Sundram Fasteners has been reporting strong operating performance and last quarter it even reported its highest ever profit despite a challenging environment. Arathi Krishna, Managing Director, Sundram Fasteners spoke to Autocar Professional on how the company’s efforts in developing new products and businesses are aiding the growth of the industry.
How has the recovery in demand been for the auto components industry?
The auto components industry grew by over 20 percent on a lower base during 2021-2022. The industry has recovered reasonably well and most industry players have scaled up beyond their pre-covid level sales.
This year, I expect the industry to grow at eight to 10 percent. The main drivers for this growth are increased domestic automotive and aftermarket demand.
The demand for exports is also stable though North America, Europe and the rest of Asia still have chip shortages and other supply chain related issues. The economic growth of 6.5 percent to seven percent, the EV incentives under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME) Policy and the PLI scheme are all contributing to the tailwinds.
During H1 of FY 2023, the auto industry has performed well and the indications from the OEMs suggest that the demand will be buoyant till the end of the year, subject to the cyclicality of the Commercial Vehicles and Tractor segments.
Which auto segments are showing sustainable recovery? What are the key factors?
The passenger vehicle (PV), multi-utility and commercial vehicles (CV) segments are promising. The improvement in affordability, preference for private transport post-Covid and many exciting new launches, especially the compact SUVs due to which the demand indications are robust. Further, the ongoing festival season is also expected to boost sales. In the PV segment, the shift in preference to the multi-utility vehicles is discernible over the past few years and it is now well over 40 percent. The increasing government expenditure on infrastructure is driving demand for steel and cement which has a cascading effect on the demand for transportation.
The pent-up demand, rural demand, easing of the supply chain disruptions and the consequent improvement in production and despatches are the major reasons for the uptick. However, the entry-level segment of PVs is not encouraging and is expected to pick up when customers shift their preference from two-wheelers to four-wheelers.
The tractor segment is having a good run for the third successive year now and the OEM sales numbers are robust. However, the retail sales in Q2 FY23 seem to be muted. We need to see how things pan out post the festive season. The start of Kharif crop harvesting and the above-normal monsoon are expected to drive sales.
On the backdrop of the recovery, how has Sundram Fasteners’ (SFL) growth been? What are your immediate business priorities given the positive outlook of the markets?Normally, SFL’s product lines work towards outperforming the industry segments on growth. This is achieved by new product development and increasing the share of business. Thus, SFL’s growth has been better than the industry.
The diversified portfolio that we have has also helped us in outperforming the industry. Our product lines have different levels of exposure to different industry segments. This diversity provides the necessary ‘levelling’ when it comes to growth. The immediate priorities are to augment our capacities and further consolidate our leadership across the various product segments and capitalise on the increased requirements of the customers.
As part of its de-risking strategy SFL strengthened its non-core business including EV, aerospace, defence and wind. How are these businesses progressing? How much do they contribute currently and in the next three years to what level will it increase?
EV is very much part of our auto business. Tractors, Aerospace, Defence, Wind energy and industrial segment in the aftermarket constitute our non-auto businesses. These businesses constitute 25 percent of the revenue, and we aspire to increase the share to 50 percent.
How do you see the EV business growing? Have you widened your scope in EVs?
We are expecting the EV segment to grow for sure though in a phased manner. EV adoption in two-wheeler and three-wheeler segments is already picking up. This will be followed by the PVs and even here we are seeing traction now. The truck segment may take a while and it also makes sense for the truck segment not to be fixated on Electric technology alone. All the major truck manufacturers are bracing for multiple technologies such as Diesel, LNG, CNG, Biofuels, Hydrogen Internal Combustion Engines, Hydrogen fuel cells and Electric technologies.
On the EV front, we are already supplying Bevel Gears, Pinions, radiator caps, fasteners and shafts. We are now focusing on E-Axles, assemblies, vacuum pump for braking systems, electric pump for battery cooling and e-compressors. We shall be widening the scope as we progress to larger sub-assembly modules. Of-late, we have started supplying to the EV bus segment.
Are you supplying (EV parts) to both Indian and global OEMs? Are you in hardware (platforms, batteries) or software management systems?
We are primarily in the hardware area and are supplying to the domestic as well as global OEMs.
Can you share some light on the new products which are developed to strengthen core and non-core businesses?
Concerning the core business, we have developed products such as high tensile fasteners, special fasteners, cold extruded, powder metal parts for the new platforms of our existing OEMs. We keep improving the performance efficiencies of the products that we develop for our customers.
As far as the non-core business is concerned, we have developed products for defence, aerospace, off-road and wind energy segments. We have also developed a range of products for the EV segment.
Recently many global OEMs are adopting the “China+1” strategy. How is this impacting your Chinese business and Indian business?
We have witnessed an increase in our share of business with some of our export customers. We are also working on several enquiries from our existing customers that are working to de-risk. We should be witnessing the impact in the next couple of years. However, it should also be noted that the OEMs are not indiscriminately rushing towards “China+1”. They are carefully assessing the situation and taking measured steps.
How are the Rupee’s Free Fall against the Dollar and raw material price fluctuations impacting the auto components makers and SFL? What is your strategy to address these issues?
The fall of the Rupee by 7.45 percent in the last six months can be attributed to exogenous factors rather than domestic economic fundamentals. The exports have a share of 35 percent in our order book with negligible imports, the INR weakness benefits us significantly. However, I wish to add that the INR weakness has helped to partly offset the inflationary impact on inputs, ocean freight and container freight services.
Coming to raw materials, prices have increased by more than 45 percent to 50 percent since October 2020. The major reasons for the price increases, at regular periodicity, are increase in the cost of input materials and logistics. The raw material price increases are being mitigated through economies of scale in procurement, maximising sourcing from low-cost sources and usage of alternate materials. We are also working on the recovery of increased raw material prices from the customers.
By 2025, where do you see SFL in terms of top-line? Which are the key focus areas and can you give an idea of the costs/ investments for new businesses that are in place or planned for the near future?
The key focus areas will be EV, wind energy, defence and aerospace. In the last growth cycle, we had made investments of Rs 1,000 crore. We are looking to invest another Rs 1,000 crore in our traditional and non-auto businesses over the next three years.
In your view, what are the biggest strengths you have that allow you to move forward with diverse product plans?
Primary Conversion — Cold, Hot and Warm Forgings, Iron Castings, High-pressure Aluminium Die casting and Powder Metallurgy are our core competencies and this gives us a wide window for product diversification. In the automotive sector, irrespective of the technology, these are relevant. Even for EVs and emerging technologies, efficient primary conversion plays a major role when it comes to requirements like light weighting.
Our diverse customer base, presence in multiple technologies, engineering strength and financial stability are our biggest strengths.
In the non-automotive segment also there is enormous scope, be it for defence, aerospace, wind energy or white goods.
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