I am bullish on the domestic market and expect a positive trend can be seen in Q3 & Q4: Ranbir Singh, GNA Axles

Ranbir Singh, President and CEO, GNA Axles, talks about Q2FY20 numbers, demand, CapEx, capacity utilization, debt position and plan to reduce it and M&A opportunities, during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: Although, your revenues were down by about 13%, however, margin shot up by almost 3%. What were the reasons for this rise and is it sustainable?

A: Recently, we have announced the Q2FY21 results and as you know that Q1FY21 was completely washed-out due to the lockdown and the COVID. The company has shown good progress in the Q2 because about 45% of our customers are domestic and 55% is overseas, like in the US and European market. And, immediately after the COVID, the overseas demand for export was very strong and our staffs and workers have displayed a good efficiency, which helped the company in performing well. As far as margins are concerned, then it has bettered in Q2 because of two reasons and they are currency and raw material prices, which was soft. These two factors helped in improving our margins otherwise at an average our margins remain between 15% and 16%, generally. 

Q: There was a fall in revenue can you tell us the reason behind the fall and what is your future outlook on revenue?

A: In the domestic market, the Commercial Vehicle (CV) market was very slow in the first half and only 10% of our revenue came from the rest of the market. But the agri-market and tractor market were very strong and they have outperformed and has had over 90% contribution to our revenue in the first half. Our export market was good in the second quarter and the visibility for the next two-three quarters is strong for North America and Europe. I would also like to provide an input that CV and tractors were in good demand in September. We are hopeful that in Q3FY21 and Q4FY21, the domestic demand will continue because production is happening and we expect that 60% of the peak level will be achieved. 

Q: North America and Europe contribute about 42% of your overall revenues. How do you see the demand revival there and how sustainable they are?

A: We are estimating that our revenue will go up by almost 10% in Q3 and Q4. 

Q: Let’s talk about the specific segment. The medium and heavy commercial vehicles (M&HCV) segment is still facing demand headwinds. Do you see any signs of recovery and how are you gearing up for it?

A: The demand in the CV domestic market is still very low. However, slight recovery was seen in September but the volume is very low, yet. The demand cannot return at the old level, which was a normal production level, till the government does not bring a scrapping policy or a new policy. However, more than one year of contraction in the CV market has passed, which is a very long cycle and now we hope that the production level of 50-60% peak level can come in Q3 and Q4. 

Q: Update us about the current order book of the company across different segments in which you operate? Also, tell us about the expected order that you may get this year?

A: Actually, 75-80% of the revenue of the GNA Axels, in general, comes from the tractor market and 25% from the CV market. At present, the CV market demand is equivalent to 25-30% of its peak level.

Q: How is the order book?

A: Order book of the overall company is very strong because the company’s dependency is not restricted just on Indian cities but it has a dependency on agri-business, CV domestic, CV USA, North America and Europe. Apart from this, we have business with European customers and North American customers. So, the risk factor of our company has been mitigated. But as the company was not solely dependent on the domestic CV that’s why our overall order book is very strong. 

Q: Can you please share the numbers related order book and expected orders that you can get in the next few months? 

A: The Company’s production target is of Rs 480-500 crore in the second half of the year. 

Q: The government has a strong push towards Aatmanirbhar Bharat and we there are reports that the government is planning to impose some duty on import of front axle beam and steering knuckle, which is used in the heavy and medium commercial vehicles to give a boost to the domestic manufacturers. What is your view on it and what impact it can happen on your business?

A: GNA Axels is not in the business of the front axle beam and the steering knuckle. We rear axle manufacturing company that is used in buses, trucks and tractors. But in general, it will benefit to the 4 wheeler industry of India if the government slaps the duty. 

Q: What is your current capacity utilization status across all plants and is there any change in the CapEx that was lined-up for FY21?

A: The company’s CapEx has been spent and few of the machinery is under commissioning because due to travel restrictions the engineers in Germany and Italy cannot travel due to which the process can be delayed by around 3-4 months. So, after the commissioning of the plant, our capacity will increase by 25-30%. The current capacity utilization stands at 80%.

Q: What is the debt position of your company at present and how much do you plan to reduce it this year?

A: Our long-term debt position stands at around Rs 100 crore, at present and it will reduce by around Rs 30-32 crore in the next one year. And the company doesn’t have any plan to borrow in the next 3 years and if some modernization is required then it will be done through internal accrual. 

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Q: Are you looking forward at M&A opportunities overseas and India where some activities can be seen from GNA Axles?                

A: We don’t have any overseas acquisition plans at present because business alignment work is being carried out at the company level and has a good visibility