Shivam Autotech, run by the Munjal family of the Hero Group, had a difficult year. During fiscal year 2010, the company reported a loss of Rs 3.82 million rupees compared to a profit of Rs 19.3 crore in the year 16, weighed by higher interest costs.
Shivam is in the process of manufacturing transmission gears, shafts and precision engineering components for the automotive industry.
The company had built two new facilities. Its gross or gross value of fixed assets increased by Rs 395 million rupees during fiscal year 2013 to about Rs 600 crore (gross assets of Rs 485 crore and current working capital of Rs. 101 million Rupees) by the end of 2016. Despite the growth in assets, revenues in this period have remained in the region of Rs 420 crore to Rs 450 crore.
Of these facilities, the Bangalore facility started operating in April 2016 and the second facility in Rohtak was also operational in 2010. These two plants, partly funded by debt, contributed to almost zero revenue in the fiscal year 2010, but were added to the company’s expenses (which increased by 16%) and interest costs. Interest costs during fiscal year 2010 increased 35 percent to Rs 29 million rupees, resulting in losses. However, this should be corrected with both facilities already in operation.
Shivam offers some well-known national and international companies such as Bosch, MotoCorp hero, Maruti, Denso Mitsuba Hilti, among others. Shivam is a key player because of its technology and its integrated facilities with internal forging and cutting capability.
Installation of Bangalore respond to a large extent Bosch and also expand the scope of the company in the four-wheel segment, which still accounts for about 15% of sales. Most of the manufactured Bangalore plant products replace the import requirements of their customers which, for some components, such as electronic power steering, depends solely on imports.
Except, the plant was operating at a capacity utilization of approximately 85 to 90 percent, unable to meet the needs of its customers as Hero Group, which grows aggressively in export markets. The gap between supply and demand should allow a rapid acceleration of production.
The new facility will expand its product portfolio and develop the capacity of certain niche products that should mark a bit more space. The benefits of operating leverage, the contribution of high margin products and overall volume growth will have a significant impact on the margins and profitability that were previously depressed.
Today, MotoCorp hero represents nearly 80% of his sales. However, after the start of these two plants, the hero ratio would be reduced to 60% and the other would be recognized by other customers, which reduces their dependence on a single customer.
Some of the benefits due to capacity expansion will accrue during the year and 18 more than in year 19. Return rates also improve. Its debt (Rs 363 crore in 2010) to equity, will also improve by about 1.8 times to 1.4 times or less. Improving two matrices – Roe and debt / equity – will have a positive impact on ratings.