Chennai: Wheels India Ltd managing director Srivats Ram spoke in an interview about how a global slowdown is affecting the Indian auto component business. The 50-year-old TVS Group company that makes steel wheels for passenger cars and commercial vehicles (CVs) saw sales of Rs.2,051 crore in FY12. It has a one-fifth market share globally in the construction and mining sector, while in the passenger car and commercial vehicle space, the company has a 50% market share. Edited excerpts:
What is the current scenario in the auto component sector in India?
The first half has not seen growth. The third quarter so far has been particularly bad, especially the medium and heavy commercial vehicle segment. The commercial vehicle (CV) segment, which is a barometer of industrial production in the country, is slowing down and deteriorating further and the percentage slowdown may continue for the rest of the year. That is a concern we have. For the full year, there may be (a decline) in the CV segment of over 15% compared with the previous year.
What about the exports market? Is that offsetting the slowdown in the domestic sector?
The market globally, across all countries, has shrunk and is very negative as a result of the global GDP (gross domestic product) slowdown and the commodity cycle slowdown.
Our biggest overseas market is North Asia (Japan, South Korea and China), followed by North America and Europe. We also sell in Brazil, South Africa and Australia. The export business for Wheels India was about 19% in the first half of the year, of which mining and construction contributed 70%. Since we are already a significant player in this segment overseas, when the volume drops, it hits you. When it comes back, the normal trend is that it comes back very strong.
Currently, it is in a phase of going down and that drop is quite steep.
Are job cuts likely in the industry?
The 2008 slowdown was a slowdown for a shorter period of time. While what we are seeing now is not as adverse as the one in 2008, it may be more prolonged. When things get more prolonged, then companies may have an impact on employment. But we can call it only quarter by quarter at the current moment. It is a tough scenario.
When do you see an improvement?
I don’t expect the global environment to improve in the next 12 months and this cycle is unlikely to reverse in the next year and that again is a concern. For the 2013 calendar year, I see a negative trend. For this year itself, our hope is to try and achieve the same business as last year on the exports front. And, going into next year, we have to see to what extent we can maintain something similar.
How has the agreement with Topy Industries Ltd that you entered into last year helped the company?
Topy Industries of Japan has been a major supplier of wheels to car manufacturers in Japan and they have had a longer relationship with these players in Japan and they have been involved in product development with these players. Through this agreement, we have the opportunity to get into early new product development and to work on products when it is being conceptualized in Japan. This could translate into new business for Wheels India.
What about your long-term plans to move into Gujarat?
For us, the reasons when we decide and take a call on this would be two-fold—proximity to customers and aligning our move to Gujarat with plans of our customers (Ford Motor Co. and Maruti Suzuki India Ltd). The plans of those companies have not explicitly come out. As of now, we have not taken a decision but we are aware of the fact that when our large customers take a decision, we also need to align ourselves with them.
Does Gujarat have the required environment?
It has less of discrete manufacturing, which is what is required for the automotive sector. Gujarat has a lot of process-related industries.
They are at a nascent stage in discrete manufacturing but they have made efforts to build infrastructure ahead of demand. That is one advantage. By and large, the automotive sector tends to cluster around the large OEMs (original equipment manufacturers).