In an interview with Business Line , Mr G.N. Gauba, CFO, Motherson Sumi Systems, discusses the challenges of cost escalations and currency fluctuations and his outlook for the Indian and European auto markets. Excerpts:

In the consolidated results for the third quarter, sales outside India have gone down by 2 per cent year on year ….

The domestic sales, billed in rupees, have gone up by 62 per cent. But outside India, currency movements play an important role as the figures are finally translated to rupees. For us, a large component of the outside India business comes from SMR (Samvardhana Motherson Reflectec, earlier Visiocorp) which we acquired two years ago. Within SMR, 40-45 per cent of revenues come from Europe. So, in euro terms, which is the reporting currency for that business (SMR), the revenues have grown by 13 per cent for the quarter. Due to appreciation of the rupee against the euro, SMR growth is shown as almost flat.

How have the European markets been last year? What is your outlook?

The markets have been fairly stable. They have shown signs of growth. When we started this year, there were doubts. Scrappage incentives were discontinued. But the markets have come up on their own because car is like a basic necessity in those countries and you can't have a replacement cycle getting longer and longer. As for the outlook, feelers from customers indicate that things are looking good. Also, carmakers work on thin inventories and so do automotive suppliers. They can quickly react for any change in market conditions.

What is the outlook for India? Do you think auto sales have peaked in this cycle?

OEMs (original equipment manufacturers) are best placed to answer this question. Yes, there would be challenges like inflation, global commodity prices shooting up. But we have faith in the India growth story. However, instead of trying to forecast the growth rate, we build our processes, systems and capacities so as to cater to a spurt in demand as well as cut down on costs and squeeze when market conditions change.

Have you been able to pass on input cost increases to customers?

We have a transparent way of working with the customers for the commodity prices. Copper is the major raw material for wiring harness. Whatever comes up, goes down is passed on. Discussions are on with the customers for rest of the cost elements. But as makers of wiring harness, we are not ready to take a raise on the copper price. There could be a time lag or a basis of adjustment which is agreed upon, but that is applied uniformly whether the prices come down or go up.

As currency is a major factor due to the extent of your operations across the globe, what is your hedging strategy?

For sales to customers outside India, we supply from facilities close to them. So there is more of a multiplication (translation) factor rather than of the actual currency movement. Yes there will be currency risks in each of the geographies. In India, it will be more; outside of India, it will be less as sourcing is mostly from the same currency. As much as possible we try to go for a natural hedge. We also have certain policies wherein we will book a forward cover. But we don't go into exotic products.

What are the new orders in the global markets and back home?

When we took over Visiocorp, we had received orders for about €700 million for supplies spread across a few years beginning 2011. We are preparing our facilities to cater to the new orders. The second plant in Hungary is under construction. But we are not at liberty to divulge the names of the customers or the details of when the models are to be launched. Back home, we are supplying to Etios, where the content per car too has gone up. We are also suppliers to Nissan Micra, as well as Volkswagen.

Are you sole suppliers to any of the customers in India?

For Hyundai, we do 100 per cent of the wiring harness. For Ford Figo, we don't do wiring harness, but we do plastic parts. We are the largest supplier to them. To Maruti, we supply wiring harness, plastics, as well as mirrors.

For Tata Motors, we don't do for passenger cars but we do for commercial vehicles and the Safari range. There are other intricacies like for Hyundai, for wiring harness, only 50 per cent will come into our revenues because of supply through the joint venture.