SKF India’s CapEx will range between Rs 150-300 crore: Manish Bhatnagar, MD

Manish Bhatnagar, Managing Director, SKF India, talks about the current scenario of uncertainty and volatility, expected performance of Q4FY21, domestic and export breakup, margins, CapEx, expansion plans and recently established e-commerce platform among others during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts: 

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Q: Do you feel that the current scenario with a little bit of uncertainty back and volatility due to the surge in corona cases is a matter of concern or you think that it will not have a major impact on demand?

A: It has been one year since we passed the havoc of CORONA but most importantly, we had a concern that there should not be a lockdown. I think in the last 3-4 days, PM Modi and many states have said that there will be no lockdown and CORONA should be controlled through COVID appropriate behaviour. So that gives us signs of some optimism. 

Q: How Q4FY21 has panned out for you? We are seeing strong updates from the auto sector in Q4. So can we assume that Q4 is set to be much better than Q3FY21?

A: Automotive is not just one sector. It includes two-wheelers, four-wheelers, commercial vehicles and tractors etc. So, the agriculture linked products, like tractors, are doing very well and they are doing very well for the last two-three quarters. A lot of buying is happening in the two-wheelers for many days and that is continuing. When it comes to passenger vehicles (PVs), rightly said new models are being launched and many new models have been announced in the last 2-3 months, which did not happen in 2020. Passenger vehicles are a very special category where demand and sales are dependent mainly on new model launches and we are seeing that a lot of models are being launched and buying has started. The slowdown is continuing in the commercial vehicles (CV) segment, nothing has changed. The slowdown in CVs began long before the CORONA, so nothing has changed there. In summary, agriculture is doing well, passenger vehicle should do well hereafter and two-wheelers will continue to do well. 

Q: Let us know about your domestic and export breakup and are you being able to cater to domestic demand and is there any need for expansion if yes, are you aiming to get that going as well? 

A: 10% of our products are exported and 90% is domestic sales. Of 90% of the domestic sales, about 65% of the produced locally and the rest is imported. So, certainly, that balance of those we import should be localized soon and it is necessary and those plans are ongoing. We have our factories in India and we are now in a position where we are totally sold out. Out factories is functioning 24x7, three shifts a day and we are totally sold out. So that is an immediate step we need to take how soon we can set up a brownfield or greenfield project and those announcements you will see very-very quickly. Discussions are happening with three-four states and we are working on the final stages and will make an announcement in the next few days. But it is absolutely very important and we have to create new capacity because the demand is far-far outstripping from what we thought earlier or was estimated. So that is what we are focusing on right now. The other thing which is really worrying us is actually not corona so much our biggest worry is steel prices. Steel prices impact is 30% up in the last quarter and we are seeing at same 30-35% up this quarter, which can be a significant dearer on demand not just for us but automotive companies, they all will have to increase the price to absorb the steel impact here. The economy is recovering right now and we are seeing all those green shoots turning into shrubs maybe in small trees. The steel price has to be looked at very-very seriously and how we cannot do that. 

Q: What can be the level of investment for the plan we are talking about and what will be the capacity of that plant and will it be able to cater for a medium to long term and will you used internal accruals for the same?

A: Mainly internal accruals as we are a cash-rich company. Typically, our CapEx lies between Rs 100-150 crore but it is not based on any new factories being set up. So, that CapEx will continue which is machine upgradation, new lines and new channels etc. And then a new factory will possibly be in the region of double that amount that depends also on how big the factory is and where the factory will be established, the state and what are the land costing and all. Those talks are ongoing right now with governments. We will set the companies in the best place at the best investment and of course the best availability of qualified labour. So that is the ballpark we are looking at. I think between Rs 150-300 crore is the ballpark estimated estimates. 

Q: And what will be the capacity and how much it will increase from current levels?

A: Today, we are 65% localization and that will take us to about 10% above that. So, we still have to import some more but that will take us to a little more than 75% of localization. 

Q: You have set up an e-commerce platform for online sales in January 2021. What kind of response you are getting there and when its effect will be seen on your business and financials? What contribution you are expecting from it?

A: e-Commerce, we really want to be a company and at least as good as my team is. In almost 90% of the pin codes in India, we have to be able to deliver within four hours, once you order a bearing from us within four business hours the bearing should be at your doorstep. And that is the reason we are going for e-commerce because this whole old-fashioned thing in which you will call to the distributor, he will check it then dispatch and all. So, what we are focusing on right now is that putting in place complete infrastructure much like most e-commerce companies do, focusing on warehousing and last-mile delivery. So, the last three-four months has been based on looking at the infrastructure set up. The demand has been fantastic. The numbers are not great right now it is still three months old. By end of the year, it is expected that e-commerce will get to about 10% of our total business. 

Q: Your margins are quite interesting as in Q3FY20 the margins stood at 10.3% and in Q3FY21 it grew to 22%, which is almost doubled. So, do you think that the same trend will continue, or it can be better? 

A: There was a one-time adjustment, which if you read the fine prints last year’s quarter which was a PP adjustment. But leaving that aside, I think the sustainable margin is in between the two numbers you mentioned. I think 10% was a little low and 20%+ was a little high and somewhere between that is where we will fall in steady-state and that is the expectation going forward. 

Q: Government has announced the PLI scheme for automotive. So, companies like you are seeing opportunities there and will you leverage something on that front, if yes, what kind of business plans do you have for the PLI scheme? 

A: We look at the PLI scheme in its entirety. PLI scheme is only of many schemes that will incentivize us to put the manufacturing plant. The most important something is there for us is Ease of Doing Business, easier regulations, labour, movement, transport, registration etc. So, the PLI scheme is one part of the mix we are considering but all the elements that I mentioned all the broad theme of ease of doing business will decide the way to where we put our next plant.