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Maitreya Doshi, Promoter and Chairman & Managing Director, Premier Ltd.

India Infoline News Service | Mumbai |

“We expect pilot supplies of FIAT diesel engines to start in June and see rise in volumes.”

Mr. Maitreya Doshi, Promoter and Chairman & Managing Director, Premier Ltd. He has an MBA from IMD (Switzerland) and a B.A. (Econ.) from Stanford University, U.S.A. He has been associated with the Company for over 27 years starting as Manager - Management Services (1984 – 1988), then Vice President - Corporate Planning (1988 – 1993), followed by Executive Director (1993 – 1995) and Managing Director in 1995. He was appointed as Vice Chairman of the Board in 2007 and thereafter appointed as Chairman of the Board in 2008. He has been largely responsible for the strong turnaround of the Company's operations as well as development of new project activities such as the heavy engineering business, etc. Mr. Doshi is associated with various Chambers of Commerce and other institutions. He belongs to the Walchand Doshi family - one of India’s leading business groups. The Walchand Doshi family has also set up various educational institutions in Engineering, Technology etc. and does extensive charity work. His father, late Mr. Vinod Doshi was a prominent industrialist.

 

Premier Ltd. (formerly known as Premier Automobiles Ltd.), India’s oldest auto company, was set up in 1944. It commenced commercial production in 1948 through license agreements with Chrysler Corporation and subsequently with FIAT of Italy. It achieved 100% localization of its cars in 1968 and remained the market leader until the mid-1980s. In the 1990s, it set up joint ventures with Peugeot (France) and FIAT, but returned to being an independent auto maker in 2004. Premier also makes a 1.5 ton LCV called Premier Roadstar and a mini-van called Premier Sigma. In addition to automobiles, the Company is also an industry leader in the CNC machine tool industry and a major supplier of Heavy Engineering Components to the wind energy and infrastructure sectors.

 

In an exclusive interview with Hemant P. Maradia of IIFL, Mr. Doshi says, “We expect pilot supplies of FIAT diesel engines to start in June and see rise in volumes.”

 

What are the broad contours of the diesel engine deal with FIAT?

It is a commercial supply contract for three years. A minimum quantity of 28,000 engines will be supplied to us over this period, with the possibility to increase the volume depending upon demand. It is for the 1.3 common rail multi-jet diesel engine currently manufactured by FIAT at Pune.

 

When do you expect to start receiving the FIAT diesel engines?

We expect pilot supplies to start in June and definitely see the volumes rising in the following months. Our target is to reach 1,000 units per month by year end.

 

What is the rationale behind the diesel engine deal with FIAT?

The rationale behind this engine deal with FIAT is it is a high technology, well accepted product in the Indian market. It is extensively being used by other major Indian auto manufacturers. This creates synergies in easy serviceability, spare part availability etc. as independent workshops are familiar with this engine due to other products.

 

Premier will gain by widening its market to cover 14 major metros, which all have BS IV emission standards. Premier’s current diesel engine meets only BS III emission standards, thereby restricting it to Tier 2 and Tier 3 cities. With the new FIAT engine, the BS IV markets open up for us as well.

 

What will be the impact on the price of the RIO after the FIAT deal?

We expect the price to increase by about Rs. 45,000. This is not an uncommon difference between BS III and BS IV products of other manufacturers. We don’t foresee any adverse impact on Rio sales because the FIAT multi-jet is a far superior diesel engine, thereby creating excellent value for the customers.

 

What is the current average monthly volume for RIO? Do you expect a jump in RIO sales?

Our current average volume for RIO is about 300 units per month. We expect to scale this up in the next six months to 1,000 units.

 

We are targeting a total sales volume of 6,000 – 8,000 units of Rio in FY13.

 

The Rio SUV is developed by Premier Ltd. with its Chinese partner Zotye and it is based on a Daihatsu platform.

 

Are you planning to increase your distributor network?

Yes. Currently we have 60 dealers. We plan to increase that to 100 by December 2012. Most of the new dealers will be in BS IV markets.

 

Which diesel engine are you currently using on the RIO?

The current diesel engine belongs to Premier and is based on Peugeot technology. This engine is currently only BS III certified.

 

Premier also has a petrol engine that is BS IV certified. However, due to the current large price differential between petrol and diesel fuel, nearly 90% of Rio sales are in diesel.

 

Being an SUV this is also not unusual as most SUVs run on diesel.

 

Do you see any export potential for the RIO?

There is strong export potential for the Rio SUV, but currently our entire focus is on the Indian market.

 

Apart from RIO, what are you plans for the passenger car segment?

Yes, we are developing other products also but it is too premature to elaborate on that subject.

 

What kind of demand are you seeing in the CV space?

Premier historically being a passenger vehicle company, we have not been able to make significant progress in the LCV area. Our major thrust going forward will be on the Rio SUV and other new products.

 

Tell us about your other two divisions – CNC Machines and Engineering?

Premier has been a pioneer and leader in CNC machines for the last 50 years. Although the industry size is small, we have over 50% market share in both the gear cutting and heavy vertical turning machine sectors. All our machines are CNC with cutting edge technology. We have invested significantly in modernizing and upgrading our capacity and are looking to globalize this business over the next five years.

 

The Engineering Division was started just three years ago and is already a Rs 1.5bn business. We expect to grow to Rs 5bn plus in the next three years. We are leading suppliers of mechanical components to the wind energy sector. We are the only approved supplier by Delhi Metro to make bogie chassis through BEML. We are also working on various other projects with companies like Thermax, Siemens etc.

 

Premier’s strength in engineering comes from its long experience in machining, fabrication and other technically complex activities.

 

Barring the current economic downturn, we are very bullish about both these divisions in the long term.

 

Could you give us a break-up of the turnover in terms of the three segments?

In FY12, the broad breakup of the three segments is:

 

Auto Rs 600mn.

CNC Machines Rs 1.20bn.

Engineering Rs 1.25bn.

 

What kind of investments are you expected to make in FY13?

Our capex cycle is currently complete and barring some minor balancing and de-bottlenecking we do not expect any major investments in FY13.

 

What is the total debt and debt-equity ratio?

The total debt is Rs 2.8bn while debt to equity ratio is 0.40.

 

What is the message to your shareholders?

Although Premier is an old company, its resurgence has only begun in 2005. In that sense one can say we are a ‘65 year old start-up company’.

 

Premier’s engineering business is robust and profitable with very strong long-term prospects because of our unique technical expertise and the sectors we are targeting. Barring the current macroeconomic challenges, this division will mirror the Indian growth story.

 

Currently, the Company is carrying a high debt load because of a front ended capex investment. When these investments were made, interest rates were not forecast to increase so much. Consequently, the company’s current profitability is affected by interest cost, despite strong EBITDA margins. We plan to solve this by monetizing Premier’s 218 acres of land at Dombivali.

 

Although challenging, the Automotive segment has good long-term prospects because of Premier’s experience and adaptive engineering skills. We have been able to develop this business with very low investment compared to other players, resulting in extremely low breakeven volumes suitable for our niche markets.

 

The current challenge is the sudden and steep depreciation in the rupee, which has hurt our margins. However, the management is working to aggressively localize product development and mitigate this problem.



***Note: This is a NSE Chart

 

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