Through the past couple of decades at the Ontario-based company, the Andhra Pradesh born engineer climbed the ladder, harnessing his R&D expertise. From being a product engineer, he moved on to lead the R&D function, and then became the chief technology officer. He will take over as the company’s global CEO starting January 2021.
In his first interview to the Indian media, Kotagiri tells ET’s Nehal Chaliawala and Ketan Thakkar that the recovery from Covid has been better than expected, and that strong reserves helped Magna tide over the crisis.
As business resumes, the company is open to acquisitions, including in India, and the country could take on more business responsibility as companies look beyond China, he said.
“And I obviously have a bias (toward India) because of my heritage,” he told ET. Edited excerpts:
How tough was it in the first six months of this calendar year? And are you seeing signs of revival?
The first six months and March to June, specifically, were definitely among the worst times. It was just about how well we could manage. We went through the optimization process, just like the rest of the industry did. It’s always a difficult decision – the workforce put its heart and soul into the company. But we had to go through it to come back strong and healthy for the larger good of the company. We haven’t yet come back to the pre-COVID-19 level of 2019; I think we may have to wait till 2022 to get back to 2019 levels.
The ramp-up has been significantly positive. We have a healthy balance sheet, which I attribute to the discipline that we’ve had in going through capital allocation and investment strategy. We were prudent, but we didn’t have to pull back on what we believed was important for the long term – whether it was R&D or development projects and so on. I think it’s a cycle, so we have to do that. Of course, we prioritised things looking at the overall trends and figuring out what makes sense.
What are the factors aiding demand recovery?
It will be difficult to predict the market. But as we went through the inventory levels, even in the US and Europe after the shutdown when we came back on, we definitely saw what we believe is filling of the pipeline. How it (the pandemic) changes the consumer perception of wanting personalized transportation versus using public transportation – that could be a little bit of an influence. Whether it’s sustainable, and for how long, I think remains to be seen.
India remains a small part of your total business? What role do you see India playing? Would you be open to inorganic opportunities?
We came in 2008 and some of the groups were there even before. We make mechatronics, mirrors, Cosma seating, and we have a development centre here. I look at the installed capacity base and the capital base that we have, we should be able to address all the needs within the Indian market. We look at it from a business-case perspective every time. The volumes that we had thought about have not fully materialised and we continue to monitor it. If the opportunities are there, that are sustainable over the long term we will see what we can do in India.
We always go through a normal business process looking at all avenues, whether it is organic or inorganic investments, either to address a gap in the geographic footprint or a product portfolio or to address a customer need. We do that in all regions of the world. And India for sure is not an exception to that.
India is keen on foreign companies to come and make in India for the world. With global OEMs looking at the China-plus-one strategy, can India gain?
It’s never off the table. The trade policies and trade discussions depend upon the regimes and the policies during that time.
The OEMs, and the OEM ecosystem, are definitely looking at the possibility of the situation that we all had to face during the COVID-19 crisis and are still continuing to deal with. How do we make sure that there is no disruption in the supply base? So there is discussion of localization versus globalisation.
We have to look at it from the perspective of the capital base that you have and the efficiencies that you need to continue for the longer term. We have a presence in Thailand and in India. We are hoping India does turn into a bigger market and the industry is changing, with ICE (internal combustion engine) going to EVs (electric vehicles) and the business model is changing from personalization to possibly mobility as a service. For us to be able to scale based on our product strategy, we have the modularity and the scalability and the manufacturing footprint. So our ability to expand to meet the demand, I don’t think is going to be a constraint by any means.
So how do you plan to expand further in India?
It’s not as much top-line growth-based planning, as it is about understanding where the industry stands and what value proposition we can bring to the table. These factors determine how much and what areas we invest in.
The regulatory changes on emissions, the infrastructure change – all of that’s going to play a role. China took a leap of change in the last 15-20 years. We believe the structure and everything else in India is capable of doing that. And if that happens, we are waiting and ready to go.
India is a massive R&D base for players like Bosch. Could India play such a role for Magna?
India has a phenomenal base in terms of talent, ability and language. It has a democratic system. All of this puts it in a very favorable position. And I obviously have a bias because of my heritage.
We already have a significant presence with a development center in Pune and in Bangalore with various groups. And we continue to look at expanding certain aspects of engineering.