Q. You have bagged over INR 600 crore of business in the first half of the year. How are you going to support this kind of demand? What’s the investment pipeline to support this business?
For the new business to fructify into commercial production it takes about 18 months to two years. This year, the Rane Group capital expenditure (Capex) is planned to be about INR 250 crore to INR 300 crore. This will include the new businesses that we have won and will mostly commence from the end of 2023 or early 2024.
A few years ago, to focus on the international market, we started certain initiatives like opening office in the US and Germany, and strengthening our business and technology development. Now they are paying the dividend.
And externally, as you know, the geopolitical conditions are favourable for India. Everybody is looking for a second slot after China. India is very well placed to occupy that slot for auto components. As an indication to that, we have more enquiries and orders. There is a new momentum.
Q. Mr. Ganesh, can you please give us some guidance in terms of where you see yourself in the Indian auto component space?
We don’t look at becoming the top three or things like that. I think that is quite far away for us. But we would like to be a significant player and have good market positioning in whatever products that we make. We would like to be among the top three in those products, if not as a whole corporation, and we are in that position today.
…we would like to be a significant player and have good market positioning, in whatever products that we make. We would like to be among the top three in those products, if not as a whole corporation…~
In terms of growth, I think 2020 to 2022 has been exceptional because of the low base effect as COVID played havoc in 2021, and partly in 2022. So, the growth is mainly propelled by inflation. Commodity prices have gone up significantly during the past 18 months. And we’ve been able to pass on that. So the real growth would be somewhat less than what the numbers show.
Having said that, we would certainly like to accelerate our growth, which has been about 8% to 10% CAGR in the past. Going forward, we expect a growth of 12% to 15% CAGR.
Q. What is your revenue target in FY 2023, and if you could give us some long-term guidance?
This year, we should end up at about INR 6400 crore. And we look at anywhere between 12% and 15% average growth rate. When I say average growth rate, some of our segments like commercial vehicles are cyclical. So we cannot sustain year-on-year, sometimes we have one or two years of fall. A long-term average growth of between 12% and 15% will be what we expect.
Q. You talked about focusing on the international markets and about China–plus–one strategy that could help you push the bar; just want to understand how the breakup is right now, in terms of domestic and international?
Now our exports are about 22% of the total revenue, and we would definitely take it beyond 25% in the next three years. And it could be even a little more than that. We have one overseas manufacturing unit. If customers want us to be there and if it is viable, then certainly we will have an overseas manufacturing footprint. Why I’m saying that is because our competitiveness and our growth is in the Indian context. We may not be able to duplicate that just by going and having a location outside.
Q. You talked about 22% export; from what level it has come up. What was your earnings four or five years ago from exports or from the international market? How can you show us the trajectory that you have built in international business?
Well, five years ago, it was about 15% or so. About three or four years ago, we did a revision exercise for the Group. Then we decided that a minimum 25% of our business should be international. And we’ve been working on it.
Q. Did exports accelerate after COVID? What was it before COVID, and how did it change?
We do see a healthier inflow of RFQs and inquiries from overseas and some customers are clearly diversifying the risk with China. I don’t see India replacing China in the near future. That’s not possible. Its scale is much higher than that of ours. But certainly we can become a good second source. And that opportunity itself is quite large.
I don’t see India replacing China in the near future. That’s not possible. Its scale is much higher than ours. But certainly we can become a good second source. And that opportunity itself is quite large~
Q. Are you open to inorganic growth? You have mostly remained conservative over the years. Do you have some aspirations where you want to push your top line?
Yes, I think we need to do that. So that’s why I said, we would like to take our growth rate from 10% to say, 12% to 15% in the next few years. And that could involve some amount of inorganic growth also. So we are actively looking at through our joint venture partners, and directly looking at some new products, new geographies.
Yes, we are quite open to acquisitions, where we think we can add value and grow the business. We will aggressively look at that as one of the options~
We’re also not averse to M&A. In the past, we have done some small ones. Yes, we are quite open to acquisitions, where we think we can add value and grow the business. We will aggressively look at that as one of the options.
Q. You talked about diversifying into new products, currently your core products are steering system, safety components like airbags, etc, so which are the closest to natural progression?
In terms of our competence, If you define it that way, it’ll be mostly machine components. We have been doing metallurgy and machining for a long time. So, safety-critical machine components are one possibility. But we realized that we can learn new things. When we started making airbags about a couple of years ago, of course, we had support from our technical partners and JV partners, but we have been able to absorb and localize a lot of machines in India. We are exporting airbags from India now, and we are exporting semi-finished airbags to our partner in Germany.
We have the confidence that we don’t have to limit ourselves to our past competence. With the efforts and investment in engineering, we can learn new areas also~
Even items like airbag, which is not metallurgy, but a textile-based safety product, with the chemical inflate, etc, we’ve been able to learn. This has given us the confidence that we don’t have to limit ourselves to our past competence. With the efforts and investment in engineering, we can learn new areas also.
Q. We have seen that ultimately electric vehicles seem to be coming on track in India; do you see the opening up of some new opportunities?
Fortunately for us, about 93% of our sales come from EV agnostic technologies. If you take steering, aluminium castings, brake linings, disk pads, seat belts, airbags and beyond, there will be a need for some kind of engineering change to light weighting or NVH noise vibration. But they all will survive. So we are investing a lot in engineering and R&D in terms of improving our NVH performance.
In the brake pad, for example, the braking noise has to be very minimal in an electric vehicle. Therefore, new formulations are coming in.
There are advantages with light weighting. The aluminium casting business is growing very well because more companies are using aluminium in their cars. The only product which is directly under threat for us is engine valves, which is currently about 7% of our total sales.
We are focusing a lot on non-automotive and what we call it EV insulated business like stationary engines, compressors. We are focusing a lot on building that portfolio.
We think we have at least seven to ten years to develop other businesses. We have already started working on them. For new areas and opportunities we are looking at two areas exclusive to EV play.
Q. What is your total overall investment commitment in the next two, three years?
Normally we finalize this sometime in about February-March and we go by a three year planning cycle. So, my guess is, it will be in the region of about INR 250 crore to INR 300 crore a year for the next three years. But we will await the actual plans for the company which will be finalized by March.
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