Compact cars are quite a rage these days be it hatchbacks, compact sedans or compact utility vehicles. Industry leader Maruti Suzuki – gauging the potential of the compacts, is entering into the utility vehicle space, after having established a strong hatchback and entry-level sedan portfolio.While it will launch its much awaited compact MPV Ertiga on January 6th, it gave a sneak peek into its future plans. The automaker showcased a concept compact SUV – XA (α) (XA Alpha) — targeted at young urban Indians.The 5-seater utilty vehicle is 4000-mm long, with overall width of 1900 mm, total height of 1600 mm and a wheelbase of 2500 mm. Shinzo Nakanishi, MD and CEO of Maruti Suzuki, said: "The Concept XAa showcases the unified R&D efforts of Suzuki and Maruti.""It's on a completely new platform," said Mayank Pareek, marketing head at Maruti Suzuki India. He declined to share any more details.The 2012 Auto Expo will showcase a lot many utility vehicles, with Ford being the first to showcase its Ecosport on Wednesday.
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The i45 or the new Sonata premium sedan was the number 1 sedan, in terms of sales, in the USA. It beat the Toyota Corolla last year for that position. However, it was a much talked about car for over a year among Indian auto enthusiasts. The A4 segment or the premium segment was something that Hyundai has lost out on. This car market segment is dominated by the Volkswagen Group's Skoda Superb and VW Passat. The Honda Accord was also popular in this segment before the segment turned towards the diesel engine over the last one year and there is also no clear leader in this segment. With the new Sonata Hyundai hopes to create a niche for itself. "This is a more than premium car with great technology," says H W Park, MD of Hyundai India Limited. He says that he hoped to bring more great technology in their entire range of affordable cars starting from the Eon hatch to the Verna sedan.The Concept compact MPV Hexa Space was also showcased. It carries Hyundai's new strategy on design called the Fluidic concepts from their German studio. The new Sonata has taken cues from the orchid, with its flowing shape and sleek design.Hyundai kicked off the Auto Expo in 2012 as the second largest car maker, behind Maruti, in India with over 2,50,000 cars sold locally and 2,75,000 cars exported. This year its Eon hatch sold 7,000 cars on an averge every month since its launch in August. The company has lowered its guidance to 2,25,000 cars to be sold locally this year as a result of the slowing Indian economy.
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Like most market participants, Prateek Agrawal, CIO at ASK Investment Managers who overseas Rs 1,500 crore of domestic and offshore money, is awaiting the outcome of state election results, the RBI policy and the budget which he feels would dictate the future trend in the market. In a free-wheeling interview with Businessworld, Agrawal talks about his concerns for the market, his experience with his offshore clients, where to invest and personally where he is investing his own money. Though India is a high beta play for offshore investors — who have been hurt by the depreciating rupee — he has been advising them to have faith in the Indian market and is currently devising products with dynamic hedging for them. However, his biggest concern is the current liquidity driven rally. He feels while the stock market may be rising on account of liquidity, the fundamentals are getting weakened and once the flow of money stops, there could be a bad fall.In recent times Agrawal has been investing primarily in annuity businesses with high internal cash generating capacity and delivering returns higher than economy growth rates. Personally 90 per cent of his money is tied up in equity and real estate and he is investing the incremental fresh inflows into high yielding debt to readjust his portfolio and create an annuity income stream. Excerpts from the conversation:Indian equity market has gained nearly 17 per cent since the beginning of the year. Do you think the market can maintain this momentum even if liquidity drives and why? Will you be a buyer in this market and why?Strong infusion of liquidity in the Euro Zone has had its spill-over effect on the Indian equity markets and we have seen a sharp rally in January. This has corrected the undervaluation that Indian equities had faced towards the end of last year. However, even at this juncture, the market still offers some amount of valuation comfort. We project an index level of around 20,000 during FY13 based on expectations of Sensex earning per share (EPS) of around 1,330 and an average multiple of around 15.5X.While liquidity has been the prime mover of Indian markets, reforms, primarily in the power sector have also played a role. While power sector players have distinctly benefited, lending institutions have also benefited. Incidentally, these were one of the cheapest parts of the market. While we have seen a significant rally in these parts, we believe the market still offers upside.Besides, RBI is expected to embark on liquidity enhancement measures and rate cuts could commence sooner than later. This again is beneficial to a large part of the leveraged market. While we still want to remain away from highly leveraged companies, we are not averse to looking at companies