Lead kindly light amidst the market gloom

The Indian auto industry has not had a great year so far with the slowdown affecting sales of passenger, as well as, commercial vehicles. Most of the auto component companies have taken a hit due to the slowdown as well.

However, despite the situation, Lumax Industries, one of the leading players in the passenger car lighting industry has managed to perform well. In an interview with Deccan Herald’s Benny Antony, Lumax Industries Managing Director Deepak Jain talks about the outlook for the industry and the company’s plans, going forward.

The automotive industry has not had the best of years. How has the year been for you, and what kind of impact has the slowdown had on Lumax?

Despite the slowdown in the Indian automotive industry, Lumax has performed slightly better than the industry. Since Lumax caters to almost all OEMs across segments (4-wheelers/2-wheelers/commercial vehicles) we have been able to register a growth which is a shade better than the industry.

What kind of growth rates do you see for the auto industry for the current fiscal and the next fiscal? Do you think that the slowdown is likely to prolong or do you see an end to it soon ?

It is a good question, however, there is no straightforward answer to the question. As per our estimates, we believe that the Indian auto industry will grow in single digits this fiscal and the next fiscal as well. However, with a strong government at the Centre and the vision of the Prime Minister (Narendra Modi) to “Make in India”, we believe that the future will be promising.

You already have nine plants across the country. Any plans to add more plants or expand existing facilities? What are the kind of investments that you are planning?

Our strategy has always been to follow the customer whenever and wherever the need arises. We have done the same in the past and made farsighted investments and have adequate capacity available with us to cater to future growth of the industry. Additional investments in the future shall be driven primarily by our customer needs and guidance.

Your margins currently stand at around 6-6.5 per cent. What are your plans to improve margins, say in the next couple of years?

We are focusing on innovative technology in lighting with the help and support of our partner, Stanley, at an affordable cost. This, we believe, will be the biggest differentiator, going forward, to increase margins. We have also started various cost-cutting initiatives throughout the organisation without compromising quality which will also help in reducing our expenses.

However, having said that, there is pressure from all our esteemed customers for a cost-down, so we will have to play a balancing act.

Are you open to the idea of outsourcing some manufacturing in order to increase margins. If yes, how soon is it likely to happen?

We are evaluating outsourcing some of the low value-added operations in order to reduce our capex, however, this needs to be done cautiously as quality is of prime concern to us.

You already have a plant at Sanand (Gujarat) sans the machinery which is not operational yet. What are your plans as far as the Sanand facility is concerned?We are in talks with our customers Maruti Suzuki and Honda Motorcycles and Scooters, who plan to have their facilities in Gujarat in very near future. We are aligned with them for supplying from our Sanand facility.

Any plans to set up overseas plants, given the fact that you also export and have clients who are based in India, but have plants abroad?

We are evaluating certain geographies with the support of our partner, Stanley, for a greenfield project or a possible acquisition to establish our presence internationally for exports and OEM supplies.

Your Bawal plant has nearly 80 per cent of unutilised space. How do you plan to utilise it going forward? Any plans to sell a part of that land or go for real estate development through a third party?

As I have mentioned before, we invested in a “best-in-class” facility in Bawal anticipating future growth of the industry. We have the right capacities present with us to cater to the future growths of the OEMs. We are in discussion with various customers to cater to their business from our Bawal facility.

What is the current debt on books and what are your plans to reduce it going forward?

As on date, our debt to equity ratio is 0.45. We will further reduce it by the year-end to 0.36 as per agreed repayment schedules and internal accruals.

How is the one sourcing policy by OEMs helping you?

One source policy by OEMs help us invest on the projects by that particular OEM for showing its confidence in us. However, most of the customers, due to aggressive competition have started a dual-sourcing policy already.

Maruti alone contributes around 35 per cent of your revenues. Do you see this increasing in the future ?

As we all know, Maruti is the largest manufacturer of passenger cars in the country and we have had a strong relationship with the company for decades, resulting out of our quality, cost and delivery parameters. We do believe that our share of business in Maruti will increase in the future and therefore the company will be amongst the highest contributors to our revenues. However, there is strong competition in the market and we shall have to strive hard to increase our share in the coming years.

Your top 5 clients contribute for around 79 per cent of your revenues. Any plans to diversify it further to reduce some risks in case these companies don’t do well?

We, along with our partner, Stanley, are speaking to customers across all segments for new businesses, which include passenger cars/2-wheelers/CV and agro sector vehicles. We are also in talks with customers who are yet to join our kitty of OEMs for future business. I personally see the pie changing in the future.