Leading auto component house Rane Group is cautiously optimistic about the demand outlook in the automobile sector even as it continues to attract new business orders.
L Ganesh, Chairman of the ₹4,300-crore Rane Group, spoke to BusinessLine about the demand scenario in the auto sector, the group’s performance and the emerging business segments. Excerpts.
Did Covid-19 impact your business plans significantly?
Of course, every industry has taken a pause. First time in many years, we didn’t even prepare a three-year plan which we do normally during March. But this time, even one year plan we did twice due to the Covid impact.
This year, we have decided to review growth and business plans quarter to quarter due to uncertainty.
While demand has come back in vehicle segments, many other segments which are customers to auto industry are still to see a recovery – travel, tourism, people mobility and shared mobility etc.
The big question now is the sustenance of demand post festival season..
Based on our customer indications, we think it will be sustainable. There could be some softening of demand after festival season in automobile sales. But overall indications show positive near-term outlook. On exports front, it is fine barring US market where Covid-19 impact was more severe than others. Replacement demand has picked up from Q2. Our analysis shows that consumption is taking place in the replacement market and is quite healthy. In OEM, all customers indicate a very good schedule for next quarter. Thus, it looks like next two quarters will be sustainable given the customer indications.
How is occupant safety business growing with increasing safety push in vehicles?
This business is doing very well aided by three major reasons. Firstly, safety is increasing in cars in terms of number of airbags and other features. This is driving demand. Our export strategy has also been quite successful. Our partner ZF’s customers in markets such as Korea and Russia find Indian manufacturing costs and quality attractive. So, export is doing well.
Also, we are exporting some kind of sub-assembly back to ZF in Europe as they find India very competitive. Globally, ZF has picked up a lot of business which Takata lost. Their capacity in Europe is full and therefore they are diverting more business to us in India. In FY20, this business clocked ₹540 crore. This business will grow significantly, led by exports.
Do you continue to invest in your businesses amid the current uncertainty?
We are being very careful this year. We had committed ₹80-100 crore capex meant for some specific projects in the first half and we are doing it. The idea is to build order books, work on business development for few years and then capex follows. Nobody in India can afford to put capex first and then wait for business to come.
Have you been getting any business due to global supply chain realignment?
Yes, we definitely see some de-risking happening out of China and that is giving is some benefits in terms of RFQs (request for quotes) and even some new orders.
It is visible that the supply chain from North America and Europe are looking at de-risking China business and that will give benefits to us. Some very specific after-market customers in US who have been buying from China for the last 15-20 year have now come back to us.
Similarly, in aluminium castings, many companies, who were buying from China, have diverted orders to India. China de-risking is an opportunity for India.
What is your take on PLI scheme of the Indian government? Do you see any new opportunity?
We are waiting for full details, which are yet to come out. However, the intent of the government seems to be good. Plan to build on the strengths of some sectors is a good idea. Focussed development plan is what Japan, Korea and others did some years ago. I really welcome the concept.
We will wait for the details and plan accordingly to boost our growth plans. I feel PLI scheme with ease of doing business reforms, incorporating labour and land reforms and GST rate rationalisation will help the country close the gap with China in some way over the next 10 years.
Has Rane Group prepared strategy for electric vehicle business?
Presently, we are tweaking our existing products to make them compatible for EVs. eg, our hydraulic steering is made suitable to EVs with more electronics. In terms of any new products, it is still evolving. It is not yet clear where the play will be available for people like us.
About 8-9 per cent of our total business is in ICE segment. Of course, our engine valve business is the one that will be affected due to EV evolution. We are still studying and nothing is concrete as of now.