with free cash flow generation which would result in lowering of leverage in the forseeable future.We believe that markets may offer positive returns from here on mainly on account of following reasons:a) Continued infusion of liquidity on a global basis. Liquidity would help all asset prices, including equities.b) Initiation of reform process. Power sector has seen some reforms. Coal block auctions are beginning and that is a positive. Enactment of cable digitization act has been another positive. The ordering of road projects has again gained momentum.The second half of FY13 would have the benefit of low base of FY12 and Indian corporates should be able to register good results. Markets being forward looking may have already started discounting the same. Rate cut cycle by RBI is around the corner and should benefit rate sensitivesOn the fiscal side, concerns remain. However, while earlier we were looking at a figure of more than a lakh crores for food security bill, the expectation now is that it would be a fraction of that at least in the first year. Hence, while the budget maths may not present a pretty picture especially given the subsidies burden, it would probably be better than expectations. Lastly, the FY13 could be start of better times for the Indian economy. FY14 should see important fiscal measures like direct tax code (DTC) and goods and service tax (GST) getting implemented. After two years of sub-par growth, FY14 could promise a growth acceleration and hence markets could actually consolidate gains and aim for higher levels in FY14.Even in a bad year like last year, we had remained nearly fully invested. We continue to be focused on quality. We still do not like businesses which require to raise external capital. However, we have booked profits in sectors like FMCG which did exceptionally well last year and have taken some exposure to metals, gas distribution and engineering companies. Most of our portfolio remains unchanged versus last year. The infusion of liquidity just changes the momentum of price discovery and we believe we would need to make only small changes in case liquidity dries up.Do you see RBI cutting rates in the upcoming monetary policy and why?Currently the banking system suffers from very tight liquidity. Given the fact that advance tax period is just around the corner, the liquidity in the system would only worsen. Given this scenario, we do expect the Reserve Bank of India (RBI) to have some liquidity enhancing measures soon. The measures could take the form of open market operations (OMO), a cash reserve ratio (CRR) or a statutory liquidity ratio (SLR) cut.As far as interest rate cuts go, there is a good possibility that they start in March versus the expectation of first cut in April. The policy makers were divided in the last policy meeting itself to the requirement of a rate cut and since then the economic parameters in terms of growth has worsened while inflation has come down. While there is a view that the RBI may want to wait till budget is tabled to see fiscal consolidation and also wait for some more time to see if oil flares up or not, fact of the matter is that the economy is already slowing down quite sharply and sooner the rate cuts start the better. The other driver for rate cuts is the fact that projects which have borrowed money are not able to service interest at such high rates and the incidence of non-performing assets (NPAs) has already shot up in bank books as per last quarter results. Hence, unless rate cuts are affected sooner than later, banks may see further incidence of NPAs.What are your concerns for the Indian equity market?There is still a wall of worries that the market has to climb. The budget is around the corner. We would like to see fiscal consolidation in the budget as large deficits may derail the India story. The fear is that given the populist pressures, the fiscal deficit may remain high. The revenue base should be broad based. For a long time measures like DTC and GST have been delayed and need to be implemented for fiscal consolidation. Rural incomes which are largely outside of tax net should be brought under the tax net, above a certain level. The reform process has to gain momentum. Land acquisition rules and mine allocation rules have to be practical and be framed in a finite period of time.Stresses on the fiscal and inflation pressures have forced public sector to shoulder a lot of burden. This results in undervaluation. If listed public sector enterprises, particularly in the areas of mineral and mining, are allowed to charge market related prices, their full potential may be realised.There is a stress on the current account situation in the country as our exports are slowing and imports growing, on a larger base, faster than exports. Stress on the INR can cause overseas investors to change directions quickly. This year several companies have to refinance their foreign currency convertible bonds (FCCBs). Inability to do so would present a further stress on the banking system.This is a liquidity driven rally and we have seen certain stocks of companies, where there seems to be survival issues, show sharp returns in a short period of time. While it could be on account of short covering, fact is that a section of investors may get suckered into the space and the market may get hurt as a consequence, when the music stops. In any liquidity