‘With capacity peaking, we are looking at many greenfield plants'

Murugappa group company Tube Investments of India is looking for a big breakthrough in battery technology, as it hopes to crack the electric vehicle conundrum (for its BSA electric bikes). “We know what consumers want in electric scooters. They want the same experience as petrol scooters – (which means) better battery, fast charging, speed and good pick-up. But we don't know how to achieve it. We are exploring long-term plans by talking to people on the technology side. We are taking a long-term view to get somebody to work with us, even if it takes time,” said Mr L. Ramkumar, Managing Director, in an interview to Business Line . Excerpts:

Your net profits were down 47 per cent in the last quarter. What do you attribute it to?

Last year, there was an exceptional income due to sale of a building. The metal forming business did badly partly due to the auto sector and largely due to the Railways. We did not have any turnover in Railways, which releases orders on wagon sections and frames. This has come only now – in January.

Our engineering division did better than last year in absolute terms due to the growth in the two-wheeler industry; if the cars situation had been better, we would have had much better sales. We also did well in chains, again due to two-wheelers. We have been increasing our chain capacity – from 2010-11 to end of next year, we will increase capacities by nearly 60-70 per cent across greenfield and existing facilities. As for bicycles, we started the year slowly; second quarter was better and the third even better. But the pressure on margins continues. We have not been able to fully pass on the price increases because the market is not growing and everybody is holding on to prices. We have increased prices to an extent over the last nine months, across categories. There has been a growth in volumes in the third quarter. We continue to see a growth in bicycles. But margin pressure will continue.

We have some import content in the kids bicycle segment and here we got affected by the currency. We have not been able to pass on the prices in this category as it is a price sensitive market. We also cannot pass on prices at the entry level. But in the high-end segment, we are able to pass on the increase. The focus is to have product design and development which is so differentiated that price is not such a consideration – the percentage of bicycles in this category should increase. We should also look at internal cost controls.

How are electric scooters doing?

They are chugging along slowly. The problem is endemic with the industry. People want the same experience as they have with petrol scooters. There are also some attendant issues like where do you charge the battery. We have restricted our distribution to a few States so that we can concentrate better.

People want a better battery, good pickup, fast charging, less cost, good speed at 65 km per hour… then we have a winner. We know what customers want, but nobody has figured that out yet. Lithium ion batteries are used in Europe, but then the cost goes up tremendously.

The Government subsidy helps to some extent – there was an initial improvement in sales, but it has plateaued now. But we are not basing our strategy on subsidy. We are exploring long-term plans – we are talking to people on the technology side. We are looking for a breakthrough in battery and motor controller. The company is taking a long-term view to get somebody to work with us, even if it takes time.

In China, electric vehicles are working because of legislation that says one cannot bring fossil fuel two-wheelers into the cities – 22 million electric scooters are sold every year.

We are selling 600 scooters a month, maximum we reached was 900. We would ideally like to do 2,000 a month. There was a spike when petrol prices went up in April to June.

What is your outlook for the next year?

Most of our plants are reaching peak capacity, prompting us to go for several greenfield plants. Next year, we will expand in tubes with a new plant in Chennai at an investment of Rs 200 crore. This will cater to the hydraulic cylinder segment used in excavators. This is to take a step out from auto so that we are not heavily dependent on it. We will also expand our automotive tubes with a Rs 250-crore plant, most likely in Punjab, to cater to Maruti, Honda, Hero MotoCorp, Suzuki, Yamaha and Bajaj.

We are investing Rs 50-60 crore for expanding industrial chains. We are looking at a plant in Chennai. On the automotive side, we will do higher value chains for higher CC motorcycles, which is going to be the future. TI will also set up a plant in the East for cycles – Orissa or Bihar.

One thing is land has not been easy to get these days.

How will the investments be funded?

It will be through internal generation and loans. We have still not stretched our debt equity limit. It is less than 1. Up to 1.2 is fine – so we still have room to expand.

What kind of potential does export hold?

A large percentage of chains turnover is exported. We will do Rs 100 crore this year from industrial chains. With the Sedis acquisition, we are trying to expand further, leveraging its brand. We are also looking at certain markets where both of us are not present like the US. There are certain types of chains either of us can make. Together we can give a better package.

There is also an export opportunity in tubes. This year, we will do Rs 85 crore. We used to concentrate on the passenger car segment for Europe and America. Now, we are focusing on the critical parts (front forks, shock absorbers) of two-wheelers in South East Asia – Indonesia, Vietnam …

How do you manage to attract and retain talent? Is manufacturing regaining its lost charm?

Engineers should be taken in R&D, production and planning – where there is more cerebral work. We have had people who have gone to IT and come back and they are happy.

The idea is to give engineers a challenging engineering or technology or academic job rather than just routine supervision. Shop floor supervision can be done by experienced operators. The first 3-5 years of their career, people want challenging and interesting work.

We are strengthening our team in manufacturing engineering. We are making them more visible – we are sending them to plants abroad so that our new plants have new processes and ideas.

We are also encouraging people at the shop floor to tell us what we should do.

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