‘Localisation is a priority for Sona Comstar's biz’
Sunjay Kapur, Chairman of Sona Comstar gives an overview of why he is optimistic about the Indian auto components sector despite concerns from the US and Europe.
It is clearly Advantage India as companies look for alternatives to China as part of the China Plus One strategy, and localisation is the way ahead for the automotive industry. That’s the word coming in from Sunjay Kapur, Chairman of Sona Comstar, one of India’s prominent Tier I automotive and EV component makers. “Localisation is a priority, and I'm glad that Indian industry CEOs are paying significant efforts in this area,” says Kapur.
The company is focussing its efforts on localisation as global OEMs depend on it for sourcing various components. The company is aiming at an overall capex push between Rs 1,000 to Rs 1,100 crore. It aims to further work as a global supplier of driveline solutions for Battery Electric Vehicles (BEV), Passenger Vehicles, Commercial Vehicles, and Off-highway Vehicles as well as a leading traction motor and motor-controllers supplier to electric two-wheelers (e2Ws).
At the launch of Sona BLW Precision Forgings’ second-largest manufacturing plant in Chakan few weeks ago, that has been set up with an investment of Rs 231 crore, Autocar Professional spoke with the entire top brass of Sona Comstar including Sunjay Kapur, Non-Executive Chairman for the combined entity Sona Comstar, MD and Group CEO Vivek Vikram Singh and Chief Technology Officer Kiran Manohar Deshmukh. This new facility has been dedicated to manufacture driveline products for EVs, mainly.
In discussions with the management team, the company revealed having a strong order book of Rs 21,500 crore as of March 31, 2023, of which 77 percent is from its electric vehicle programmes.
How do you see the outlook for the auto component industry despite concerns from the US and Europe?
Sunjay Kapur (SK): Despite concerns about a recession in the US and Europe, two of the largest automotive markets, the Indian auto components sector is predicted to increase by between 10 and 15 percent in FY24. The auto components sector is anticipated to complete FY23 with a gain of 15 percent after clocking US$ 56.5 billion in revenue in FY22, an increase of 23 percent over the previous year.
As the US and Europe move towards electric cars, the local component sector stands to benefit from the outsourcing of the production of ICE components to India.
From a Sona Comstar perspective, we haven’t seen any major changes in schedules in North America and nothing majorly disruptive either.
With this sort of refinement, we have 30 percent of our exports coming from the US and the Northern American markets. So, we're expecting similar growth this year, unless nothing extraordinary happens.
As the President of the Automotive Component Manufacturers Association of India, what is your view on the regulatory overhaul that has come in with the FAME2 subsidies being slashed?
SK: Whatever is happening in phase two of the FAME subsidies, the monies are being given out. So, the government is willing to give funding to companies. From an ACMA point of view, I am very clear that as far as the government is concerned when it comes to carbon neutrality, it is willing to recognise the importance of companies preparing themselves for the shift towards total electrification, rather than just partial electrification.
However, it's crucial to consider the specific context in which this applies, as it can be quite complex. When exploring new technologies, it's important to note that they are not limited to the present, as they are constantly evolving and the focus is to get what’s not manufactured in the country into the assembly line.
Can you tell us where we are on the Production Linked Incentive scheme for auto components?
SK: We have applied for the PLI and are awaiting product approval. Based on the current status, our understanding is that for the financial year gone by (FY23), there will be no PLI. So, for FY24 onwards, we are hoping for the PLI to kick in, but we are awaiting clarity on many things.
The government has come out with a SOP towards the end of April. So we are still studying that and trying to understand the process. Currently I think everyone has applied for product approval and many other component makers are in the queue for approvals.
How would you rate your overall performance as your numbers are strong on a year-on-year basis?
Vivek Vikram Singh (VVS): We’ve added Rs 80 billion worth of orders during the year. This came from 35 new programmes and seven new customers. Primarily, our revenue growth this year came via the consumption of Rs 51 billion from this order book. We added 12 new EV programmes during the year, with plans to strengthen the EV order book further.