driven rally, commodities like oil also spike up. Indian economy which is a large importer of oil hence gets impacted negatively. The strange phenomenon is that while the stock market may be rising on account of liquidity, actually the fundamentals of the economy gets weakened and the fall after may hence be quite bad.Supply of paper may catch up rapidly to incoming liquidity. Government has restarted its disinvestment programme. Companies with more than 75 per cent promoter holdings are also looking to raise money. We have already seen several large ticket exits by PEs in stocks like HDFC and Kotak. Do you think the time bomb is ticking in the global financial market with central banks across the globe pumping money in their respective economy? What is your view on the overall financial market? Do you think crisis in Europe as well as US behind us and why?The problems in the western world are long term in nature and we do not believe that they are behind us. However, we also believe that till interest rates can be maintained at low levels, the problem recognition can be postponed. Once, policy makers have time, they should be able to address various parts of the problems in a systematic manner. The key is the sustenance of low level of interest rates and we have to look put for signs of stress leading to a loss of confidence of the credit providing nations. However, a freeze of financial markets is not a high frequency event. The fear in the minds of investors is whether Lehman kind of a scenario can be repeated. We believe that kind of a scenario is still fresh in the minds of policymakers. We believe that since the cost of recovery after a Lehman kind of scenario is significantly higher than otherwise, policymakers would try to avoid such a scenario. A freeze in the financial system is a low probability event to our minds.In current market condition where are you advising investors to invest? And why? As a fund manager what call will you take on the overall portfolio of the fund? What will be your short-term strategy in the current market condition?We continue to be focused on quality growth business which implies annuity businesses with good return ratios, steady free cash flows, good dividend payouts and pricing power. Last year, we had shunned risk and had cut exposure to sectors like metals, engineering, banking and capital goods. Some of these businesses present upsides and we are selectively buying them, selecting them over some FMCG businesses that have become expensive.We are long-term investors and the churn ratios in our schemes are some of the lowest in the industry. We typically run concentrated portfolios with strong conviction in our stocks and are not swayed by short term factors. Currently where are you investing your own money? And why?Most of my money continues to be invested into equities with small portion in real estate and debt. Personally I like the infrastructure sector and I am focused on companies which have large coal assets abroad. Coal is a valuable asset and can result in multifold gains for companies which can bring the coal to the market. I also like high dividend yielding banking stocks with a return on assets (ROA) of over 1.2 per cent. This is to afford some regular income and also make sure that the banks do not loose valuation multiples as Basel III norms are enforced and high leverage does not remain a possibility. I also like gold financing businesses. This business offers high ROAs and one of the highest growth trajectories in India. However, the skepticism of the investing community has kept valuations still very attractive. Incrementally though, I am investing my fresh inflows primarily into high yielding debt. This is to take into account the imbalance in my portfolio and create an annuity income stream. What has been your advice to offshore clients? What are their expectations from Indian equities?Offshore investors look at various asset classes and India story is at best a high beta play for them at this juncture. We continue to have faith in the India growth story and advise the same to the offshore clients. The offshore clients have been hurt by the INR depreciation and is expected to return only when there is a semblance of stability in the currency market. We are devising products with dynamic hedging for our global investors.In your view what will be the next trigger for the Indian equity market? And why? And when do you see it coming such that we break the 18K levels?We have discussed the positives that the market would encounter over the next 12 months in a previous question. While there are a lot of concerns primarily related to export-import and fiscal deficit, to my mind, the next positive trigger for the equity markets would be the liquidity infusion and drop in interest rates by the RBI. It is a widely anticipated move. If it happens in March as we debated, it would be better. The fourth quarter results could be the next trigger. Advance tax payouts would provide an indication of the same. Corporate results should benefit from relatively stable currency markets and low resultant forex related losses as compared to previous two quarters. We remain positive on the India growth story and believe that over the next three years the market offers significant upsides. In the short term, the state election results and the Budget could provide market volatility.
