Electric Vehicles will have just a share of 15% in India by 2030: Arvind Kapur, Rico Auto

Arvind Kapur, Chief Executive Officer and Managing Director of Rico Auto, in an exclusive interview with Swati Khandelwal of Zee Business, said, "our vision of Rs 2,000 crore turnover by 2020 is based on the order book that we have in our hand". Edited Excerpts: 

Q: I want to know about the three-pronged future growth strategy that you have and the 2020 vision, where you have a turnover target of Rs 2,000 crore. It is an ambitious and aggressive target for growth. I would like to know the ways that will help you in meeting your targets of 2020?
A: The targets of 2020 is based on the order book that we have in our hand. The total order book that we had last year was additional order and was separate from the orders on which we have been working and it is of an extent to Rs 2,700 crores. Interestingly, all these are new component and the work on those components will be started in this financial year (FY) or in the next two FYs. In the first quarter of FY 2018-19, we will put up orders of Rs 2,100 crores. So, factually in one year and 15-16 months, we will pick up orders worth Rs 4,800 crores and that is the total programme life of those components. Generally, programme life extends to 5-7 years and it also depends upon the type of components. The SOP of these components would be in the mid of next year, in some cases it may be this year, and in 2020 and beyond. 

Q: The way you have expanded your business and the directions and marching forward on it, definitely, electric vehicles (EVs) will turn up to be a strong pillar in the league, but will talk on it later on. But rather would like to know about the Internal combustion engine (ICE), the area on which you are a prominent player and have a faith that it is going to be in business. Can you explain our viewers the direction in which you are signing new JVs and enhancing the order books, be it domestic or international? Also, let us know about the growth drivers that is allowing you to see the positive side than the other?
A: Currently, there is a buzz related to electric vehicle and there are talks that IC engines will get out of the market by 2030 and electric vehicles will be dominating the market. But the fact is that by 2030, estimates of Rico and others in the industry, suggests that EVs in India will not be more than 15 per cent (plus & minus 5 per cent). That is going to be the scale of an electric vehicle but the demand for the cars in India from the current 3.4-3.5 million will be crossing the mark of 10 million cars a year by 2030. So, 10-15 per cent EVs will constitute only 1.5 million of those 10 million cars. But, if we look at the IC engine, the regular cars that we are talking about, their volume will go up by almost 8.5 to 9 million cars. So, whatever we are producing today, we will be producing more than double the number of cars by 2030. This means, there will be growth in any case and we don't want to be left alone in the electric vehicles and that is one of the reasons that we have started pursuing our customers who are venturing into electric vehicles and so got involved right in the beginning and have also designed some of the components and we have engaged them. We are very fortunate that we could get some component for electric vehicles as well, which would be launched somewhere by next year and in some cases a year after that. In fact, the samples in some cases have been submitted. 

Q: Let us know about the opportunities or order book that is available with you at present and also your opinion on the electric vehicle base?
A: At present, we have four European customers in the electric vehicle base and the total order book is of about Rs 1,200 crores and we are still on it and I think by the end of this year we will be able to double this and we are looking on those possibilities. 

Q: There are talks related to a Joint Venture (JV) in Taiwan?
A: Yes, Rico Auto makes clutches, which are used in motorcycles. But when you look at the scooters, which are also getting equally popular, there is a need for CVT instead of clutches. And we are tying up with a Taiwanese company for CVT because scooters will have 40 per cent shares in the two-wheelers segment in the market and we don't want to lose that market.  

Q: Can you tell us about the arrangement and the kind of investment that will be made in it?
A: Initially, the investment is going to be limited but will start increasing as soon as we start capturing the market. It is in line with what we are doing and it is an expansion of capacities in certain fields that we have. The Taiwanese company is strong in designing the CVTs. 