Our battery electric vehicle segment revenue grew by 37 percent and for the first time, we have crossed the Rs 200 crore mark from that segment. BEV's (battery electric vehicles) revenue share also increased to 28 percent of our total revenue.
Like every year, we would like to report our performance scorecard on our five KRAs — our financials, our progress on electrification, our progress on business development, diversification, and new product development.
Beginning with financials, we continued to do well on all three indicators, growth, margins, and returns. Our revenue, EBITDA and PAT are up by 26 percent, 25 percent, and 28 percent respectively. We have always communicated a range of 25 percent to 27 percent for EBITDA and 14 percent to 16 percent of PAT and continue to be strong on those parametres.
The net addition to the net order book was Rs 29 billion which brings us neatly to our net order book which at the end of FY23 stands at Rs 21,500 or around US$ 2.4 billion.
As visible here, almost all our sequential growth in this quarter came from the consumption of new orders, while the EV contribution has increased to 77 percent, which is quite a big number. In the eight quarters since our IPO, our growth has been less, 0 percent to 10 percent twice, between 10 percent and 20 percent, between 20 percent and 50 percent twice, and over 50 percent twice as well.
We’ve grown by an incredible 70 percent while maintaining our margins in Q4FY23. And this is despite, I would say unprecedented headwinds, like Covid-19, semiconductor chip shortages, extreme inflation, and even a war in Europe.
How is your focus on electrification shaping up?
VVS: Our battery electric vehicle revenue has grown by 33 percent over last year in absolute terms and stands at Rs 670 crore which incidentally is close to our total revenue just four years ago.
All these combined, complete all the major moving parts in the EV gearbox. Now that has been a stated ambition of ours.
Another factor for us is to increase the revenue potential of a vehicle. Due to the strategic lens that we’ve been able to move step-by-step in the last six-seven years from a US$ 15 to US$ 20 differential gear set for an electric car. For a class four electric truck, our driveline systems are generating revenue realisations of US$ 600 to US$ 900 per vehicle.
The most important factor for Sona Comstar is diversification. The trend of increasing electrification and decreasing ICE dependence continues unabated as we keep developing new EV products and benefit from this EV growth.
How has the company's technology journey been so far?
Kiran Deshmukh (KD): We have successfully transitioned four ground-breaking products over the past year alone. In recent quarters, we have proudly commercialised the net-shaped spiral bevel gears and Electronically controlled Locking Differential or EDL.
Our spiral bevel gears testify to our pioneering efforts in precision forming in this product category. Meanwhile, our EDL represents the first-ever complex differential specifically designed for
With both further solidifying our commitment to sustainable innovation is even stronger than before. Building on this impressive momentum, we have added two more products, the input shafts, and intermediate gears to
These advanced products enhance our capabilities in precision forming and machining and bring us one step closer to developing a comprehensive EV gearbox.
So, moving forward, which are the areas in the EV value chain you wish to target?
VVS: What next is the gearbox, in which all these parts have to go. It will require bearings, require seals, and thermal management. And a lot of sensors going into it. Beyond that is also a project that still has inverters also. We are still at the intermediate level.
So how do you see your evolution happening in this space?
VVS: Sona Comstar has always been in the differential assembly as well as the trimotor architecture which is a single reduction at the wheels of the spool gear. EDL was what we showcased last quarter This is the first time we are doing intermediate gears and shafts.
We have never done these products before and this also requires actual work on the cold forging knowledge and capability, which is what we are building at the moment.
What about material prices as steel which forms a key material for you, prices have been on the higher side.
VVS: I think apart from alloy steel, I think we’ve seen softening of material prices over the last year. But if I were to look at alloy steel prices, I think they are still higher than where we ended the last financial year. Hence, it is very difficult to predict but as global players we have our eyes set on these prices with robust hedging mechanisms in place for cost protection.
What about magnetless motors? I believe you had shown some products at the Auto Expo. Would you have an update on that?
VVS: You are right we have shown our magnetless motor at the Auto Expo 2023. Right now, they are in the development and validation phases, and we are working on some of the options.
Furthermore, I would like to say that Sona Comstar is working on several magnetless technologies and they form a critical component of our technology roadmap. We will update you when they are ready to be commercialised.
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