Indian market downturn has a negative impression, says Germany’s ZF India Chief

In a recent freewheeling chat Suresh KV, President, ZF India, raising concerns over the demand crunch, informed ETAuto’s Nabeel A Khan that it has adopted 20% production cut in September, however, things may look better from next month onwards. In long term like 4-5 years, it aims to double or triple its revenue.

In a bid to fight the slowdown blues, Indian subsidiary of the leading German auto partscompany- ZF is aiming to expand its presence in passenger vehicle space apart from becoming full system supplier to all commercial vehicle manufacturers.

In a recent freewheeling chat Suresh KV, President, ZF India, raising concerns over the demand crunch, informed ETAuto’s Nabeel A Khan that the company has adopted 20 per cent production cut in September, however, things may look better from next month onwards. In long term like 4-5 years, it aims to double or triple its revenue. Edited Excerpts:

Q. Has the current slowdown disturbed your newer plans of investment?

We have divided this into two. The investments which are needed for the future, for example the investment in bringing engineering into the country, also we are still investigating new product lines to be brought in here. So, things which will have an impact in the next 2-3 years we are still continuing with them but, yes we have cut down on desirables, looking at short term cost reduction

Q. What is the short term cost reduction ratio?

It is purely what every organisation does to combat slowdown. For instance, reduction in number of production days, travel restrictions, requirement only where it is absolutely needed, relooking at contracts and analysing the company can better utilise the existing manpower.

We relook at contract labour hired for operations and see if we can utilise the permanent workforce for this and cut down the third party costs.

Q. What kind of production cut have you been observing ?

In September we have gone through 20 per cent cut in production and in previous months it was around 10-15 per cent.We are working in one shift operation for most of the days. 

In August and September we had the biggest chunk of cut in production but we have been slowing down from June-July. Though, in June-July, we did not have drastic reductions. 

Q. Which segment is the most impacted due to slow down?

Highest damage is in commercial vehicle segment. In October there were trickles of demand coming in and it was better than September. Once the festive season sets in (during November and December), the situation will be better. We have seen festive season getting catered from the pipeline which implies that the pipeline will become dry post festival season.

Q. What are the new area of businesses that you are looking to enhance ?

We will now start off-highway with the new line which we have set up last year. It would be around 20-25 per cent of our business.

In windmill we export more. We used to export in off-highway earlier but with the addition of new line there will be a significant number of exports within the space. In wind it’s around 10-15 per cent .

Q. What kind of investments you are looking at? How is the scenario at your global HQ?

We are investing based on our needs. In the last three years we have not invested much but when we invested for shock absorber line, it was a full-fledged one. We will be further investing in the entire shock absorber line not in paint shops. In off-highway, we have new investments lined up.

Q. What kind of message your headquarters is giving, looking at the current situation that is evolving in India? Has there been any change anything in the last 6 months?

There are two kinds of messages that are going. One, the Indian market downturn has a negative impression. Basically when we reduce the plan versus actuals as in when my actuals are poor it will definitely have a negative sentiment but then the worldwide market is down. So when I talk to them they say okay we understand and even here we are down.

We have put our plans on hold for now and waiting and watching. 

But, we also see this as a good opportunity for us to set up our relationship with our customers by engaging with them to understand how we can be their technology partner.

Q.Where does India feature in your global scenario?

It is a region of focus now and we feel our Asia Pacific expansion has to be in India. We are not part of Asia pacific. Last year we made ourselves a different region to bring in focus here.

Q. Which market you are looking at for off-highway exports?

South East Asia

Q. And in automobile exports?

In automobile, we will start export from Pune which will be in commercial vehicles Console, Dampers, to Europe. We launched it and plan was for local to local and local to Europe. This quarter, we have started the first dispatch.

Q. How do you aim to make India, an engineering hub ?

We have a tech centre in Hyderabad which is supporting the global requirements of software developments. In Pune, we are supporting the product lines which we are delivering to the local market. We are looking at increasing our engineering footprints so that we will be able to support customers with engineering services in the same time zone. We are looking to hire approximately 50 engineers next year.

In Hyderabad we have about 1,300 people and we expect to take it to 1,500 engineers by the end of the year.

Q. Which are the areas you are focusing for growth in a market situation like this ?

As far as commercial vehicle is concerned our first focus is to become a significant partner with all the customers with all the product line that we have like -transmissions, chassis components, dampers, steering, etc.

Currently, we are associated in bits and pieces with all our customers, so we are trying to expand our presence in product lines. We have to be with all the customers in the next three years with all the product ranges. 

We are not looking at this from revenue perspective but the intention is to become a significant player or rather full system supplier to all customers. In passenger car segment we are only aligned with one customer right now which is Mahindra. Here we have to establish ourselves with other customers also. So this is a big task to become partners with other OEMs.

We are looking at all the customers where we have to start presenting ourselves so challenge is different. 

Q. So when it comes to ZF India what is your guidance for next 4-5 years? How do you see the revenue?

The bad news is that we are a very small player in Indian market today but if you look at the reputation of ZF we should have been much bigger than this in India. The good news is, we have a huge opportunity to grow in India. In next 4-5 years we should be doubling or tripling the revenue.

Q. Globally, how is the break up in PV, CV? Where you are dominant?

Of course, passenger cars constitute 60 per cent, 20 per cent would be CV and 20 per cent would be industry. I strongly believe that in India, in the next 4-5 years, we will be a major player in CV segment and industrial which includes ff-highway, agriculture, construction and wind. 

If you take fully owned subsidiaries, it will be 60-70 per cent. Here in India we are big because of our wind gearboxes. Almost 60 per cent of total wholly owned subsidiaries revenue is windmill. But if you look at ZF India with JVs revenue it would be around 20-25 per cent. If you take all JVs together, CV business would be big and will continue to be big.

Q. Why do you think we had the lingering slowdown?

Basically, the question is that there are a couple of uncertainties which everybody has talked about. One is BS-VI and second is electric vehicle and both of them are related to infrastructure development. BS-VI is a big change in old vehicle set up. So people will wait and watch. Now it’s October and in the next six months you will be getting a new set of vehicles so why would you buy now.

Q. Don’t you think the auto industry has an effect of overall economy not doing well?

I think it is a combination of factors. Everyone spoke about it post-February when elections were announced and investments in infrastructure got reduced. So, when investments got stuck, it automatically has a spiral effect on the related sectors. Now post-election government is pushing it back so it will take time. The sentiments have to come back. And I think it will pick up once the teething problem of BS-VI go away. September was the worst for the industry but October onwards we are seeing some positive movement.

Q. How do you see that corporate tax encouraging the demand because currently the problem is of demand?

According to me, only corporate tax reduction may not increase the demand but I think organisations are doing something to increase the demand. They are giving benefits to their customers and passing on the benefits.

Q. You still believe that India remains an attractive market for investment for foreign companies/MNCs? Did you see any change in last 4-5 years?

I see positive change. We are catching up on technology and infrastructure. So India is ready for the take off.