Industry has grown in terms of vehicle volumes at 31%, we have grown by 49%… From a medium to long-term perspective, we are pretty confident that we should be able to outperform the industry growth in terms of revenues, said Sunil Bohra, CFO, Minda Industries to ET Now. Edited excerpts:

You have seen strong growth across your segments. How are you looking at the overall demand scenario playing out currently?

As we know, currently we are all impacted by the pandemic and we have seen the last cycle when we had the wave one post the unlock phase. We have seen a significant growth in our numbers and, in fact, we all know that the October numbers were the peak for some of the OEMs. In the last one year, if you exclude the first quarter, I think nine months have been really good. I do not think we have any reason to complain.

There has been very good demand and there was a demand which was led by the personal mobility driven factor. We do expect that that part of demand to accentuate even further. Once we start this unlock phase, which has already been resumed, we are seeing a gradual sort of a ramp up in our volumes. As we all know, it is little tricky to comment about how things pan out. If there is no third wave, definitely we are looking for a very good 10-12 months.

At all hinges on whether we have third wave or not. But whatever it be, I think the need for the personal mobility will stay and also the auto sector per se for last two to three years from the fag end of 2018 has been witnessing challenges in terms of lower volumes, be it BS-VI transaction or buzz about EV, or rising cost of the vehicles. Overall, we are pretty optimistic and where the country is going about in terms of vaccination; the lower numbers we are seeing. We are pretty hopeful that the country might see a gradual unlock and that the demand should sustain from Q2 onwards.

Your margins have improved to about 13.5%. What numbers are you looking for and how much growth should one expect in your top line number?

If you see the numbers we have announced, they are definitely beating the market. If you see first starting with the top line, the industry growth in terms of vehicle numbers has been around 31%, whereas our growth has been 49%. Take a note that we have acquired Harita. The transition has closed on 1st of April ‘21, but since the merger was expected 1st April ‘19, we had to restate our past financials.

We are comparing apples to apples. While the market has grown 31%, we have grown 49% on overall basis. One significant point to note is that our aftermarket channel, which is primarily a B2C sale or a replacement market, our volumes or the revenues have grown more than 70%. We are seeing a significant growth and result of our efforts to increase our B2C sales, also which is an aftermarket. We do expect this momentum to continue.

Now moving to the next year, when you are talking of growth, we are currently in process of commissioning our two-wheeler alloy wheel plant which will give a peak sales revenue of almost like Rs 400 to 500 crore. We are currently in process of ramping up our sensor business. We are in process of setting up three new plants. Couple of months back, we had actually announced two new plants and prior to that one new plant in Bangalore. One plant in Bangalore for blow moulding, one plant in Gujarat for lighting and another expansion in Bawal for four-wheel alloy manufacturing. All this put together we are investing almost like Rs 350 crore. This again, once fully constructed and starts to pick up, this will again give a good growth.

In terms of putting a number, you will remember that our dependence is primarily on OEMs. So, while we do not give any specific growth guidance, our endeavour always has been to outperform whatever industry growth is and that is what you see that last quarter. Industry has grown in terms of vehicle volumes at 31%, we have grown by 49%. That is the trend, if you see in past few years. That is the trajectory we are currently working on.

We are also working on newer EV components; lot of them. While we all know that today the EV share in the market is pretty small, but once it grows, we are there and we are pretty confident that we should be able to capture a good volume for EV dedicated components. While most of our components are agnostic to the fuel it runs, be it lighting, be it wheels, be it switches, be it whatever other than couple of products like filters, our products go in non-EV and EV also. So, from a medium to long-term perspective, we are pretty confident that we should be able to outperform the industry growth in terms of revenues.

You have raised Rs 7,000 crore or the board has at least approved the fundraising of a sizable quantum, how do you plan to utilise the funds?

Let me correct you, it is actually Rs 700 crore. Normally what we do is we have our annual approval from the shareholders, so in case the business needs or there is any opportunity we can capitalise on that opportunity. As of now, last year also we took approval from shareholders for Rs 700 crore which is expiring on 20th of June. We always try and have in principle approval from shareholders in place, so that in case the business needs, we do not fall short of approvals. This is primarily for enabling approval. As of today, there is no plan for any specific fundraising.

When HFRL becomes your wholly-owned subsidiary, how do you see that contributing to FY22 numbers and also in Q4?

HFRL we all know has been a joint venture with our partner Fehrer from Europe. They have shown the intention to encash their shares, so the board has approved to acquire at Rs 115 crore. If you see the valuation part from FY20 profitability, while their top line is almost like Rs 400 odd crore, if you see the PAT valuation, it is very good valuation of 10 multiple. It will be a value accretive for the Minda shareholders.

Once this transaction gets closed, it will be 100% subsidiary of MI. Even today it is 51% subsidiary, so from that perspective management already has a full control. Operating wise we already have a lot of flexibility and maybe in future, like we have done in past – we have merged four subsidiaries – in future maybe there may be an opportunity when there may be one or two more. We will re-evaluate if we should be merging with Fehrer as well, but as of now there are no plans and it will remain 100% subsidiary of Minda Industries.

You have consistently been launching new products and acquiring new customers. What is FY22 expected to be like in terms of plans and outlook?

We are pretty confident in terms of the next nine months. We all know that Q1 has been significantly impacted because of the co-related lockdown restrictions, etc., even the end consumer has not been able to go out. We are pretty optimistic that considering that few of the products which we are currently in the process of putting together, we do expect it to ramp up. We are currently working on lot of EV components, some of which are already under production, some of which are already under development and some of which are under incubation. As I said that once EV grows, it also will provide a significant bump up.

In terms of the absolute growth, we are seeing a lot of growth in premiumisation-led demand, be it the LED lighting, alloy wheels or the electromechanical to electronic horns, etc. There is a premiumisation-led demand. As I said, back in terms of aftermarket challenge, we have been consistently growing our aftermarket channel significantly, while we have grown around 70% last year with the low base of around Rs 135 odd crore to 225 crore. If you see on annualised basis, we are already at a 900 to 1,000 crore of aftermarket sales, which is very sizable considering the segment we operate in.

We are also adding newer production to that, once we have acquired Harita Seating. So, we will be adding seating also as part of our aftermarket channel. We all know that we have got a network of almost 700 to 800 dealers across the country and we would like to capitalise on that network by launching the sitting as part of it. Last year, we launch alloy wheels and air brakes for CVs.

We are consistently working on introducing not only the products on the OEM side, which increases the overall kit value, we are also trying to see how we can increase our efforts or our products in the aftermarket channel because there we all know that the profitability or the margins may be marginally better than what you have in our base model. That may not be as directly correlated to the industry new growth. We all know the potential in the country and we are pretty confident that we will be able to outperform in that segment as well.

With commodity price inflation, did you revise prices upwards? What is the plan to deal with or mitigate the pressures?

Definitely, there is an impact in terms of margins in last quarter also. The margins have been impacted because of increase in commodity prices, but the way our contacts are structured with our customers, mostly we have a price reset clause; somewhere it is annual, somewhere it is quarterly, somewhere it is half yearly. Fortunately, we are at the beginning of the year, so we have an opportunity to align the commodity price increases together with our customers and create a win-win.

While we may not be able to pass on 100%, we will work on how much we can pass through. Plus also what happens when we discuss the price increases and we reset the clock, we normally calculate the past period average or the quarter average in the spot may be higher. To that extent, we might have a little bit of an impact in the coming quarter, but broadly we are able to discuss with our customers and create a win-win and pass through most of the commodity-led price increases.