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The Future Lies In Building A Strong Manufacturing Base And Creating An Auto Component Hub In India - Sunjay Kapur, Chairman, Sona Comstar
In a conversation with BWBusinessworld, Mr. Kapur talks about Opportunities with companies shifting base from China to India, GOI's Make-in-India 2.0, and Atma Nirbhar Bharat Plans, Electric Vehicles and the Auto Components Sector. Excerpts -
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The auto sector is witnessing huge demand. Do you think this surge in demand will sustain or is it just a temporary phenomenon of post lockdown release of pent up demand?
There is a component of pent-up demand that we are seeing and therefore, the sudden surge. Numbers that we are seeing until December for the domestic market are pretty certain, after that we’ll see what happens. However, given the fact that fewer people are willing to take public transport, it’s definitely a reason I believe that demand will continue. Passenger car sales are increasing, two-wheeler sales have also increased, again because people are not willing to travel in public transport. The farm equipment market is doing exceedingly well. And there are signs of off-highway sales picking up.
As far as our business is concerned, we are seeing demand even in the U.S. and Europe still holding on, so we definitely feel that we’ll continue to see good growth.
What are the main challenges and opportunities for the Indian auto industry? Where does the future lie?
I think the biggest challenge we have today is from the supply side. Can we get supplies on time? This definitely is a good challenge to have. The demand exists, especially in passenger cars and two-wheelers. The other challenge we see is in demand creation for commercial vehicles. We have had a bad fifteen months as far as commercial vehicles go (due to regulation changes) and we continue to see low demand in the commercial vehicle space. Going forward, the fact that there are people who are afraid to take public transport has definitely shown us that the demand will continue. We’ve seen strong demand from rural India, tractors; we have never seen the sales of tractors, the way they have been in the last few months. The fact that rural demand is strong will also positively impact passenger cars and SUVs, so we definitely see good growth opportunities.
Addressing the second part of your question, I think the future lies in us building a strong manufacturing base in India. We have the capability and the technology, we have the experience of exporting and if companies can build a strong manufacturing base in India and create an auto component hub in India, that’ll help growth in the future.
There is much talk of manufacturing shifting base from China to India. What is reality? Is there a possibility of this happening?
There definitely is a possibility, it won’t happen overnight though, and we are not the only country that is vying for that business, all of southeast Asia will vie for that business. We saw the opportunity that India missed during the US-China trade war, which went to Indonesia, Vietnam, and Thailand, etc. Countries like Mexico will also pitch for a business that leaves China if it does leave China. Nothing will happen overnight, however, again we need to prepare ourselves and from a government’s perspective they need to invest in the ease of doing business of things, and the cost of doing business needs to improve. From the private sector, we need to invest in R&D. If we do not have the right R&D infrastructure, we do not have the right technology, companies are not going to move anywhere. So, there is a great opportunity, its how we leverage that opportunity that really counts.
The growth of electric vehicles in India is very slow. What do you think are the bottlenecks, and why are electric vehicles so expensive, what can be done to reduce their price and bring them within the common man's reach?
I feel infrastructure is a challenge in India and as infrastructure gets built out, things will ease up and this is a global phenomenon. Countries where infrastructure has been built, they have adapted quicker to electric vehicles, and places where infrastructure has not been built quick enough, they’ve adapted slower, so I think once the infrastructure is built and people are assured that they can charge their vehicles because there are a lot of challenges in terms of in people’s mind with range anxiety and other issues such as charging the vehicles, etc. Once people are assured that the infrastructure is in place, I think the electric vehicle population will increase.
The high cost of electric vehicles is related to the battery costs and that has been continuously coming down over the years. And I feel as volumes grow this will come down too, and they will be affordable. One needs to look at the long term running of an electric vehicle, where there are no fuel costs, there is barely any maintenance cost, etc. and those are really the added advantages.
What are Sona Comstar's future plans? There's been talk of the company planning an IPO, when do you plan to hit the market?
From our perspective, we are well-positioned in terms of the ICE (internal combustion engine) as well as the EV (electric vehicle). We will continue to grow our business and adapt to our customer’s needs and requirements. We are already supplying to electric vehicles, both in the passenger car space as well as the two-wheeler space, and will continue to do that. Our growth plans are definitely geared to provide our customers with systems solutions as opposed to just components and we are headed in that direction. As far as the IPO go yes, we have Blackstone as an investor today and the natural exit for an investor like Blackstone would be IPO, so yes, we will plan to go public.
The Indian economy has seen a big decline, barring a few sectors such as the automotive sector, most sectors are facing huge challenges. How do you think the country can emerge out of this slowdown, what would be your magic mantra if you were asked to give one?
I think the Indian economy from my view has adapted well. I feel what this pandemic has taught us is that anything is possible. A lot of measures that we were planning to spend many years to build such as smart factories or digitization etc. have happened overnight. So, I feel we need to look at these as opportunities. Like they say, “never waste a good crisis”.
A lot of companies have leveraged the opportunity and companies will continue to leverage the opportunity. I feel that it's not going to be a V-shape recovery in every industry, however, we will emerge stronger because we have learned that anything is possible in this sort of scenario. We have had fewer bankruptcies, which gives me to believe that businesses have been structured better over the years, less debt also has always helped companies. I saw a much harder time in 2008-09. Yes, this has been more prolonged and none of us ever imagined that we could go over two months without revenue. However, companies have survived it and I think we will emerge stronger as an economy.
The Prime Minister has talked of Atmanirbhar Bharat or self-reliant India. How do you think India can achieve this goal? We know that the Indian automotive sector imports many times more than what it exports. How can this trend be reversed?
So, the component industry is a net importer, we import 17 billion and export 15 billion, somewhere in that range. However, as we localize and move towards local sourcing and in the component industry, we have been doing this for years and years and we’ll continue to localize as volumes also increase. I feel that we are well-positioned to leverage the opportunities of Atmanirbhar and Atmanirbhar is really all about the fact that we should create local content and reduce our import content, and eventually, we need to become a net exporter as opposed to a net importer. I think one of the big challenges is going to be in the electronics industry. I also feel that the government is working with several different sectors, be it from auto components to textiles to fisheries to even electronics in creating export champions, and the way to create these export champions is through bringing in technologies and building manufacturing capabilities within India. If we just look at the electronics industry as a whole, by 2025 we’ll import close to US$ 200 billion worth of electronics and therefore this needs to be seriously looked at in terms of how we can reduce this import by investing technology in India.