Q: You have a small contribution in the defence sector and you also keep looking for new opportunities in it. Let us know about the hugeness of the defence market in coming times? In our previous talk, you informed that you want to increase it at a slow pace but I would like to know where it is and its contribution to your 2020 plan?
A: Defence is a long-term project and it takes a period of at least 4-5years and we are honoured to be in it for the last 3-4 years. We are still small and are talking of 5 crores, 10, crores, 15 crores and 20 crores turnover. We have gained experience on some components that we have been supplying to various companies in India and to the ministry of defence. We have started bidding for the Make in India project that the government of India is actually implementing now. We have started bidding for some large tenders. Earlier, the orders were limited to tender to tender but now they are talking about long-term tenders wherein you will need to continuously supply for 10 years and that is something about which the government of India is talking about. We have bid for these tenders and those are huge tenders and the value of the total program is more than Rs 10,000 crore and we expect to get a major share of that. 

Q: Major meaning what will be the percentage?
A: It is about a year and a half away and I don't want to really start guessing but we have tied up at the banks and all the technology suppliers. It is going to be huge and we have the knowledge and technology for it.

Q: Is it going to be a separate business or will it be a part of Rico Auto?
A: It is going to be a part of Aan Engineering, which is a 100 per cent subsidiary of Rico. It is a defence wing of the Rico. 

Q: What is going to be the breakup (international vs domestic) of this consolidated numbers of 2000 crore?
A: In terms of the international market, our exports stands up near 28-30 per cent of our turnover. We also supply to the Indian outfits of certain global players, like Renault-Nissan, that buy those components from us and ship it to their overseas outfits. But we don't consider this process into our export list. In fact, we just talk of the OEMs, like BMW, Caterpillar, Detroit and Jatco among others, to whom the components are exported directly. This stands at 30 per cent of our turnover and we want to take this 30 per cent to almost 40 per cent by 2020. Chances are there that we will not be able to attain 40 per cent but we should be in the region of 35-37 per cent. So I think the export will go up by Rs 650-700 crores.

Q: Do you think that you will be able to add few more OEMs and you have the bandwidth to add them as your capacities and supplying will also raise a question on it?
A: We have added more OEMs this year, one of them include PSA. Peugeot does not manufacture its products in India. We are also supplying components for the electric vehicles of PSA overseas. In addition, we are also supplying components to there French outlets. Kee is the other that we have added and similarly, we keep adding more and more customers. 

Q: When it comes to capacity expansion, for instance, the Sanand plant that is lying unutilised at present, then I would like to know about the way you are managing your plans and the way you are going to use your capacities?
A: We are expanding primarily in Bawal, where we are setting up more and more model lines. We are also expanding in Chennai. The next will come up in Sanand, where we have land and building and had an equipment, which was removed. We were not able to utilise it over there because of the presence of Tata Nano. But, we are going to restart the operation in the Sanand facility due to the presence of Hero and Maruti in Gujarat. In fact, we will be starting our operations over there by the third or fourth quarter of 2018-19.

Q: Can you let us know about the utilisation of capacity levels on an average?
A: It is based on the divisions that we have like utilisation percentage in the iron unit stands at 65-70 per cent (plus minus 3 per cent)and with this new order we will go up to 73-74 per cent in 2020. In aluminum side in the smaller tunnel machine the utilisation stands around 60 per cent and in case of the higher tunnel machine (which means above 1000 tonnes and can go up to 1500 to 3000 tonnes machine) it is being utilised to about 75 per cent and we are adding capacities to it, which means by middle of the next year we would have added enough capacities to even double the capacities of our production there. 

Q: Based on the talks related to the plans related to expansions, JVs and investments, I would like to know about the kind of investments that you will be making in your businesses?
A: The board has cleared an investment of Rs 200 crore for this year that includes primarily for the all plants of the auto sector as well as R&D work. We have a visibility of 70-80 crores for the next year. This proposal of investment was passed after we presented a tuff presentation before the board. 

Q: I would like to know about the project related to electric taxis also known as PODs (autonomous electric vehicles to be run on dedicated tracks). 
A: The PODs is totally related to governments orders. Interestingly, last night we got an information that an order for one Indian city is almost ready for being released. We will start up with the production work as soon as the orders are passed on. Currently, its volume is not very large and will depend on what the government actually releases. We are the first to come up in India and once that is there and there is a visibility for the people to see it and under what it is after that there will be an explosion in India. 

