line with market trends.
With telecom equipment manufacturing poised to grow in India, FCI OEN is hopeful that its domestic business will also improve over the next 2-3 years. "We are expecting definitely a growth of 15-20 per cent in India," he said.
As part of widening its products range, the company is now targeting the electrical and automotive industries. More investments are planned for the Chennai facility where products for the electrical industry are manufactured.
The parent company could also transfer some products to this unit as part of its restructuring, Mr Varghese said.