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Recovery likely by mid 2020; export orders bail out some

Mercedes-Benz India’s Martin Schwenk said in September, the firm saw 25% higher traffic at showrooms.Vivek BendreVIVEK BENDRE

Notwithstanding the recent measures to stimulate the economy and provide liquidity to the system, the auto hub of Chakan and Pune in Maharashtra are still reeling under the impact of slow off take of automobiles in the market.

Auto companies and component manufacturers said that the festive season may clear some unsold inventory before BS VI emission norms kick in. There is a feeling that things would be normal by mid 2020. Till then, the hope is that focus on R&D would rise and cost cutting would spur agility.

Despite all the bad news around the sector, companies that have focussed on exports and bagged new customers have managed to offset poor domestic sales.

Stating that sales have been under pressure for the past few months, Mercedes-Benz India MD and CEO Martin Schwenk said “We adjusted our production many months in advance when we saw we might run into some issues. Now we are confident with the reduced plans.”

“On the dealer side, liquidity was a bigger problem. We supported them through our Daimler Financial Services where we could. We reduced dealers’ stocks. The problem has not gone [away] yet,” he added.

He said that in September, the company saw 25% higher traffic and enquiries at showrooms compared to a slump month such as August. “We may not be able to meet the 2018 numbers. Our Q3 will be below the Q3 of last year. We expect better sales in the festive season,” he said.

While most component makers have been impacted severely, Flash Electronics (India) Pvt. Ltd., which supplies electric and electronic components and gear boxes to two-wheeler and four-wheeler companies, said it remained insulated due to its product expansion and export strategy.

‘Not hit by slowdown’

“We are not affected by the slowdown. Even this year, we have grown. This is not a slowdown but a correction. This correction happens every 6-7 years. This year, it has been a little more significant for reasons that are not exactly known,” said Sanjeev Vasdev, MD, Flash Electronics.

Adding that market sentiment was still weak, he said as leading OEMs have been saddled with high stock, October production plans were pretty subdued or more similar to August or September of this year.

“The situation is not going to return to normal soon. It will take about 8 to 10 months before things can really become normal. The customers need more clarity on electric vehicles and BS VI before making any purchases,” Mr. Vasdev said.

He said it was possible for the company to remain insulated as it had acquired new customers and had set up two manufacturing units for forgings and gears which are now producing at full steam.

“Pitched against my business plan, [my numbers may be] down but year-on-year, I will grow in revenue.”

Auto component firms like Kinetic Engineering Ltd. have also managed to offset domestic losses through increased export income. “The last two quarters have seen significant slowdown,” said Chaitanya Koranne, CEO, Kinetic Engineering.

“We have been lucky that one of our customers, Renault, has launched a new vehicle and they have propped up the volume a little,” he said. He said it would take about two quarters more for normal to return.

“Since 50-60% of our revenue come from exports, we will be at the same level as last year,” he added.

Viraj Kalyani, founder and CEO, Kalyani Studio, which develops high tech productivity enhancement equipment for OEMs, said he had seen a lot of interest from OEMs for his products in the last six months.

“There has not been a tapering of interest or demand from customers. In challenging times, OEMs look at improving efficiency. They are more invested in improving their products to be globally competitive,” he said.

Board of directors must independently assess bank’s functioning and be able to question shareholders’ representatives

Former Deputy Governor of RBI, R. Gandhi, who headed a committee to review the cooperative banking sector in 2015, says the government and the Reserve Bank of India should initiate governance reforms in cooperative banks as recommended by his committee, such as mandating professionally run board of management in these entities. Excerpts:

RBI often imposes restrictions on cooperative banks, the latest being those on the Punjab and Maharashtra Cooperative Bank. What exactly is the issue with such entities?

There has been always a concern over the cooperative banks’ governing structure.. The board of directors are appointed based on election by the shareholders.

The governance structure in banks or in other financial institutions is that it should be professionally managed.

And the shareholders’ representation should be minimum.

