2013 South India Special - L Ganesh, chairman, Rane Group

The chairman of the Rane Group speaks to Shobha Mathur about how the Group is handling the current market slowdown, its foray into potential markets in Latin America, and why entering Indonesia and Thailand does not make business sense.

Autocar Pro News DeskBy Autocar Pro News Desk calendar 05 Aug 2013 Views icon3917 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
2013 South India Special - L Ganesh, chairman, Rane Group

In a recent communication to the Stock Exchange, the Rane Group stated that it hopes to touch a turnover of Rs 4,300 crore by 2015-16. How do you plan to get there?
That was based on an investors meet in Mumbai last month in which I had given some outlook for the next three years with the rider that if the current situation continues, then obviously we have to take a re-look. The current scenario is dismal and if things continue this way we have to re-tune.


In which areas do you foresee growth potential?
At the start of the year, we were hoping that it would be a moderate year but the way things are turning out, it might be much worse. Subject to that, we thought things may recover in the next two years and we could still achieve those kind of plans. So apart from the domestic growth, we are now also pursuing exports a little more aggressively, based on the foundation that we have laid and a good customer base that we have created, as well as trying to expand the portfolio and customer base in new geographies. That is one avenue for growth. The other is expanding in some adjacent areas like hydraulics and other related products aimed at giving us some growth in areas where we have some core competencies. But these are so far unexplored areas for Rane. We still think the potential is there and things should come back to the growth levels that we saw in the last 4-5 years.


How will you tap new geographies and product lines in export markets?
We have a very good export and customer base in both Europe and the US. We are also exporting to customers like Volkswagen and Deutz and have some good programmes coming up with them over the next few years. We have made some breakthroughs with new OEM customers and are also trying to grow more in the US and Europe even as we look at Brazil where we have made some breakthrough. We have bagged first orders for exports to Brazil of power steering, manual steering parts, and are also looking at engine valves. Entering Brazil will help us cater to South America mainly for OEMs besides the aftermarket. All the major American companies have a production base here – General Motors and Ford, Volkswagen too. TRW has also given orders from South America. In the US, we are trying to expand our customer product base as also in Europe. We are also trying to do a little more in markets like Thailand and Indonesia. Those are more difficult markets to crack as they are dominated by the Japanese but we have made a breakthrough with Kubota. We export manual steering gear for tractors of Kubota Japan and have been asked to ship to Thailand as well.


Rane’s filing to the Stock Exchange also spoke of acquisitions and inorganic growth being on the radar…
We are not aggressively looking at it but if there is a good strategic fit, we are open to it. It has to be probably in South America where there is some synergy with the Indian operations. Also, that area is becoming a large market for us and also provides access to the North American market. Ideally, we will look at Tier 2 kind of products like steering parts, engine components and friction material. But there are no concrete plans at present.


How do you see the Group expanding in the hydraulics segment?
We have developed the hydraulic power steering for tractors and in the next 2-3 years, there will be a high growth rate in this business, both for domestic production and for exports. Another area is cylinders, mainly steering cylinders for heavy commercial vehicles. We have obtained orders from all the CV manufacturers and are exploring whether or not this cylinder business can be extended to all off highway vehicles. Having created the technology, we wish to tap opportunities in adjacent areas including exports.


Recently RaneDiecasting merged with Rane Madras. What will be the spin-offs?
RaneDiecast is an export company and exports through TRW to Ford, Chrysler, General Motors and Volkswagen. Parts go to TRW as sub-systems where they are assembled and delivered to customers. In the early stages, because of the 2008-09 Chrysler bankruptcy, this company went into financial difficulties and has not been able to recover and grow as we would have wanted it to. However, we have become the preferred source to TRW. We are also the preferred source in the domestic market because of our quality. There are some new TRW companies from Japan coming to India who want to procure high-precision aluminium castings from us. So we thought there was potential to grow this business if we restructured the balance sheet. One way to do so was by merging it with Rane Madras because of the synergies with Rane Madras – common customers, the right technology, marketing setup including exports that includes the US customer base and service base. Castings are exported mainly to the US. Besides, Rane Madras is also very strong in TQM, so we thought that this business could grow faster with the support and funding of Rane Madras rather than a standalone company.


How do you visualise expansion on the domestic front over the next three years?
We may have to think of one or two locations for new plants in Gujarat or in Indore in Madhya Pradesh. We have a small steering assembly plant in Gujarat but we may have to think of other products like steering columns and engine valves as there are too many eggs in one basket here in Tamil Nadu. In aluminium castings we may need to double the capacity for which we will require an additional plant as the Hyderabad facility is already full. So we are trying to procure land near the plant. If that does not work out, we may need a second location that could mean the existing land of Rane Madras in Vanavasi here, Pondicherry or Mysore or it could be a greenfield. We will also consider Gujarat for its proximity to the port and power availability, the best in the country now.


What investments have you planned over the next three years?
We have estimated a capital expenditure of Rs 550 crore over the next three years. For this year, we had planned some Rs 200-220 crorecapex but I don’t think that is going to happen. Seeing Q1 and the outlook for Q2, things are not looking good so we will be cutting sharply back on capital expenditure. In the next two years, all will depend on how fast the market picks up.


How are the Group companies tackling the slowdown?
Currently, capacity utilisation is an issue depending on how diversified we are. For instance, Rane Madras has presence in all the segments – in OE, aftermarket plus exports so it has been affected slightly less but if you take Rane NSK that is only OE and especially passenger car focused, so it has been very badly affected and so have engine valves so we have stopped working some shifts in certain plants. For the aftermarket of Rane Brake Linings, we are trying to maintain the same volumes that are slightly down but OEM business is down. Both the CV and passenger car sectors are on a weak wicket. Hence, we are not utilising our capacity fully.


Do you have plans to enter the growing automotive markets of Indonesia and Thailand?
We have to see if it’s viable or not. However, these markets are backyards of Japanese OEMs who will never buy from a non-Japanese supplier. In India, they are obliged to do so because of government policy. So, to break into Japanese OEMs is last on the agenda though we have had some success with Yamaha and Kubota.


How do you see the Indian auto scenario playing out in the near future?
The current scenario is a big challenge. It appears things are not going to turn around fast, given the state of economy that is going through a tough phase. If the economy picks up, so will the auto sector. We are paying the price today for all the delays in recent years – no mining, no road projects, no power projects, power shortages and the slowdown in Europe. All OEMs are concerned.


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