Though the Indian automotive industry has reported strong growth over the years, the duration from 2013 to 2014 proved to be a period of negative growth for four wheelers and commercial vehicles. This dip in growth was experienced by the automotive industry after a long time; but during the same period, two wheelers were growing reasonably well at the rate of double digit per annum. This trend reversed in 2015, where, though the passenger vehicles and four wheelers have shown a positive growth of 5-6%, the two wheeler sales have been flat. The rise and fall in the automotive sector is the reflection of the difference in income growth in rural areas versus urban areas. In the years 2013 and 2014, lot of money was spent on rural areas with the food inflations and others yielding more income there and hence two wheeler growth was good, but four wheeler growth was not. In 2015, the situation changed and there was no much increase in rural income growth, leading to the decline of two wheelers.
Regardless, all Freudenberg companies that supplied to the auto industry have grown constantly through the period which indicates that our product portfolio, customer service and our positioning is strong enough to gain shares and not be entirely dependent on this cycle. Of course, we would have grown stronger if the industry was growing faster, but we have not been affected negatively on the large scale. Even during the period of sales decline, all our companies continued to grow strongly.
Q2. There was a significant investment (Rs. 130 crore) made in 2013 in the Mysore facility, Can you elaborate on the group's facility there?
Freudenberg's Mysore facility is a chemical speciality plant with Kluber lubrication India and ChemTrend India being the chief products being manufactured. With brand OKS being a part of Kluber lubricants, the Mysore plant produces a range of speciality products. The plant is also responsible for the logistic warehousing of these speciality lubricants along with product development and product testing. So, significant labs both for quality assurance as well as product development and large tribo-testing facilities have been set up here. The Mysore facility is an all-round well integrated facility for speciality lubricants and is amongst the best equipped in the Kluber world. In addition, the investments that we are making, will significantly enhance the production of ChemTrend release agent. Till last year, 25% of Chemtrend's sale in India included locally manufactured products while 75% was imported; but by 2017, 85% of Chemtrend's sales in India will be from locally manufactured products. Over the next 3-4 years, we would be investing in further capacity expansion and significant laboratory and product development facilities. The pace and the rate of these investments will determine our business growth.
Q3. Where does India stand (for Freudenberg) given the global outlook of the company?
Just as every global company considers India as one of the significant market, Freudenberg also values India as one of its key market. It is not Freudenberg's philosophy to manufacture for the sake of arbitrating low labour cost and export to home countries.
So, in general, to harness the potential market in a country, we look at that country's customers. As it is rightly said that a manufacturer should always be attuned to his/her target audience, Freudenberg tends to follow its customers. We want to be present in the market where our customers are present so that we can service them better. So, we have always perceived India of as one of our important markets which will continue to provide a significant growth over a long period of time. All companies look at BRICs as a big investment opportunity and were trying to invest in all the BRIC countries over the last many years. In the past two years, though many of the BRIC countries have lost their shine temporarily, India continues to show a steady growth.
As far as automotive growth is concerned, 25% of our business is automotive-based at India and at the global level. Since Indian manufacturers are not only involved in automobile production for the country but also in automobile exports; we have found significant growth opportunities in India and the automotive market is likely to grow and remain very important for us.
Q4. Are there any new investment plans for India?
We have exciting investment plans for India which we are executing on a step by step basis. Over the last year or two, we have expanded our facilities for vibration control through a joint venture. Besides the ongoing improvements & additional investments at the existing two plants of this venture, the JV Company has created a new Rubber mixing facility in Mohali. The Mysore facility for Freudenberg chemical specialities not only brings in capacity products but also other range of products that can be supplied amongst the auto industry.
Q5. There's a lot of competition in India when compared to a couple of years ago. How do you plan to respond to the competition in your specific industries?
To be honest, in all our industries we have faced competition from all the major players in the world since many years. Nothing different has been seen in the past couple of years. We have encountered competition from the global majors as well as Indian large companies and small local companies. Our position continues to be strong on account of our technology, long term relationship with our customers and high quality of our products. And we continue to grow market shares in spite of all the competition.
Q6. What does 2016 have in stored for Freudenberg? What innovations can we expect?
We see continuous growth in all our businesses and expect the automotive industry to grow at high single digits. So, all our businesses which supply to the automotive industry should show higher than previous growth since we keep adding market shares. Freudenberg's chemicals business through OKS brand has launched products in DIY (Do it Yourself) kits through our channel partners. The products are developed in India with a view on addressing wear and tear in our weather conditions.
