Adapt to changes
A.K. Mukherjee June 3, 2013Nearly two years ago, after the economic slump of 2009, the automobile sector was booming. Sales of new cars, in particular, were registering unprecedented growth. Demand for automotive batteries picked up so fast that we struggled to meet the requirements of car manufacturers. Since the OEM (original equipment manufacturer) tie-ups are a long-standing business, we decided to cut down on replacement volumes due to capacity constraints. Our market share in the replacement segment fell to 25 per cent from 35 per cent before.
In 2011, we went for capacity expansion for both four-wheelers and two-wheelers. This enabled Exide to focus on the replacement market. We have invested close to Rs 600 crore on capacity expansion. Our current capacity is 12.2 million batteries for four-wheelers and 22.8 million batteries for two-wheelers.
Now, there's a reverse trend in the market. We have capacity in place, but demand from the OEM segment is down. Weak economic activity is slowing down demand for new cars whereas the replacement market continues to grow at a robust 15 per cent. Replacement demand growth is directly linked to OEM growth but with a lag of three years. The automobile sector grew tremendously in 2009/10 and 2010/11. This is resulting in higher demand in the replacement segment now.
With market fundamentals changing, we are trying to go back to previous market share levels in the replacement segment. Since the last financial year, we have started regaining market share. Our market share currently stands at more than 30 per cent.
Besides, we have been analysing our strengths and weaknesses on a regular basis. The distribution network is our strength but we want to consolidate it further. We are getting into new markets such as rural and semi-urban areas where battery consumption is low.
#Revenue: Rs 5,319 crore, up 11%
#Net Profit: Rs 446 crore, down 28%
#Invested Rs 200 crore to expand capacity for automotive batteries
#Acquired two inverter manufacturing facilities in Uttarakhand
#Entered into technical collaboration with US-based East Penn
#Tied up with Japan's Shin-Kobe Electric Machinery in February
Competition is growing and we need to offer products at an optimal cost and best in terms of quality. There are different types of competitors. At the local level, there are at least 20 regional players. On a pan-India basis, there are four players in the automotive battery segment. For smaller players, the cost of operating is much less due to lower overhead and distribution costs. It is likely that smaller battery manufacturers will grow further over a period of time.
We know we can do well if we invest in technology. To that end, we have entered into technical collaborations with the US-based East Penn Manufacturing Co. and Japan's Shin-Kobe Electric Machinery Company recently. The foreign partners will closely work with our research and development centres in Kolkata and Taloja (Mumbai) in areas such as improving manufacturing processes, designs, costs and quality control.
We have also acquired two units for home UPS systems in Uttarakhand since December 2011. A home UPS system has two components - a battery and a system. Before the acquisitions, we were just making batteries. The normal customer psychology is that both components should belong to the same brand. We thought these takeovers will help us get more market share in this growing home UPS market.
A.K. Mukherjee is director (Finance) and CFO of Exide Industries. He has been adjudged Best CFO in the category - Best Transformation Agent (Large)