Sona Comstar Banking On EV Parts-Led Order Book To Weather Global Slump

Rohit Nanda: Our growth is leveraged to the electrification theme, which is probably the biggest theme right now in the automotive industry. See, over the last 100 years, this is probably the biggest change for the automotive industry.

Our order book currently is at Rs 20,500 crore and 68% of it consists (of) EV orders only. While there are discussions around a potential slowdown globally, if we look at our key markets, North America and India especially, we've seen robust growth so far in both these markets.

Our third-largest market Europe had been struggling lately because of the war and other factors. Last quarter, we've seen some growth come back in Europe as well.

While I understand that there are concerns around growth slowing down as the interest costs go up globally, our growth model is more leveraged to execution of our order book, which means rolling out of new programmes as we go along and less about the underlying growth in our industry. In the last two-three years globally, the automotive industry has degrown.

Our sense is unless there's any major economic event, we see our growth to continue. The pace can be higher or lower depending upon how intense the so-called global slowdown or economic contraction happens.

But, even then, we are relying less on the underlying industry growth and more on programmes that we've won. We should be able to withstand it relatively better than other industry players.

Rohit Nanda: What we look at is the immediate customer schedules that come to us, which are generally for the next three months, depending on the customers.

At this moment, we do not see any major stress based on the customer schedules except for the seasonality. For example, December is generally a little slower in western markets. If we take that out, so far, we're not seeing any major downward shift in the schedules.

But, yes, there are talks of an impending economic slowdown. If that happens, we're also part of the market. Eventually, it will affect everyone, but given the business model that we have, we may probably be on a spectrum that is less affected by the slowdown.

Rohit Nanda: I think that probably will be a function of the intensity of the slowdown because the way our business works is there is a gap of 18-24 months between the product development negotiations and the production.

If the slowdown is not so intense, for the original equipment manufacturers, it is the medium-term outlook of 3-5 years horizon which matters more. So, unless people become negative about the market demand over 3–5 year horizon, that shouldn't affect the order cycle because OEMs tend to look through the shorter-term pressures.

Rohit Nanda: We're expecting Rs 900-1,000 crore, but the fact is our capex is quite modular, it is not very specific. So, if we do see a slowdown of the nature we're discussing, we will calibrate our capex also. But right now, we're on track to meet the target.

Rohit Nanda: I think margins in both EVs and non-EVs are largely similar. For the two-wheeler market in India, the motor business' margin may even be slightly lower because of the current nature of the business. So, I don't think that impression would be correct. I think margin reaching 30% would be a function of how the material prices play out. But our margin range historically has been 25-27.5% and our expectation is that's where we will be in the medium term.

Rohit Nanda: A large part of our EV revenues come from the international markets. The global EV sales in 2019 were about less than 2% of the overall market, which is expected to touch more than 10% this year. Within three years, it has grown five times. We expect this trend to continue as every OEM is announcing EV models and investing in this segment.

By 2030, most of the global OEMs may be working on electrified vehicles only. In the Indian context, the trend is largely observed in the two-wheeler market. It is a price sensitive market and government's support may continue till EVs touch a competitive price without that support. By 2030, we expect EVs to be 50% of the overall two-wheeler market.

Rohit Nanda: We are getting very good traction in the two-wheeler segment. Based on the market numbers, (we are) one of the largest EV motor suppliers to the Indian two-wheeler market. We already have eight programmes with seven customers in our order book.

Rohit Nanda: For the next 3-5 years, it should be enough. The earlier plant was very small and the new 10-acre facility was needed to expand our gear manufacturing capacity.

In Gurugram, for example, our capacities are totally full and we don't have room to expand in terms of land availability. For the differential assembly, we're setting up a new plant, which will be separate.  

Rohit Nanda: We make differential assemblies in Manesar. We had set up a 5-acre facility there. The demand has been very good for the last 2-3 years. We need to expand, for which we have taken another complex here in Manesar. The idea is to go up to 20 lakh assemblies annually over time. But that will happen over a period of time as it is modular and we calibrate it depending upon the customer demand.