Q:  What is your opinion on margins and what are your predictions related to improvement in margins? Do you think that it will be able to reach the 15 per cent levels?
A: You can have a look at our EBITDA levels of the last couple of years, which has grown in every quarter and last time it went up by 2.4-2.5 per cent. This is the reason that we were at 12.4 per cent and the reason is that there are older components which provide less margin and are getting out of the system and they are being replaced with the newer component with better margins. In fact, we have a target of 20 per cent, which will be more than 15 per cent. In fact, we have clear visibility related to it. Besides, we are also going for automation and have a complete team inside the plant, who are working on it and have a faith that we will be successful in some of them. 

Q: What is going to be the major growth drivers that will give a fillip to your business on both the top and bottom line in next 2-3 years?
A: One is export, which is going to play a very important role, and the electric vehicle components are also going to play an important role in this. In the domestic industry, we are getting out of this small tunnel dry casting machine, as they are small-small components and there is no competition in the segment and we are getting into the next level of component which is the high tunnel machine like 1,500, 2000 and 3000 tonnes locking force machine, which will provide better margins. 

Q: As your business is highly influenced by the US Dollars and there is a good report for exporters as the Rupees value is quite low at present. Can you let us know the advantage of this fall in the ongoing quarters?
A: In fact, we land up an issue whenever the Rupee gets weak because in such a case the commodity prices go up because as they are directly connected to the global prices. But it is a pass-through and even the metal prices are a pass-through and thus we don't get hurt over there but there is a lag, which may go up to a quarter. But I hope that it must not get too weak as it can have a damaging impact on our economy as well as the industry. But in any case, we are in it and facing it. However, there are customers who haven't locked us in and so there we do get the advantage but also get a disadvantage when Rupee gets strong.  

Q: Tell us about the growth opportunities that you can see with two of your biggest customers, namely Hero Moto and BMW, and what are their growth plans where you will be contributing? In terms of business, let us assume that you contribute 10 per cent to their business then let us know about the percentage of growth that is visible to you?
A: We are proud of being associated with these customers. In fact, the company started its operations with Hero and we owe our growth to it and are very excited with what so ever happens at Hero. It is very aggressive in the market, which is also helping us. As a result, we are expecting CVT and other clutches that we make and supply to Hero and we are expecting a lot of increase in the numbers and the variety of components that we supply to Hero. In the case of BMW, we are the strategic supplier and we have been supplying for almost 12 years now.

Q: There are great opportunities in the emerging markets and several players, may it be an OEMs or component makers. But you didn't seem to be too bullish for emerging markets. What is the reason behind it?

A: We don't go directly to Thailand to market a product but Nissan, Toyota and many more companies are buying from us. We are almost everywhere but the thing is that we are with all the dominant players in all the markets and that's the way that we are taking advantage of those market. 

Q: Who are your major competitors globally?
A: We have competition in all the places they can be five in engine components like the blocks. We are probably the largest block makers in India today and thanks to Renault and the orders that we get from Kia and largest outside the OEM block makers. And we globally there are three to four players who would actually be producing the blocks and supplying them to these companies. But there are people coming up and thus the competition keeps on expanding and it is good. 

Q: Do you think that your wheel subsidiary, which has been a loss-making unit in your arm, will start turning profitable?
A: Rico Jinfei is our wheel subsidiary, where we own close to 93 per cent. It has the capacity of producing 1.2-1.3 million wheels and we are around that capacity as we utilise that capacity. Now, we have decided to quadruple the capacity and will be taking it up to 4 million wheels a year and we will be able to achieve it by June-July 2019. In fact, by December we would have an installed capacity of 3 million wheels and the moment we cross the 1.2 wheels, we will start making money. We are on it and working very hard on that so that the losses are out and we start making money. 

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Q: Can you tell about the projections related to addition in your order book over the next two years?
A: We will talk about the new orders. This year we should have a turnover of about Rs 1,500 crores and next year it will go up to Rs 2,000 crores. In that, there are new orders and old orders as well as those that have been discontinued and replaced. Sum of all those will stand to Rs 2,000 crore next year and the next year after that we will grow by almost 20 per cent.