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Financial performance has been quite volatile in the past despite a diversified product portfolio? What is the game plan for making it more sustainable in the long term?
Our medium to long term growth strategy is to grow in three dimensions namely product, market and geographies for each of our five different products namely automotive engine, industrial engine, agricultural equipment, construction equipment (roads, concrete) and power gensets. We want to reduce the sensitivity or fluctuation or impact of one sector on another sector, one country on another country. We are also working on improving our efficiency and cost control for sustainable profitability.
Globally the environment is even more challenging than India. Then why expand in terms of geography at the current stage?
If you are present in one market you are sensitive to that market’s ups and downs. We are present in five products and sectors, which has helped us in terms of less sensitivity as our portfolio is spread. We want to reduce it further with market (application) and even geographically as opportunity is quite huge in South East Asia, Middle East and Africa. We can have a reasonable share there. So we are entering there and step by step we will establish our presence there. We plan to export our products to certain markets like Middle East, N Africa and South East Asia. Exports is currently 4% of our revenues. We plan to take it to 10% in next 2-3 years.
How is the scenario at the ground level in India given the slowdown, inflation and reforms?
Market scenario is depressing for sure in last one year. I don’t think that depression will go away so soon. Atleast for a year I don’t see it going away. Infrastructure sector has been bad overall and will continue to do so. I don’t see any major improvement. We do hope for some improvement next year with certain initiatives taken by government.
So what’s the guidance on capex in FY13 and FY14?
Last year we talked about a capex of Rs 155 crore initially but later scaled back due to economic environment. We are closing FY13 with Rs 75 crore investments. For FY14 we talked about Rs 100-120 crore but that number is still work in progress.
Which businesses you see growing faster? Will the revenue mix change substantially?
Automotive engines currently is our largest business contributing about 55% of revenues. That will continue for some more time. But other businesses will also grow more rapidly and acquire more share in revenues. Our power gensets business is doing well as there is huge demand given the shortages. If reforms continue, then even infra business has huge potential. Thus, as we go along in next 3-5 years, auto business’ share will come down below 50%.
How are you placed in terms of margins?
Structurally auto engines and farm equipment have better margins. Construction segment right now is not even breaking even. Other two businesses are also profitable but they are yet to come to a scale where their cost base is meaningfully absorbed and they give good profit margin.
When do you expect your infra business to breakeven?
We maintain that if the business does more than Rs 200 crore topline, it will breakeven. That is the minimum to absorb the fixed cost. We are coming closer to that. Market is also yet to recover. If the interest rate environment and policy measures continue, in FY14 we should breakeven. We are working on material cost and product portfolio enhancement.
Though topline growth was impressive in December 2012 quarter, profit grew flat? What went wrong?
Q3 is generally a good quarter because of festival season demand and peaking of farm activity. Construction also does well after monsoon. So it is a good quarter for most of our businesses except gensets, which peaks in summer season. Sales in December 2012 quarter was highest in our history. However profit after tax was affected because of investment impairment (Rs 14 crore) done in German subsidiary (a very small entity catering to Defence and marine engines). We have impaired entire investment and are working on its future.
