In an interaction with Sunil Bohra, Chief Financial Officer, UNO Minda Group

Along with the many initiatives taken by the government in favour of the Indian automotive industry and the gradual easing of certain challenges such as the pandemic and the shortage of semiconductors, Sunil Bohra, Chief Financial Officer, UNO Minda Group, is quite positive about the way ahead 

What is your outlook on the global and Indian automotive components industry? What are the key emerging trends as of now?

Globally, the automotive components industry has seen unprecedented challenges in the last few years starting with the pandemic and followed by chip shortages, rising commodity prices and logistics cost. This has been further aggravated by the recent Russia-Ukraine crisis. However, we are now seeing some early signs of the abatement of these challenges. The pandemic, for example, is moving toward endemic and there has been some easing of chip shortages with new capacities coming on stream. Raw material prices are stabilising too. This augurs well for the global and Indian automotive component industry. Hence, the industry seems poised for strong growth.

The Indian government has also taken a number of policy initiatives, especially the modified FAME II, Production Linked Incentive schemes for Advanced Chemistry Cell (ACC) battery, etc. These initiatives have provided growth catalysts to the industry. In terms of trends, we all know about the gradual shift towards electric vehicles. However, we believe that other trends like personalisation and connectivity are equally strong, significantly shaping how vehicles look and offer in terms of features. These features have also become a key differentiator among the OEMs and deciding factor for customers. These trends also offer significant opportunities to automotive systems manufacturers like UNO Minda that are well-poised the capture the upside.

For Q4FY22 Minda Industries registered its highest-ever quarterly performance. On a consolidated basis, revenue and net profit witnessed QoQ growth of 11 per cent and 43 per cent, respectively. What factors are responsible for your strong performance?

We witnessed growth in all our product segments in Q4FY22 led by our alloy wheel segment where we commissioned our 3.6 million wheels per annum capacity of two-wheeler alloy wheel plant at Supa and partially commissioned capacity expansion at our four-wheeler alloy wheel plant at Bawal. Exports in switching systems and seating systems also contributed to the growth.  During the quarter we started the export of switches to a major global OEM.

As the automotive industry volume gradually increased with the easing of supply constraints for semiconductors, we were able capitalise with our diversified product portfolio. We continue to remain cautiously optimistic for the coming quarters as near-term supply constraints ease and commodity prices stabilise. We are hopeful the automotive industry will witness smart recovery in the next few years after last 3-4 years of underperformance. We are well-poised to grow even more on the back of industry recovery.

Are you implementing any cost rationalisation measures to safeguard profit margins from the rising input costs and inflationary trends?

At the outset, I would like to highlight that most of the raw material cost inflation is passed on to OEMs at periodical intervals by way of price adjustments. Hence, over a period of time we are able to safeguard our absolute profits. However, increasing raw material prices is margin dilutive in percentage terms due to higher base effect. Manufacturing cost rationalisation is a continuous exercise where we re-engineer our processes to improve productivity and efficiency and through various initiatives under Industry 4.0. We initiated many changes during the time of the pandemic to make the costs as sustainable as possible. Some of these measures will have long-term cost benefits.

Can you shed some light on your plans for expansion of your existing product portfolio as well as new product launches in FY 2023?

We are expanding on almost all of our existing products, be it switching systems, lighting systems, alloy wheels, sensors and controllers, etc. In addition, last year we expanded our product portfolio to include electric vehicle-specific products for two and three-wheelers. We also formed a joint venture with FRIWO AG, a leading German manufacturer of innovative power supply units and e-drive solutions. We now have one of the most formidable EV-specific product portfolios in the industry.

We have developed and are now commercialising almost a dozen EV-specific products such as smart plug, motor controller, battery pack, off-board charger, on-board charger, RCD cable, acoustic vehicle alert system, telematics body control module, battery management system and DC-DC converter. We have started commercial supply for most of these products barring few which are being adapted or modified to suit the Indian automotive market to match certain specifications. With these additional EV specific products, our potential kit value for two-wheelers has jumped seven times from Rs 7,000 to over Rs 50,000.