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A couple of years ago when the Ford Figo was launched it changed the fortunes of Ford India. They went ahead and sold 98,000 cars in 2010-11. While the industry has grown by only 3 per cent since, the industry expects to grow at 7 per cent in 2012-13. "Our research says that the Indian customer wants something more than a car," says Michael Bonham, MD of Ford India. The compact SUV market has just begun to heat up in the sub Rs 10- lakh range. Renault is coming up with the Duster, Nissan has the NV200 and Mahindra has plans to launch the mini Xylo. But on Wednesday Ford surprised everyone with its powerful 1-litre three cylinder engine on its EcoBoost SUV unveiled in Delhi.The engine, EcoBoost, which will be produced in India, will provide more power like that of 1.6 litre petrol engine. The diesel version will also find its way in to the market and sources say it would be a 1.5 litre engine. The car is built on the b-platform, which is a versatile global platform based on the 'one Ford' strategy. The SUV was built on the Ford Fiesta platform.The SUV market is 20 per cent of the 2.2 million Indian market and there is a gap for smaller SUVs below the Mahindra Scorpio and Xylo range. Ford has a 3 per cent share in the SUV market in India. The EcoSport will probably change that. But M&M are the market leaders with more than 200000 vehices sold."This product will be localised completely and will create a set of consumers," says Bonham. It will be exported to 30 odd countries. Although Ford did not reveal the launch date, it mentioned that it will be within 2012. This is the second of the B-platform cars after the new Fiesta released last year.Ford has 2,25,000 manufacturing capacity and a 300,000 capacity engine plant in Chennai. It has a similar plant coming up in Sanand. It has made a total investment of $2.14 billion in India so far.
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Auto Expo 2012 looks all set to be about new launches across segments. The other crucial trend would be the industry's drive towards making the vehicles affordable. Affordability means cheaper vehicles, durable components as well as better fuel efficiency.The Bosch Group's commitment towards investing Rs 2,200 crore over the next two years in its India unit – a low-cost innovation centre — is a step towards the principle of affordability. "Making Bosch automotive products accessible and affordable everywhere is one of our central aims and we see our India team contributing significantly on this front," says Bernd Bohr, Chairman of the Automotive Group, Robert Bosch GmbH.With cut-throat competition in the auto industry, where better vehicles at lower price tags have become the norm, manufacturers have been constantly trying to optimize their resources and improve processes. However, technological advancements and innovations hold key to the future. Bosch's investments will be used for such technological developments including cost reduction, innovation in fuel delivery systems that allows for lower emissions and fuel consumption, and low-cost safety systems like ABS. "We are looking at 20-30 per cent cost reduction in product development," says V K Viswanathan, managing director, Bosch India.With focus on fuel economy, the company will invest Rs 700-800 crore of the total amount om capacity expansion for diesel technology at its Nasik plant. The plant can currently produce 7-8 million fuel injectors. It is also constructing a new plant in Ahmedabad - expected to be functional by first quarter of 2012 - that will produce hydraulic valves, power units, control blocks and cylinders.Viswanathan believes that the demand for diesel will pick up. "Diesel is here to stay; it's here to grow, not just from the difference between petrol and diesel … but also because of other inherent characteristics – suitable for Indian conditions," he adds. For alternative fuel technology, Bohr sees opportunities for the plug-in hybrid technology, while expecting the all-electric driving to be possible much later.Demand for small, low-cost vehicles will grow as emerging economies develop, says Bohr. Bosch is the only manufacturer of ABS systems in India. And as an initiative towards affordable safety technology, it has also developed a low-cost ABS system for two-wheelers that we can see on the TVS Apache RTR 180. The automotive group added 4,000 associates in 2011, taking the current strength to 25,000, and expects to add 7,000 more associates by the end of 2013. The investment also comes at a crucial time, when the ‘India growth story' is losing some of its sheen. The automakers continue to be quite positive. "Bosch expects the number of cars per 1,000 people to rise to 35 by 2025, up from 12 per cent in 2012," says Bohr.
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Two-wheeler giant Hero MotoCorp has unveiled three new products with the 'Hero' brand name - a 100 cc bike Passion X Pro and a 125 cc bike Ignitor along with a 110 cc scooter named Maestro. Sunil Kant Munjal, who has been appointed as the joint managing director of the company for a period of five years from August 17, 2011, spoke to BW's Malabika Sarkar about the company's new products and strategies on the sidelines of the Delhi Auto Expo 2012. Excerpts:This is your first product showcase in the domestic market after the 27 year long split with Honda. What would be your strategy for 2012?We would continue to grow at 10-12 per cent this year. However because of the current market condition and economic situation, things are expected to look rosier in the second half of the fiscal year.Your agreement of sourcing technology from Honda will end in 2014. Do you have the expertise to manufacture products on your own, from scratch? How the company's R&D placed?The company has distinct capability for creating variants and modifications for a long time now. What we are now looking at is designing and building product technology. It's is obviously difficult as it was not there in the company and we are now focusing on building this capability. Don't you think it is already late to build-up new technology?Yes. But we could not do it because of the joint venture. It was a part of the agreement; it was not permitted to be done here.With regard to international business, you are expecting to grow from 2 per cent to 10 per cent. Will it be only through exports or are you going to look at launching operations in other markets as well?We have plans of foraying into new international markets such as Africa, Latin America and South East Asia but that would be in due course of time. At present we are concentrating on expanding the market and launching new products. We are replacing the brand with a brand which is already well-known.The company's focus area was on the commuters segment but as you grow will your focus shift to premium bikes?The company has already launched a completely new set of products. Impulse (bike), which we have recently launched, focused on the completely new segment which did not exist in the country until we introduced it. There are niche markets in this country and gradually as the market is evolving and the economy is developing, these markets are growing. As a company we hope to cater to these niche segments as well.
