Inventory pile-up continues to remain a big overhang for the auto sector. Top two-wheeler companies are set to cut production as inventory levels are as high as 80 to 90 days. Rajiv Bajaj, MD of Bajaj Auto; Sunil Bohra, CFO of Minda Industries and Arvind Kapur, CEO of Rico Auto, shared their views on the same.
“We are all aware that growth rates dropped off since October, the reality is that most people did not anticipate this or chose to ignore it and that is why inventory for some is in triple digits, a 100 days or more, they may or may not acknowledge that but that is a reality. In terms of production cuts, typically I hear some of the big makers affecting about a 20 percent cut then don’t be surprised if from April 1 or April 2 if you find out that some of the big ones have cut as much as 50-60 percent in March,” Bajaj told CNBC-TV18 on Wednesday.
“For Bajaj Auto, I can say very confidently that we are at a good position basically for three reasons - firstly, we did not crank up production and have got inventories as much as other did pre-festive. Secondly, we preferred to be safe than sorry and therefore we had a strong promotion lined up for the festive season, which kept our retail momentum very strong and that continues to be strong. Most importantly, we anticipated this scenario and had a very clever strategy in place to address three segments of price, entry and premium with three brands CT, Platina and the Pulsar and we worked on them on all four important aspects - product, price, promotion and distribution. As a result we are at 55 days of inventory right now and our retail this month is maybe 200,000 or a little more, the stock is 375,000 so that is about 55 days work and we have two choices because we are not happy with 55 days of stock, we can either reduce stock to 45 days by reducing the inventory or we can push up our retail and, I think, we are going to push up our retail, you will see it moving up. I am very confident that in the next two-three months to 250,000 or thereabouts and then we will be absolutely comfortable at 45 days of stock,” he added.
In terms of demand and pick-up by the original equipment manufacturers (OEMs), Bohra said, “We all know that the second half of the current fiscal from October onwards has been under pressure but what we have been doing is adding more products and more and more premiumisation we have been able to withstand that pressure. From an industry perspective, while the second half has been broadly 8-10 percent lower, we have been able to maintain our revenue and going forward, we are all echoing what the customers are saying be in terms of four-wheelers or two-wheelers that up to June at least there are no signs of strong revival, we are tightening our belts. The focus is mostly on quality, delivery and development and we are continuously working to up our portfolio in terms of offering to the customers which are now we are adding sensor plant, recently we have acquired a seating company called Harita Seating Systems. So we have been trying to withstand this tough time.”
“We all know that the long-term story for the country is intact. We believe that four-wheelers may see more growth going forward as compared to two-wheelers but we are confident that both the businesses will grow,” Bohra added.
Talking about production cuts, Kapur said, “This all depends on the customers you are dealing with. If you are lucky to deal with a customer like Rajiv Bajaj then, of course, your fees are going to go up and if you are dealing with the other customers, there would be some impact. Having said that, we are in a fortunate situation that we are exporting and in the exports, the market is okay for us. In fact we should be growing by almost 25 percent as far as exports are concerned. In the domestic market, the push that has happened now is to get a larger share of the business and that is what most of the component makers are vying for.”