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Auto component maker Rane plans to slash capital expenditure by half to conserve cash in an uncertain, sluggish economy.
The company had drawn up an investment plan of Rs 230 crore for the current financial year. But with the domestic commercial vehicle (CV) industry navigating a bad patch, Rane has decided to put on hold all major expenses. (The CV industry accounts for 35 per cent of Rane’s business.)
“Medium and heavy commercial vehicle production is going to be slashed. Many road projects have not been cleared… We are bracing ourselves for a tough year and may end up spending less than half of what was originally planned,” said L. Ganesh, Chairman, Rane Group, which makes steering gears, engine valves and brake linings.
Last year too, Rane was forced to scale down its capex plan from Rs 240 crore to Rs 200 crore due to poor car sales. With high power tariffs adding to costs, it is crucial to conserve cash, said Ganesh.
However, investments on specific customer commitments, new products (hydraulic cylinders and hydraulic steering for tractors) and testing equipment will continue.
“We are gaining customers in the hydraulics business. We have commitments from TAFE and M&M. We will go ahead with investments in this.”
Expansion deferred
The company had earlier this year expanded capacity at its plant in Tiruchi, Tamil Nadu, based on the requirements of Tata Motors and Leyland. But it has deferred further expansion, given that most of its plants are under-utilised, at 70-80 per cent capacity.
“Some plants are working only five days a week. We have also reduced the number of shifts.”
Fortunately, new car launches such as Maruti Alto 800 and Mahindra Quanto are giving Rane “significant volumes” to cushion the deadlock in the commercial vehicle sector. “Maruti bouncing back is helping to a large extent.”
On exports, Ganesh said while the US is holding up, Europe has slowed down. Rane expects its group companies to grow 5-7 per cent, a marked scale-down from the 15 per cent growth projection earlier.
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