We also added an automotive seating segment last year with the acquisition-cum-merger of Harita Seatings Systems Ltd. We are expanding our automotive seating offering with addition of suspended seats in commercial vehicles (CVs) which provide better comfort and safety. Besides, we are further improving on the Advance Driver Assistance System (ADAS) offering. We have also bagged a large order for cameras in this segment. Further, we have developed India’s first BIS 16833-certified intelligent transport system for buses.

What are your ongoing and future capex plans? How are you funding them?

UNO Minda is confident of the long growth story of the Indian automotive industry and hence we continue to invest in improving our capacities and capabilities. Buoyed by the confirmed large orders and overwhelming demand, we are working on the following major capital expenditures plans:

• Four-wheeler lighting plant in Gujarat to cater to the Indian and Japanese OEMs in the vicinity. The plant is on the verge of completion in the current financial year.
• Expansion of two-wheeler alloy wheel plant at Supa in Maharashtra by another 2 million wheels per annum.  The total two-wheeler alloy wheel capacity of UNO Minda Group shall be around 5.6-6 million wheels per annum after completion of this expansion. It will help reduce the import of two-wheeler alloy wheels significantly.
• We are expanding our four-wheeler alloy wheel capacity by adding another 90,000 wheels per month to our existing capacity of 210,000 wheels per month. Alloy wheel penetration will continue to increase gradually, leading healthy demand for four-wheeler alloy wheels.
• We recently announced the expansion of four-wheeler switches’ plant in Chennai.

Besides India, we are also expanding our facilities in Hanoi, Vietnam for manufacturing of automotive lights for two-wheeler OEMs in the ASEAN region. While we are expanding our operational capacities, we have also been enhancing our research and development capabilities. We are expanding our engineering team at all locations of our flagship research and development centre CREAT i.e. in Pune, Gurugram and Hosur .We recently shifted our flagship research and development in Pune to a much larger office double the size. We intend to double the number of engineers at that location. At the new office, besides EV components, we have also set up new laboratories for material science and ADAS.

Presently, what are your top three strategic priorities?

We at UNO Minda have been at the forefront of capturing emerging technological trends in the automotive industry and hence our strategic business priorities also revolve around technologies and systems. Some of them are:

• Personalisation, autonomous, connected and electric (known as PACE) are the four major trends that the organisation has been concentrating on. Every initiative that we take is scrutinised through the prism of PACE. From a PACE standpoint, we attempt to map it out and see how it fits into the UNO Minda strategy. We have now produced a five-year roadmap for our research and development initiatives across the group.
• Moving from component to system supplier is another initiative which we have been working on. We are already progressing well to be a full system supplier with robust software capabilities. A majority of the components today have embedded software for the ability to communicate with various systems and for diagnostic purposes. CAN FD switch supplied to American two-wheeler OEMs and our pioneer connected car platform Minda I Connect are classical examples of our embedded software capabilities. The recently developed intelligent transport system comprising camera, switch, speaker, control unit and driver console is another example of full system offering.
• Another focus area is to grow export along with facilitating India’s position as a manufacturing hub. We have therefore centralised our marketing functions and have strengthened our ASEAN marketing to serve our customers better. We have already been present in Europe and ASEAN with customer connects. However, now we have started offering an entire bouquet of products instead of just one or two products as was done earlier. We have achieved early success with large orders from marquee two-wheeler OEMs. However, we feel that we have just begun and there is a long way to go.

What is your earnings outlook for FY23?

Being an automotive components manufacturer, our earnings outlook largely depends on the performance of the underlying automotive industry. As discussed earlier, the demand for PV segment remains robust with around six months of waiting period for some models. The demand for two-wheelers is also predicted to improve in the next couple of quarters with expected good monsoon, increasing farm income and opening of offices, schools and colleges. The CV segment is also witnessing strong demand recovery as all the sub-categories continue to inch north. Overall, the automotive industry is expected to make a smart recovery after 3-4 years of underperformance. UNO Minda with its diversified product portfolio, increasing kit value and share of business with OEMs is confident of outperforming the automotive industry by over 1.5 times in FY23 as well, just as we have been doing so for the last many years.