Industry is looking for opex solutions instead of capex: Siemens

From the sidelines of the World Economic Forum India Summit in New Delhi, CNBC-TV18's Shereen Bhan spoke to Sunil Mathur, CEO & MD at Siemens, where he spoke about GST, Saubhagya scheme, and the business outlook of the company going forward.

Below is the verbatim transcript of the interview.

Q: Give me a sense of what the business outlook looks like at this point in time. Concerns continue on private investments, there does not seem to be any indication of private investment picking up. What does that mean then when we talk about your order book?

Mathur: I think our order book is mixed. We have a large part of it working with the government. So about 60 percent of our order book is with the government projects, infrastructure areas. 40 percent of it is private. Now on the government side, we are seeing a mixed bag, there are some pockets which are doing extremely well. On the private side, there is not too much happening in terms of demand for capex, but we are going out with other solutions which are helping industry to be much more competitive and that seems to be picking up much more because industry instead of going in for capex, is now looking at opex solutions and this is where we are going out with our digital offerings to try and find the right solutions for our customers.

Q: What is the number that you are working with in terms of the order book, I think the last one that I have is about Rs 16,700 crore, is that what you are working with?

Mathur: We are looking at good growth numbers in the order book and just to give you an indication, last year we did 20 percent plus growth. We have now just closed the financial year, so I can’t talk about the numbers now, but we are looking at reasonably good growth this year as well.

Q: What about margins and I also want to ask you about the impact on account of the goods and services tax (GST). Has that taken a toll on business in any form or fashion and where do you see margins headed, about 8-8.2 percent range, is that what you are working with?

Mathur: On the GST, there has been a mixed bag. Initially there was a slowdown. I think a lot of our supply chain is still struggling because of either unpreparedness themselves or part of other issues that are linked to it. So there is a slowdown as a result of GST. In some areas it has begun to pick up again. Overall I think this is a short term adjustment that will take place and I expect it to pick up over a period of time. It is not as slow as it was when the GST was first introduced.

On the margin area, a lot of it depends on the mix of private and government business, on large projects versus more solutions in smaller businesses. So our margins will depend on that. Having said that, it is true to say that a lot of the price levels are now under pressure. So, because of the low demand, a lot of the competition and us as well are having to decide how do you fill existing capacity. We have gone out with a very clear statement saying we will only grow if we meet our margin hurdles.

Q: What is the margin hurdle that you are working with given the competitive nature in the environment as well as the low investment climate?

Mathur: If you look at our numbers in the last two or three years, we have been fairly stable on the margin levels and I expect that we will probably maintain those levels, if not try and grow them as well.

Q: Any more restructuring expected post the healthcare business that you sold back to the parent, is there any other restructuring expected?

Mathur: As of now, we don’t have anything on the cards, but it is a changing world and things move all the time. However, as you asked me today, I don’t have anything major on my plate right now.

Q: Any M&A possibility, there has been a lot of talk around BEML and we have on record Larsen and Toubro (L&T) as well as Bharat Forge saying that they are interested, what about you?

Mathur: We are always looking at opportunities and I think you will hear about them when we work something out. However, there is a huge market out there, we are looking for inorganic growth as well. When the right opportunity comes, we will go for it.

Q: Would this make sense though, you don’t have to give me a yes or no answer about BEML specifically, but the kind of opportunity that a company like BEML brings to the table, would that be of interest to you?

Mathur: We have got to try and differentiate between do we just go in for another technology partner, but we have most of the technology ourselves. Where is really the partnership going to work? Now this does not necessarily have to be an M&A, this could be equity sharing, it could be a whole lot of other areas. So we are really looking at any value add that a partner can bring in. It could be an access to a market, it could be an existing structure, it could be a new technology, it does not have to be a large company, it could be a very small company with a niche technology that we are looking for. So, that is a spectrum that we actually go out for.

Q: If I were to just look at your Q3 numbers, the revenue came in ahead of estimates, growth was led by your energy management vertical registering about 54 percent year-on-year (YoY) growth and building technologies about 25 percent YoY as well. Is that broadly the trajectory that you are going to be working with?

Mathur: We are looking at growth. The opportunities in this country are massive. A lot of it depends also on what comes out in terms of tendering from the government. Now energy management is transmission as well as distribution, so will there be more HVDC projects coming out, on the distribution side, how many of the state utilities will be looking at smart grids, will be looking at more efficient distribution systems.

Q: How are you reading the Saubhagya scheme which the government has recently launched and how different really is it from the scheme that we have already had in existence?

Mathur: I think the concept is very good, it is the right thing to do. Now the next step is implementation. Will this really translate on the ground? Some of it has already started happening, but this has to gather momentum and you will see that impact in our order books as and when states start turning around and placing orders on us.

Q: New investments have remained anemic, the rate of revival of projects has fallen to less than 6 percent in the first half of 2017, new investment projects in the pipeline not looking particularly good either. So today, as someone who is in this business, do you go into 2018 feeling a lot more confident or are there more challenges on the dashboard today?

Mathur: I am greatly heartened by the recent announcement that the Prime Minister has made which is he is aware of the economic situation and he is going to do something on growth over there and that is something that companies like ours depend on hugely, is to see whether government spending can increase, what is it that can be done to bring back demand into the system. Having said that, it need not only be capex. There could be a lot of opex and with our digital offering, we are now trying to bring solutions to our customers which will help make them much more competitive even in an environment which is difficult at the moment.

Q: Outside of government spending, what else would be the triggers that you would be watching out for?

Mathur: I think the biggest thing is where is the export headed, can we increase the export, how is the rupee going to play out in the future, I think that is going to have a major impact, what is going to happen with the NPA situation with the banks, are large projects going to start moving. So, if I were to pick the top three, those would probably be my highlights.

Q: On the export side, we are starting to see global recovery across more developed markets for certain. So what is the outlook as far as exports are concerned?

Mathur: We are very positive, we are looking at increasing our export book as well. We are exporting to over 25 countries already. As the demand picks up, we will also work with that. We have the advantage, we are part of a global chain, a manufacturing chain for Siemens, so anywhere where there is a requirement and we have the capabilities, we are able to contribute into that. So, I think the export environment for companies like ours, particularly with the manufacturing footprint that we have, 22 factories in the country, is something that is a huge opportunity for companies like ours.

Q: You are not going to be putting in fresh money to setup fresh capacity today?

Mathur: We will wait until the demand picks up and we are not averse to putting in more investment.

Q: You don’t feel the need for it yet?

Mathur: At the moment, not yet. We have to max out on our existing capacity.

Q: What is the capacity utilisation rate for you?

Mathur: It varies. Again for large projects, for our HVDCs, we are full. Some of our factories are absolutely full there. On our let us say smaller business, low voltage and medium voltage business, there is scope for expansion still happening over there. So I think there it is a mixed bag right now and we do everything from power generation to transmission, right down to automation and things like that. So our factories vary depending on how the customers are reacting right now.

Q: Are you seeing signs of things picking up because that is certainly what the government narrative is but on the ground, do you see signs of a pickup?

Mathur: I think it would be probably wrong to generalise on it. There are signs definitely in pockets. Some areas are doing better than others in sectors as well as verticals but it is not happening across the board. However, there are some pockets which are doing much better than others.