As Long as you Have an Engine Telematics Can’t Take Over
India’s largest automotive instrumental cluster maker Pricol has recently gone for a new brand identity to emerge on the global scene. Vikram Mohan, the Managing Director of Pricol Limited, shares with Business Today’s Chanchal Pal Chauhan the strategy to stay ahead of the market curve amid sluggish market conditions.
BT: What’s the larger aim for the new branding?
Mohan: The new brand identity is to explain our journey. We are a 40-year-old company, started by my father with about 14 employees, on about 3,000 sq. ft in a very small way. We have four subsidiaries and we closed last year with about Rs 1,150 crore of revenues, with eight manufacturing locations, seven international offices, about 5,000 employees and 38 patents. Being a pure Indian auto component manufacturer, we have further aspirations to become a more global manufacturer, with more of a global footprint. So the new brand identity reflects our dynamism and global outlook. We believe every enterprise has to create value for all its key stakeholders and for us, the key stakeholders are the customers, the employees, the shareholders and suppliers. As the convergence between the four of them, to create value for each other and the synergistic relationship is the reflection of our new brand identity.
BT: As the Indian automotive market evolves, are telematics taking over from the mechanical and electronics products?
Mohan: As long as you have an engine, telematics can’t take over the cooling or lubricating function. The pump profile may change, but the pumps will definitely be there.
BT: In the given scenario the pump will be there. I was just wondering if companies are migrating from mechanical to more electronics?
Mohan: The chip cannot drive the oil or water, you will still need a mechanical part to drive that. The control system will/can be electronic or electro mechanic. And like I said, as long as you have an internal combustion engine, which involves fuel, water and cooling, you will need a pump. That drive instead of being mechanically driven can be driven by electronic pulses. And we are very much part of that. These are solutions, where there is hardware, software, its custom built implementation and this would be a bottom line driver for us in the years to come.
BT: What are your mid-term plans?
Mohan: When we talk about our vision 2020, our forte are two verticals. In products, two-wheeler is our biggest segment; with instruments, fuel pump, different sensors, oil pump, water pump, body control module telematics, so a host of solutions. Next big segment for us is commercial vehicles, tractors and off road vehicles. Globally we are aspiring to grow larger in this.
BT: Tractors… to which MNCs do you supply?
Mohan: Almost everyone, even all-terrain vehicles, which is a de-risking strategy. Here the pricing is not under pressure because this is a luxury purchase and not a primary people mover. We are supplying to about half a dozen companies. Currently there is Polaris in India and then again we are global suppliers to Polaris. For two wheelers, pretty much the who’s who in the world we supply to, both the bespoke vehicles, lifestyle vehicles like BMW, Harley and Triumph as well as to the mass market like Honda, Yamaha, Bajaj, Hero, TVS, etc. As a policy we don’t supply to these small Chinese manufacturers because they’re a dime a dozen and no quality, but otherwise pretty much all the top automakers in the world.
BT: Are there any Chinese OEMs that you think may become big someday? Is there any potential?
Mohan: Maybe in four-wheelers. There could be Foton someday, but I don’t think they will be for the next five years.
BT: Your largest customer in four-wheeler would be?
Mohan: Personal passenger vehicles; pumps are the biggest business for personal passenger vehicles. Instrument clusters for personal passenger vehicles, I’m slowly phasing out and I’ve sold out a lot of business because I believe that Pricol, as an Indian company, we cannot exist in an instrument cluster for a car. The simple reason being, my prediction in five years is that there will not be instrument clusters in a car. It will be touch screen; there will be 120 sensors, there will be very rich software and it will have information, infotainment, climate control, navigation, everything will go into that screen and that will be ruled by global companies like Delphi, Denso and Visteon.
BT: How much funds have you been able to give from the instrument cluster business?
Mohan: We have sold something to Denso, it’s public and available about how much we sold it for. We have another announcement that will come very shortly, which is in the final verge of closure, of one more part of the business. It will soon be in public domain.
BT: What will be the breakup of your revenues?
Mohan: Last year, our revenue share from Driver Information System (DIS) and telematics came to about 49 per cent, this year it will be about 42 per cent not because we have de-grown in this business but because the other businesses have grown, for example the power trade product, the pumps and mechanical products have grown. Segment wise revenue share: two-wheelers is about 44 per cent, four-wheelers is 23 per cent – this will shrink a little because we are exiting commercial, tractors and off-road vehicles – this has grown significantly. I am expecting to close March 2016 between Rs 1,450 crore and Rs 1,500 crore as against Rs 1,150 crore of previous fiscal. There has been a fairly steep growth this year. It’s a forward looking statement, so that’s why I’m putting an estimate. But we are in February so we know how we will close this year.
BT: Have you diversified your pump business overseas?
Mohan: We are India’s largest manufacturer of automotive pumps for the two-wheeler segment. We want to continue to maintain our leadership position in India in 2020 and also get among the Top 5 in the ASEAN region, not just in India. We have just started making pumps in Indonesia eight months ago. And we are expanding to Vietnam also.
BT: Other areas of consolidation?
Mohan: We are India’s largest manufacturers of speed governors and cabin tilt mechanisms for the commercial vehicle segment, again a nascent segment, we would like to grow and maintain our No. 1 position and we want to take the cabin tilt segment to Europe and America. We are among the Top 10 manufacturers of automotive sensors globally. We will continue to maintain the Top 10 position because we will continue to be in instruments and sensors. Our vision for 2020 is to get our revenue to about Rs 3,000 crore from the current Rs 1,500 crore. For this there are plans for Greenfield plants. One of which is already coming up in Pune, which will go on stream in May. And another in Vietnam which we are expecting to go on stream by 2017. And two acquisitions, one in Europe and one in America in the automotive pumps, primarily for the tractor and off highway vehicle segment to maintain our global leadership position.
BT: How are you going to fund these acquisitions?
Mohan: We are anticipating these two acquisitions and these two Greenfield plants will cost us between Rs 500-600 crore rupees, about 50 per cent of which will come from internal accruals and about 50 per cent will come from debt. Today we are almost a zero debt company, so for a Rs 2,500-crore company a few crore of debt is not very significant; it will be easily serviceable.
BT: Despite the fact that Indian component companies have a bad track record of acquisitions globally?
Mohan: Yes, overseas acquisitions have very few successes – nine of ten have been failures, I have dived deep and understood as to why the failure happened. Because we Indians went a bought a company because it was available for a dollar, whether it was within our core expertise or not, we just thought we had some great management expertise to go turn it around. Something in America, something in Germany or may be in Italy. These were different companies – dye casting, injecting moulding companies etc. And the other thing is our dream of chasing top line and EBITDA. I am not a believer of EBITDA at all. You can have a great EBITDA, but if that is like Amtek Auto- huge debt but before interest & before debt…….. Do I have free cash flow and serviceability of that debt and that interest?