It is the independent directors who are majority.

That is the structure we are unable to bring into the cooperative banks because of the basic nature of the Cooperative Societies Act. Under that, the board of directors is based on election by the shareholders.

How can you bring professionalism to decision-making in cooperative banks?

The RBI had been suggesting, the Malegam Committee suggested earlier, my committee also suggested — since we cannot change the Constitution and even the Cooperative Societies Act derives power from the Constitution — that a board of management in cooperative banks should be delegated powers similar to what commercial banks have given to their boards of directors. This will be the de facto board of directors. That has not been done yet.

How will that help?

What we want is that the board of directors should have independent assessment of the bank’s functioning, supervising monitoring. It should have the moral strength to question the shareholders’ representative.

So that the line management will have the greater confidence to act professionally.

Can RBI alone mandate the changes that have been suggested by various committees?

The government has to play along with the Reserve Bank to insist that these things should be done.

Do you think the cooperative banking sector will face a crisis of confidence due to the PMC Bank issue?

I do not think the cooperative banking system will face any crisis of confidence due to the PMC Bank issue.

PMC has got all the attention because it is Mumbai-based and is reasonably big sized. Otherwise, the RBI periodically has been liquidating cooperative banks or putting them under restriction. At one point, there were 2,900 cooperative banks, at its peak.

Today it is less than 1,500. The number is coming down because the RBI has been slowly eliminating the bad banks.

Auto slowdown hits component maker’s ₹200-crore plan

Owing to the slowdown in the automobile sector, auto component maker JBM Auto has deferred its planned investment of about ₹150-200 crore which were to be utilised for capacity expansion.

“We have put all investment in capacity expansion on hold as there is a squeeze on demand and we are cutting down on shifts and readjusting production. We have deferred about ₹150-200 crore of investment plans from this financial year to the second half of next fiscal,” Nishant Arya, executive director, JBM Group, told The Hindu.

The amount was to be utilised in setting up new facilities for capacity expansion.

Mr. Arya said the company has not asked any of its staff to go as of now. “These are difficult times, that is why we are trying to create a lean structure as an organisation... we are re-deploying people and at the same time seeing how any extra cost can be removed....we are optimising.”

He said the company has reduced the number of shifts from three to two and is trying to enhance productivity in those two shifts rather than having more number of shifts but lesser number of people working in them.

Asked till when he expected the slowdown to continue, he said it is likely to continue for another nine months, particularly due to the transition to new BS VI emission norms.

“In my opinion, the slowdown started from November 2018, and I see it continuing for at least the next nine months till June 2020 because of the transition to BS VI. Additionally, I think more clarity is needed on [the policy for] electric vehicles,” Mr. Arya said.

Three others in the fray, Emami selling arm for ₹6,000 crore to cut debt

Nuvoco Vistas Corporation, Shree Cements and Dalmia Bharat are learnt to have submitted their EoIs. Nagara Gopal

Global cement majors LafargeHolcim and Heidelberg Cement have thrown their hat in the ring to buy Emami Cement, according to sources in the know of the development.

Emami Group is disposing of its cement business at an expected valuation of ₹6,000 crore to reduce debt.

LafargeHolcim is learnt to have submitted its expression of interest (EoI) through its Indian unit Ambuja Cements while German cement major HeidelbergCement Group has submitted its bids through HeidelbergCement India Limited.

A mail sent to HeidelbergCement remained unanswered till the time of going to press while a spokesperson for Ambuja Cements declined to comment.

Nirma Group-led Nuvoco Vistas Corporation, Shree Cements and Dalmia Bharat are learnt to have already submitted their EoIs.

The bidders are studying the financials of Emami Cements, after which asset quality will be analysed before submission of the final bids. Emami Cement operates a 2.5 mtpa integrated plant in Chhattisgarh and a 2.5 mtpa grinding unit in West Bengal. The firm also acquired a 0.6 mtpa grinding plant at Bhabua in Bihar.

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