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Volkswagen India has just unveiled plans to enter the used car business. It is bringing in its global brand VW Das Weld Auto which will buy, exchange, fix and sell VW and other car brands locally. "Thirty per cent of walk in customers in our showrooms ask us whether we have an exchange programme. It is fitting that we launched this service for such customers," says Neeraj Garg, head of passenger cars in VW.Volkswagen has sold 78,000 cars in 2011, 140 per cent more than 2010. "Since the brand is established it is fitting that wee extended our services further," says Garg. He adds that the business will begin early this year with a couple of dealerships before rolling it out across 101 dealers in a year's time. The company will be supported by VW Financial Services which will support the retail financing of these pre-owned cars. VW will use this to up sell brands like Polo and Vento in exchange for other car brands in the same category such as the Hyundai Verna and the Maruti Swift. Maruti's preowned cars sell more than 100,000 cars and Hyundai sells around 55,000 cars. VW will take on the likes of Toyota and Mahindra who have established pre owned car brand show rooms.
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Boehringer Ingelheim (BI), one of the top mid-sized multinational pharmaceutical companies based in Rhein, Germany, has joined the list of global drug firms lining up to tap the potential of the Rs 60,000 crore Indian pharmaceutical market.Unlike most other big pharma companies, the 100 per cent privately held company, with a turnover of 13.2 billion euros in 2011, is looking to achieve organic growth in India by selling its own patented medicines rather than foraying into the turf of generics or copycats of patented drugs with big bang acquisitions."Traditionally our growth is based on innovation led patented products and acquisitions are not in our DNA", says Engelbert C. Tjeenk Willink, member of the board of managing directors at BI.BI set up operations in India with an office in Mumbai in 2003 and has been slowly testing Indian waters, despite its apprehensions on India's patent regime. Now it sells about five products in the country with revenues of Rs 150 crore. These are Actilyse and Aggrenox for prevention of strokes, Mirapex for treatment in Parkinson's disease and cardiovascular drugs Metalyse for acute myocardial infarction and Micardis for hypertension.At present about 400 people are employed in India and most of them were recruited in the recent years, says Sharad Tyagi, managing director of Boehringer Ingelheim India. BI will soon launch Pradaxa, a blockbuster cardiovascular blood thinner drug useful for prevention of strokes in patients suffering from a heart condition called atrial fibrillation. The company is also planning to launch Trajenta, this year in India, indicated for glycaemic control for Type 2 diabetes mellitus patients. This will be marketed through an alliance with another global drug major Eli Lilly, which has a good market share in India in the field of diabetes solutions. Some of BI's old products are currently marketed in India by Zydus Cadila through a licensing agreement, as part of Zydus's German Remedies acquisition in 2002-03 from a clutch of German drug companies."These licensing terms will expire next year and we are evaluating options ", says Willink.Considering the nature of the Indian market, BI will adopt a differential pricing strategy to help its drugs reach more people, he adds. About half the global sales of BI are from the US and the rest are distributed between Europe and Asia Pacific. Their grand entry into India is part of the strategy to tap the BRIC countries. BI entered China a few years ago and currently employs over 3000 people. India will also witness a similar growth plan, says Philipp von Lattorff, vice president, emerging markets at BI."We have a rich pipeline of drugs under development and we will launch them in the Indian market in the coming years", says Willink, who states that sustainable growth is the philosophy of the company. But to sustain and grow big in the Indian market, BI will have to follow an aggressive organic growth strategy, as the Indian market is already flooded with an estimated 70 patented drugs and thousands of generic drugs.
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