‘Export players in for volatile times'

Auto component player MM Forgings, which is driven largely by exports, believes it is in for uncertain times with pricing pressure and margin squeeze. However, “this industry is also a sunset industry in the West. So, there is scope for us to grow,” says Mr Vidyashankar Krishnan, Managing Director. The company is also keen to get its act together in the domestic market.

More from Mr Krishnan…

These are not the best of times for the auto industry. As a component supplier, how do you assess the situation?

One has to associate some amount of cyclicity with the auto industry. However, the extent of volatility seen now has never been seen earlier. We have never had recession like the previous one nor has it bounced back as sharply… on unsure turf, when the basics are being questioned again.

In the domestic market, it is just a question of inflation because of which we have high interest rates. There is also inflation on account of commodity prices. Food inflation is here to stay — this is directly linked to wage inflation. Wages have gone up by 30-40 per cent over the last 2-3 years in the auto industry, leading to attrition and labour shortage.

How have global market sentiments affected MM Forgings?

We export 65 per cent of what we make. Of the remaining, 20 per cent goes outside India through our domestic customers. So, we are more susceptible to the global uncertainty than a plain domestic player.

There are structural weaknesses in the Western economies and they will take some more time — 5-10 years - to stabilise. Export players are in for volatile times.

Having said this, we are a small organisation in global terms. This industry is ultimately a sunset industry in the West. So, there is lot of scope for us to grow. Yes, pricing may not be as comfortable as it was. Earlier, we were operating at 17-20 per cent EBITDA. Margins will now come under pressure.

Last few months, our order book has been decent. In fact, until September, we had an issue with keeping customers fed with parts. Globally, trucks did well. Cars too did not slow down. But things may change from January.

What is the impact of commodity price rise?

Steel price has hit the roof. But this is covered by customers; we can't survive bearing steel. The impact of steel and petro products price on margins is starting to show. Powder metallurgy products have increased; therefore cutting tools prices have gone up. Diesel too has increased, so transport has gone up. A lorry trip between Chennai and Trichy cost Rs 1,600 five years ago. Today it is Rs 8,000-9,000. Power also is affecting us — we are forced to buy from power trading platforms.

Despite being around for several years, you are still a small player at Rs 300 crore. What will it take to leap to the big league?

We will get to Rs 500 crore in 3-4 years. We can achieve that with our existing capacity in our forging plants in Chennai, Tiruchi and Madurai, which have a total peak capacity of 40,000 tonnes. (Last year, they produced 26,000 tonnes.) There are no plans for Greenfield for now.

We believe in growing organically. We are not concerned much about topline. But we have to grow carefully and solidly.

Overall, auto is 70 per cent of our business; passenger cars account for only 20 per cent. We want to get more into the passenger car market abroad and in India.

We are also looking to increase our domestic customer base. With demand abroad not growing higher and higher every day, we are diverting attention to the domestic market.