New Delhi: Last week, component maker Kinetic Engineering announced a net profit INR 1.7 crore for April – September 2023, which the company’s MD Ajinkya Firdoia points out, is the seventh consecutive quarter of net profit. “After years of turnaround efforts, and struggle, we have now stabilised the business into a profitable and growing business,” Firodia told ETAuto. As that happens, the promoters look to now ramp up their equity stake in the company.Over the past few years, the Firodias have increased their stake in the company from 49% to 59%. Regulations allow a maximum of 75% stake for promoters, in a listed company. The Firodias are mulling to go the full distance. “We are looking forward, as the company progresses, to continue to increase to maximum allowable limits as we can,” Firodia said.
A two-pronged strategy fuels the thought process. One is to earn investor confidence, and the other is to fund future expansion plans by diluting some stake at a higher valuation. “I’m foreseeing that at some point for the next level of growth, the company is going to require a huge amount of CapEx funds or a huge amount of renovation funds that we are going to require,” Firodia said.
New partners for new growth avenues
The big bet for new growth is on the obvious growing electrification megatrend. Seen as a “gold mine”, Kinetic Engineering has developed a rigid axle, or a transaxle solution for some EVs. Revenue from EV-focused solutions contribute to 10% of the company’s turnover of INR 139 crore.
Firodia expects the business share to grow significantly, but he also knows that building EV tech capabilities is extremely crucial to tap the opportunities. Therefore, Kinetic Engineering is exploring collaboration with foreign companies. “We are open to all kinds of technology collaborations, especially in the EV space, with someone from Korea, Japan or China, in order to strengthen ourselves in transmission, or anything to do with EV,” Firodia said.
Kinetic Engineering is currently generating revenue largely with the build-to-print business model. This approach will not help much in an increasingly disruptive and competitive age. Having competency in design and development is crucial. Recognising the fact, Firodia said, “We are adding designers to our team and we are looking at some European companies, we are looking at some external companies where we can have some kind of collaboration to design products.”
American shot in the arm
What also gives confidence to Firodia for his company to progress well in the turnaround journey is the renewal of a longstanding association, as a supplier, with global Tier 1 company, American Axle. Kinetic has been supplying forged driveline components to American Axle for the past 14 years. Firodia recently signed a contract extending the association by another seven years.
It is a major development, as American Axle contributes to around 50% of Kinetic Engineering’s exports revenue. According to Firodia, half of his company’s annual revenue comes from exports. The extended contract, with a possibility of supplying additional components, is expected to assure a business of around INR 300 crore for the Indian company.
Kinetic Engineering also supplies to Ashok Leyland, Mahindra & Mahindra, and Renault-Nissan (domestic and overseas).
Kinetic Engineering, the flagship of the Kinetic Group, has seen phases of growth, decline, and growth again. In the current phase of the turnaround journey, the company’s debt:equity ratio, according to Fiodia, has improved to 8:1, from 6:1 about four years ago. There’s improvement in the company’s performance, but the current performance doesn’t necessarily guarantee sustained growth. After regaining business stability, Firodia and his team have to devise ways for sustained success in the increasingly technology-intensive game.
