50% capacity of Cummins has been started: Ashwath Ram, MD

Ashwath Ram, Managing Director, Cummins India Ltd, talks about the impact of lockdown on his company, demand, supply-chain disruptions and power generation business among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: What has been the impact of lockdown on your company? Things are recovering now and production has started at small levels. So, let us know about the current capacity at which you are operating at present and what is the demand?

A: As far as Cummins is concerned and we had a couple of months of lockdown. So, all of our factories were shut from March 23, 2020. We began opening the factories in May. Now, I can say that we have opened about 50% of our capacity and we are ramped up. Thus, the tentative impact is about a month and a half on production.

Q: What kind of demand you are getting and name the segments that have attracted demand? What is the level of recovery and share yours on the business? 

A: Demand is coming back but is very slow. Because a large portion of Cummins demand also depends on global customers, that’s why we are little protected from the slow start-up or ramp-up activity that is happening in India. We do have some export orders and are trying to fulfil them first to get that portion of the business going. This is mainly concentrated in segments like the power generation and export of some engine components to other countries around the world. So, those portions of business have already recovered and gone pretty strongly.

As far as the Indian market is concerned, the markets which will make comeback easily are those related to areas - where spending is happening - like the mining and construction segments. In relation to construction, MGNERGA kind of spending has helped in starting some kind of work in small construction equipment segment. But all other types of spending is going to take some more time especially the commercial vehicle side of our business. It is ramping up now because many of our customers have started production by the end of May or early June. So, we are going to see that gradual demand will come up and it will take some time before it reaches a stable level of production. Other segments related to the government are concerned then again some of those are slowly started coming back up as the government changes his focus from trying to combat the basic health issues regarding the pandemic, we will slowly see the focus is shifting to infrastructure and other areas, where a lot of our business depends upon.

Q: Component supply becomes a critical part of the business that you do. We are quite dependent on other markets for the same. So have you seen any impact on your business in terms of disruptions in supply-chain among others, if yes, then how are you easing it out? Have you increased the localization levels in your process?

A: Cummins is a 100 years old company and we have been through many cycles of disruptions throughout our history. And, we have been in India for 60 years and a large part of our products are localized and I would say in access of 80% of everything that we produce is localized in India. So, global disruptions don’t have a formal impact on our domestic supply-chain disruptions and of course we had those supply-chain disruptions because we have suppliers all over India and as India gradually opens up all our suppliers are opening up. I am pretty happy because over 95% of our 600 plus suppliers are back and are slowly ramping up and trying to match the capacity. We don’t have any critical supply chain issues at this time, which would prevent us from producing whatever demand we can get.

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Q: Update us about the power generation business and what kind of demand is visible in the segment you are seeing? Also tell us that is there any change in the projections that were made at the start of the year due to this pandemic, if yes, let us know about the revised guidelines for the same?

A: I won’t give very clear guidance right now as the situation is evolving and we are trying to figure out what is happening there. We are not fully 100% out of this crisis yet and as we come back, we will have to get a better estimate of what the year is going to be a play out like. But in the short certainly term we are impacted and it is my opinion, not necessarily shared by others that first people will take care of the necessities, like healthcare, basic business survival, getting back on their feet and get going, before they start investing a whole bunch of money on capital equipment, especially a large piece of equipment such as those are used in power generation. There are certain market segments, which will move much faster than others like telecom, data centres and those kinds of infrastructure that the pandemic has proven that you need more off and you need to have more robust backup generators and another kind of equipment there. These segments will revive much faster and we are seeing that demand there is growing at a much faster rate. Since the business also does a lot of exports, some of the markets globally have opened up completely a lot earlier than what India has opened up. We are seeing a lot of demand coming for power generation equipment from some of those countries as they are trying to get their economy moving and are spending a lot of money on infrastructure and that is the driving some demand for our power generation products as well.