Why Minda Industries Is Pumping Rs 250 Crore Into Capacity Expansion
“We have secured business contracts that we have to deliver from next year onwards,” Minda CFO Sunil Bohra said.
Minda Industries Ltd.’s plan to set up a new manufacturing facility and expand existing capacities will help it deliver already secured contracts while creating additional space for any spurt in demand, according to its Chief Financial Officer Sunil Bohra.
“It’s not just pre-emptive capex. We have secured business contracts that we have to deliver from next year onwards,” Bohra told BloombergQuint’s Niraj Shah in an interaction. “So, in the wheels business, I am already running at full capacity. And normally in the auto ancillaries, it is expected that you have 10-15% spare capacity available so in case there is a sudden demand jump, we are able to meet that demand.”
Last week, the auto-parts maker said it will set up a new plant in Gujarat for Rs 90 crore for its four-wheeler automotive lighting business, adding to its existing three units in Pune, Chennai and Manesar. The company will also spend Rs 167 crore to expand the capacity of its four-wheel alloy wheel business at its Haryana plant to meet increasing demand.
“In the lighting business, we have three manufacturing plants from which our annual revenue is around Rs 400-450 crore. The new business we have secured is almost Rs 200 crore, so it’s nearly impossible to supply that from our existing plants,” Bohra said. “The same goes for our alloy wheels, you need to have additional capacity and margin. Therefore, there’s the need to set up this new plant.”
That and the changing nature of the auto ancillary business meant Minda needed to have spare capacity. “Earlier, one customer would give their business to two people. But that meant double designing costs, double tooling costs, double engineering costs,” he explained.
“Now what is happening is that gradually the market has shifted to one supplier for one component. So if I am the only supplier of a component, and I do not have the capacity, then if the customer wants to grow how do you do that? Therefore you need to have some buffer capacity.”
The wheel and lighting businesses are also big beneficiaries of premiumisation, Bohra said, adding that there is a shift in the industry from steel to alloy wheels and halogen to LED lamps.
Bohra said demand for Minda’s products has “improved a lot” ever since Covid-19 first hit. “October was almost the peak. Unfortunately, we haven’t seen such numbers again. However, we have no complaints since it’s the seasonal impact. Post-Diwali, things have been pretty stable.”
He said demand for personal mobility due to people avoiding public transport amid Covid-19 has been a tailwind for business. The pent-up demand over the years due to pricing pressures and confusion over the BS-IV to BS-VI transition is playing out and giving stability to volume. “The way things are, it gives some comfort that the demand is here to stay.”
Watch | Minda Industries CFO explains rationale behind capacity expansion plans.