Much is expected from the new car launches of Ford, Renault and Maruti. With relatively higher disposable incomes and a downward trend in interest rates, we expect sales of passenger cars and SUVs to improve in the coming months.
Your parent company Saint-Gobain completes 350 years. Indian operations commenced in 1996. How has the journey been so far?
Saint-Gobain entered India in 1996, and has achieved strong and profitable growth since then. Today, it has 20 manufacturing sites and about 4900 employees in India. For Saint-Gobain, India is an important market and investment destination. Going forward it presents a huge opportunity for growth. The group has built a strong presence and leadership positions across diverse businesses. We have invested in setting up world-class and world-scale local manufacturing in IT development centres, engineering services, a sourcing office and Saint-Gobain Research India. Currently, the group operates through nine legal entities in India and Bhutan. The major businesses are: glass and glass solutions, automotive glass, Gypsum plasterboard and plasters, industrial mortars, abrasives, fused and high performance refractories, Silicon Carbide and performance plastics. Saint-Gobain Research India (SGRI) located in Chennai, is the group's 7th Transversal Global Research & Development Centre.
The auto glass market has not witnessed growth due to a slowdown in the
automobile industry. Last year was not that great, what are your plans for this year?
It is true that the automotive glass market has had two consecutive bad years in 2013 & 2014. While passenger cars suffered a marginal decline, commercial vehicles suffered a steep drop in production of close to 50% over three years. We believe that there has been a bottoming out effect in the last quarter of calendar year 2014. Sales of commercial vehicles has certainly picked up and with passenger cars also expected to grow in the second half of the current physical year. We are hoping for a return to moderate growth in the coming year. Much is expected from the new car launches of Ford, Renault and Maruti with relatively higher disposable incomes and a downward trend in interest rates, we expect sales of passenger cars and SUVs to improve in the coming months. A relatively stable rupee and flat commodity prices should also help ease the cost pressures that we have suffered in the last two years leading to sharp erosion in our margins. We are also focusing on improved operational efficiencies and energy management in all our plants. All of this, with improved volumes should help our profitability which has suffered in the last 3 years.
Can you elaborate on the recent trends in the auto glass industry?
The growth in the Indian Automotive Industry continues to be driven by mid segment hatch back cars and sub four-meters SUVs. With heavy competition in the segment, car manufacturers have had to offer very competitive prices, discounts and freebies to push sales. On the other hand, in the component industry, there has been very heavy pressure on costs with high inflation compounded by the sharp depreciation of the rupee vis-ÃƒÂ -vis the USD; with only partial price correction from the car manufacturers. While we in auto glass manufacturing have several features like thermal control, acoustic improvement in the glasses that we can offer, these options are discarded by the car manufacturers, in view of their tight component cost target prices. In a hot country like India - where fuel efficiency is also a very important attribute - auto glasses which have the ability to influence positively both these needs haven't made much headway. While we continue to engage OEMs in discussions on the features of the glass, it is unlikely that we will see a significant shift in the upcoming models.
What are the challenges faced by Saint-Gobain Sekurit?
Post the economic crisis of 2009, the Indian Economy had a very sharp recovery in the years 2010 & 2011. The automotive industry led this boom with double digit y-o-y growth for 2 years during this period. With an expectation that this period of high growth would last for few more years, we made significant capital investments during the years 2011 and 2012. Unfortunately, the period that followed was low growth, high inflation and significantly increased cost pressures. The heady India story seemed to have run aground all of a sudden and our global headquarters was no longer enthused about expansion in India. Soaring costs, flat/negative volumes and fierce resistance from car manufacturers to give us price increases, affected our results adversely. In this difficult micro environment, keeping our business focus on improving productivity and internal efficiencies, while preparing for future growth has been the biggest challenge we have faced in the last 3 years.
How does Indian market compare to Asian and European markets?
The Asian and European markets are very different from the Indian market in terms of the price and value added glasses that are used on the cars. In India, almost all the car models use very basic glasses that do not offer enhanced thermal and acoustic comforts, which glass has the ability to deliver.
In comparison, most cars in Europe and other parts of Asia have such glasses in their cars. Also, the average car set price is 2 to 4 times higher than selling prices in India. While the capital cost in setting up automotive glass for lamination and tempering in India is similar to that of Europe or Asia, lower selling prices and therefore lower margins mean that ROI (Return On Investment) in India is much longer than these countries. Thus India, is not a very attractive country for expansion unless compensated by large volumes which means high market growth.
What differentiates your products from the competition?
Saint-Gobain Sekurit has complete backward integration with almost all the raw glass used for auto glass manufacturing coming from the four float glass lines of Saint-Gobain in India. This gives us a significant cost edge over competition and also relatively better protection against forex risks. We believe that we have the best cost effective value added glasses should the car manufacturers decide to offer the same on new launches in the future. Currently, we have such glasses on one model of the Honda Amaze and we do believe that customers of this car would have experienced the benefits that glass can offer for passenger compartment comfort and fuel efficiency.
Any new technologies that you are currently developing?
We are a global leader, with strong tradition in innovation and several firsts in automotive glass, starting with the technology of tempering of glasses to creating shatter proof auto glass. Our Global R&D and competency centres in Europe and Asia are constantly working on several products and ideas. As the Indian market grows and sales of high end cars increase, we believe that eventually many of these cars would carry value added glasses.
How much is your market share and what is the ratio of export?
Saint-Gobain Sekurit made its foray into the Indian passenger car market after setting up of our plant in Chennai in 2005. Today, we estimate our market share at 26% of the Indian automotive glass market. Exports of glass out of India is very small,but this could change as we add capacity.
What are the implications of the Union Budget on the auto glass industry?
The latest union budget has not offered any direct incentive for the auto component industry. However, the overall policy of the government as evidenced in the budget seems to be in the right direction. Much is expected in the coming weeks and months from the publicised "Make in India" campaign and this should benefit the auto component industry as a whole, including automotive glass. However, strong GDP growth, significantly increased disposable incomes, expectations of a stable period of economic growth and lower interest rates are the real key factors that should help improve sales of cars and result in auto glass industry growth.