We are meeting at a time when the world automobile industry is at a
once-in-a-life time crossroad. For most of the last century, the spread
of the automobile has virtually heralded the onset of civilization. In
developed countries, auto and related economic activity accounts for
roughly a fifth of the economy with the automobile industry directly
accounting for a tenth of the economy.
Even in dirt-poor India, a large part of economic life revolves around
the Highway Economy. Thanks to a crushing fuel shortage and a sudden
commodity boom, the auto industry is facing a resource crunch on both
sides.....in the cost of buying the vehicle and in the cost of running
This twin phenomenon will result in discontinuous change in the
structure/ composition of the vehicle, and with it, in the structure of
the auto industry itself.
We are seeing 2 major big trends happening concurrently. White on the
one side we see Asia situated at the epicenter of the global shift in
demand, production and consumption trends... on the other hand, we are
going to see a change in the structure of the automobile industry
itself, which includes the developed countries as well.
For the global OEs situated in the developed countries, there are twin
challenges. On the one hand, they have surplus capacities in the
developed countries, no demand, and an expensive currency from which
they cannot export; on the other hand, there are these developing
countries which have both demand (but at a lower currency-adjusted-
price) and the infrastructure available to drive sharp ramp-ups in
The second challenge is technological. A factors will drive this
iii) Emissions control,
iv) Noise reduction.
This is expected to cost roughly $ 3000 extra per vehicle. However,
with the fall in real purchasings power in the US (from rising
inflation, falling real wages, and rising cost of real inputs), such a
cost push cannot be passed on to the customer.
The industry therefore needs to look to redesign its value chain such
that it is able to absorb these costs. Besides, the increase in
electronics embedded in the car will further add to the cost sheet of
the global OE. Put it all together and you get a picture of extreme
ferment. This will create both opportunities and threats.
Speaking on behalf of the Indian auto component industry, I think our
most probable scenario Leans towards opportunity. The Hawk Report talks
about clear opportunities for India and China. Collectively speaking,
India with its superior engineering services and IT backbone, will
score on Analysis ft Simulation, Engineering Animations, Modeling ft
Drafting, Tooling Design &
Manufacturing, Customization and Automation..... each being a critical
differentiator for the 21st century auto industry. For the coming
years, place my optimism on the big trends articulated _above.
The global OE s are looking to push conventional manufacturing to the
Low Cost Countries (LCCs). [ndia will find itself competing with
Brazil, Mexico, Turkey, East Europe and of course, China. The country
differentiators, besides the local factors outlined above, will be
logistics, infrastructure, the amount of friction in international
trade (tike port turnaround, etc). Given the increasing presence of
FTAs/ RTAs, these factors will play a much bigger role.
At the firm level, Quality, ontime delivery, price are hygiene factors
and mostly taken for granted. The new differentiators will be
traceability (of the product at various stages of production), New
Product Development (NPD) and Project Management skills. Warranty
issues will play an increasing role in purchase decisions. You will
notice that most of these new issues are softer in nature and relate to
the companys internal processes, how the company converts knowledge.
The focus is shifting from the what to the how.
Somewhere in this huge cauldron of opportunities, there will be space
for our company. I am optimistic about the recent successes we had
with new customers Like Robert Bosch and Cummins. I am happy about the
fact that our relationship with Getrag is expanding... In January they
added an IPO to the. JV that we have with them.
Finally, I most mention that pressure from input costs, I believe that
our company will see progress, both in topline and bottomline, over the
While most people are very keyed up about the autocomp industry, we
notice that they often mix up apples with oranges. Have you also faced
this flawed perception?
Yes. Talking about autocomp industry as one undifferentiated mass is
really like bundling apples and oranges. The key drivers of different
segments of the auto industry can be remarkably different. For e.g.
automotive glass has very different profitability, growth drivers,
input issues or capital efficiency from forgings or castings. From an
analysts point of view, this makes it a more difficult industry from
which to derive generalized conclusions. Each company has to be
What are the special features to be considered in tracking your
Well, firstly our current fortunes are linked more to the two-wheeler
industry. Our key customers Hero Honda, HMSI, Yamaha are all major two
wheeler players. Further, exports are making up a large chunk of our
pie. These exports are mostly in Commercial Vehicles segment, (ie,
Diesel Engine applications like engine gears for Cummins, Caterpillar,
New Holland and injector flanges for Robert Bosch). While our current
financials are heavily impacted by 2 wheeler segment performance, our
future prospects are going to be considerably driven by a much wider
range of variables, e.g., currency pressures, outsourcing trends, make
vs. buy issues in Europe, FTA issues, and of course, the depth of the
relationship which we can build with certain key customers/ JV
What are your investment plans and how well have you done at exports?
We would have invested roughly Rs. 45 crores in the new Manesar Plant,
most of which is for exports and for production of Timing Gears. Some
of this production will be done for the 2- wheeler business.
Exports: in 2004-05, out of a turnover of Rs. 160 crores, roughly Rs.
32 crores were contributed by exports. This year we expect exports to
grow by 50%. A big chunk of this growth will come from Robert Bosch. We
have new products coming from Robert Bosch for which we have set up a
dedicated line for a high volume part.
Deemed Exports: We also have sales to New Holland and HM, which are
further exported (classified as Deemed Exports). As far as new business
is concerned, we have enquiries from virtually every leading player in
the industry. The problem is not enquiries, but the ability to service
such spectacular growth.