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Mr Mahesh, chairman and managing director, Sundaram Brake Linings

India Infoline News Service | Mumbai |

"I go by the American saying – `If you win you are a hero, if you lose you are a bum".

Sundaram Brake Linings is one of the few auto ancillary companies which overcame the sluggishness in the auto component market in the last two years ? thanks to an early foray into the exports market. After breaking up with Abex in 1992 it became Sundaram Brake Linings and started exporting under the same brand name. Sundaram Brakes has probably the most robust business model considering the fluctuations in the domestic auto component market. Since 1975, Mr K Mahesh has been functioning as the nominee director of TVS & Sons Ltd on the board of Sundaram Brake Linings. Mr K Mahesh met up with India Infoline in Chennai. Here are the excerpts from the interview.

Mr Mahesh is currently the chairman and managing director of Sundaram Brake Linings, one of the leading auto component manufacturers in the country. Even as multinationals are poised to enter the Indian market after 2003, Mr Mahesh says he is not worried - "I go by the American saying ? `If you win you are a hero, if you lose you are a bum'.

We will give them a stiff fight. If they hit me in India I can hit then twice as hard in their home markets." He has been preparing Sundaram Brakes for the ensuing competition and is amongst the most cost effective producers of brake linning in the world. Besides he has been on the executive committee of the Automotive Component Manufacturers Association (ACMA) for over 18 years.

Have you found the going tough after the break up with your joint venture partner Abex. How do you manage to get the technical know-how?

In retrospect this is the best thing that could have happened. In India all joint venture partners either want majority or they want to buy the Indian partner out. We knew we had a problem with the technology know-how when we broke up with Abex six years back and changed our name to Sundaram Brake linings. But we started spending a lot of money on in-house R&D. We spend 4 per cent of our sales on R&D every year, which is high for any Indian company. The industry average is only around 0.5 per cent. Unless you do your own R&D you can never become independent. So technology is not an issue. In any case if we need technology we will pick it from small family owned businesses. Get the basic technology from them and then develop on that.

How is the exports market looking ? How easy is to take on multinationals in their home turfs?

We are now doing about 34 per cent of exports. We want to go upto 50 per cent in the next three years, which will mean an even balance between exports and the domestic market so that any fluctuations in the domestic market will not affect us. Even in exports we are spreading ourselves from Australia to the US. We will have a balanced portfolio to address any slowdown in the domestic and exports markets. I know that the tax breaks for exports will go from 2003. But we still can be 20 per cent cheaper than multinationals when it comes to exports.

There have been clear indications that the domestic market, especially the commercial vehicles segment, is showing signs of a recovery. How has this affected your fortunes?

Over the last three months we have seen a growth of 30 per cent in the commercial vehicles segment. We are 100 per cent suppliers for Telco and also cater to around 60 per cent of Ashok Leyland?s. 30 per cent growth is good. But bear in mind that it dropped by 60 per cent over the last two years. So it is picking up. What would be interesting is to see after September how the growth will be. But I feel even if the worst case scenario we will see a 10 to 12 per cent growth.

But what about the domestic passenger car segment ? Do you see similar growth there as well ?

It depends on which segments you are talking about. In the small car segment, where we have Maruti, Indica and Hyundai I presume the growth rate will be about 15 to 20 per cent. But the intermediary segments where we will have the Ford Ikons and GM Corsas, growth will take time. May be another five years. We are the exclusive supplier for Indica as far as the rear brake linings are concerned. Our front brake linings are undergoing test now.

Replacement market has been one which has been less volatile. How is this looking now ?

Basically the replacement market for any product is dependent on the goods movement. And goods movement has not really picked up, Only now the freight rates are firming up and truckers are making money. So the replacement market will pick up, may be in the second half of this year. Even in exports we are basically targeting the replacement market for trucks. For every product sold in the OEM market we can sell atleast 5 in the after-market.

What sort of growth are you targeting for 1999-2000?

Our net profit grew by around 160 per cent for the first quarter this fiscal. But that is primarily because last year?s first quarter was bad. But I would say that this year we could see a sales growth of 15 per cent plus, while growth in profits could be in the range of 25 per cent.

Post 2003, India is going to see a flurry of multinationals coming in. How do you see yourselves surviving in such a competitive environment where you have to take on MNCs with deep pockets ?

We know that after 2003 many MNCs will be setting up shop to India. Assuming that Abex , the largest Brake Linings player comes to India. They will not be able to match our prices. I agree that they have deep pockets and can have better staying power. But if they undercut me in the domestic market then I can dump products in their home market. Because I know at what price they are selling in these markets and I can definitely be atleast 20 per cent cheaper then them. The largest player is Abex, which has a capacity of 24 million tonnes. We have a capacity of 10 million. The difference between us and the largest player in the world is only 2.5 times. So we can give them a run for their money.

Do you have any plans of expanding you capital to make the share more liquid?

Our share is illiquid because we have only around 5200 shareholders. Even among this many are from our company only. So they won?t sell. I don't see even FII?s buying into our share because they look for more high profile companies. The equity base is only 2.7 crores and there are no plans of expanding that. The promoters will continue to hold around 52 per cent.

BSE 650.10 9.70 (1.51%)
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