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HomeBusinessRate hikes haven’t hit capex plans yet, says Siemens CEO

Rate hikes haven’t hit capex plans yet, says Siemens CEO


MUMBAI : India Inc. is facing several headwinds that could threaten the country’s nascent economic recovery from the covid-induced disruptions. Sunil Mathur, managing director and chief executive of Siemens Ltd, the Indian arm of the German engineering giant, however said that despite macroeconomic challenges, he does not see Indian companies slowing down their capex plans.

In an interview, Mathur said Siemens sees major opportunities in India as companies look to open new plants to benefit from the government’s production-linked incentive schemes, and also adopt digital technologies on their shop floors. Edited excerpts:

How much of a concern is the current macro situation, commodity prices, high inflation and rising interest rates?

Commodity prices hit my costs directly; inflation hits my cost directly. Interest rates could slow down growth. Logistics is having an impact directly. Trade war and sanction-related issues will have an impact on us. So, it is becoming much more complicated. Traditionally, Indian industry has been used to fluctuations in commodity prices, foreign exchange increases, interest rates, inflation. These have been the four things that have been the biggest worries that we have had in the past. Now you’ve got a whole lot of other things around it that are bringing in even greater variables.

On supply-side challenges, when do you see the semiconductor situation easing?

I think it will continue well into 2023. Everybody has the same problem. All the alternative sources have now become prime sources. They are having to ration who they give what. We are part of that story. We have the advantage that we have the support of the parent company who is doing the talking at whatever levels are required. So, to that extent, we ride on the back of the parent company who is supporting us to do whatever is possible but it is a difficult situation.

For my large projects, we are prioritizing them because we can’t hold up a large project because of a PLC (programmable logic controller) that is not available. On the product side, the short-cycle business, there again, we are managing it. Our customers are unhappy but they understand the situation as well. Also, you will see in a lot of businesses while the order incomes have gone up, the revenues have not gone up proportionately. That is because many customers are doing advance ordering. That, in itself, is adding to the delays.

When I know that you’re going to deliver to me in 12 weeks instead of six weeks, then I start ordering double the quantity on you. You start placing double the quantity requirements with the semiconductor guys…which puts double the burden onto them to figure out which of his global customers he has to supply to, how much of it is advanced ordering and how much of it is really required. So, it’s putting a stress on the overall system around the world.

With interest rates rising, are you seeing any slowdown in capex plans, especially in the private sector?

In spite of the last rate increase, we are not having conversations with any private players who are wanting to push back on this. If you look at a project, which is a three-year period, everybody believes that the rate increase, whatever it will be, will be a temporary phenomenon. You can’t assume that the rates will stay at that elevated level for a 3-5 year period because that will have an impact on the economy. I think most people believe that the rate increases will be short term.

My projects are long-term and, therefore, I may get a slight hiccup in the short term but in the overall scheme of things, when I’m setting up a semiconductor factory or a battery storage factory or a solar factory or a new automotive plant, that’s a 2-3 year project. So, as we see it today, I’m not seeing a slowdown.

Are you going ahead with your capex plans at the same pace? What are your order inflows looking like?

Our order books are good, the pipeline is strong. And we are continuing our capex plans. The country needs digital manufacturing, the country needs smart infrastructure, the country needs metros, the country needs energy efficiency, etc. So, essentially that has not changed pre-covid and post-covid.

In fact, it has accelerated. Our projects are significantly higher in the technology and digitalization space. Everyone’s asking for more efficiency. If you want to save costs, you want to save capex, you want to save cash, then digitalization is the answer and everybody is looking to do that.

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