Photography: Mohd. Nasir
Avtec has been a major supplier
of engine and transmission aggregates to several OEMs in India. Is it fair to
assume that your overall business has grown in India, keeping in mind the
launch of several new vehicle models in the country?
We at Avtec look at a long
term strategy of what we do and how we want to do things. We have a process of
creating a strategy document for a three years period. Every year we revisit
it. Then we see whether we are there as per this strategy document and decide
on the steps we need to take. The company’s growth has been a bit slower in the
last two years as compared to the earlier years. But now we are poised for a
greater growth. In the year 2012 when we came out with a strategy we were
treating Avtec as one company. We came out with an SBU (Strategic Business
Unit) structure. We came out with a structure that had Automotive, Off Highway,
Components and our overseas division of Assag. We now have four different SBUs.
That really helped us to focus on growth and specially the products we decided
to get into.
Thus, we were able to come out
with good product planning. That helped us to move into a faster track with
regards to growth.
The commercial vehicle segment has been in the doldrums for the last
couple of years. Are you seeing an increase in orders from this segment?
This segment has got different
product classes when it comes to capacities. The Light Commercial Vehicle (LCV)
segment has grown fairly well. In between for a year or two the growth was a
bit subdued here. Rather than going to a sub-one tonne segment the market is
moving to a one tonne to 3 tonne segment. That gives them more goods carrying
capabilities. I see a lot of products coming in this segment in the future.
Probably in the next two years we could witness a good growth in the CV
segment. We are also into off-highway transmissions. Two things are happening
here, a lot of private mines are coming and a lot of them are being allotted
and many more are in the offing. Iron ore mining has also restarted in the
country. These two are going to kick
start a lot of mining related equipment sales. In this segment, players are
moving to higher engine capacity vehicles.
On the engines and transmissions front, is the demand primarily from
the domestic market or are exports too an area of growth?
Where aggregates are
concerned, I am seeing more of a domestic market demand. But then I also see that my customer is
exporting his products. In the global market, for aggregates, the companies
would prefer that their customer is near them in terms of location. We are
seeing a lot of potential for exports in the speciality components segment. We
are very competitive when it comes to high technology, high complexity
component systems and sub systems. The RFQs (Requests for Quotation) I have
received for these type of components are enormous and I am forced to say that
this is a high growth area.
Today 12 to 15pc of revenues
come from exports which largely comprises of components. In the next three to
four years, it would go up to at least 25 to 30pc and this would primarily be components and sub-systems.
What led you to get into specialised components?
Actually if you are an
aggregate player you do manufacture components for this aggregate. You hold
accountability for the quality at the component level as well as the system
level. What we have seen is that exporting an engine or gear box of varied
sizes is more difficult from the market point of view. The heart of the gear
box consists of components. The customers want components to be provided to
them built to the print and then they would be able to assemble it. They want
it assembled near to their plant. When we observed this change, we decided we
have all the competencies, the machinery and the people who understand this
subject very well, why not we become the component manufacturer. Then we
started being aggressive in the market. We have acquired lot many customers in
the last six months. We are also working with a large number of RFQs and
probably in a year or two I would be able to give you more numbers in terms of
customers. We are definitely in the right direction.
The Hosur plant manufactures both automatic and power-shift
hauling transmission for domestic and global off-highway enterprises. Now is this area showing signs of increased
demand, both in the domestic as well as global markets?
When I started in 2009-10, this plant was a much smaller plant but
with a very large area. It was only into mining and construction equipment
gearboxes. The generic talk was that this plant could only produce batch
production, small order production, the people are content and given their
best. During the meeting with employees, we got to know they wanted to learn
more, want to produce more products, and the opportunities that lay before
them. That made me realise that this plant has the capability to host the other
set of products. One of our customers for whom we have been loyal suppliers for
14-15 years, proposed to us whether we could set up a facility in Chennai which
would be next door to them. They were going in for a major expansion in India.
We told them we would set up a facility in Hosur which is four hours away from
Chennai and I would be able to supply all the goods that you talked about. We
also told them that simultaneously we would offer them a cost advantage because
coming to Chennai would mean that I would have to have a place, have management
bandwidth, etc. We told them we have everything ready here in Hosur and it
would be like a plug and play facility. They agreed and that was a turning
point for us. We set up a capacity of 200,000 units per annum initially. In the
meantime our esteemed customer had set up a plant in Western India and gone for
an expansion in the country. We have set up an adjoining facility which is
another 250,000 units per annum. Put together we are capable of assembling
450,000 transaxles and each transaxle is completely tested as per international
standards. That’s a success story there. Built up on that, we set up a component
plant here because this part of the region there are a lot youngsters who are
professionals. We were thus able to pick the right talent here and train them
from quality and price point of view. We were able to offer a value to the
customer. That’s where the component park has come. There is no limitation as to the components
are to be made only for off highway or on highway. We have had an opportunity
to work with the Indian Railways. Hitherto they were importing parts from the
US, now we have been able to give them import substitution solution to them.
Year on year we are getting more orders from them and newer parts are getting
your company is into highly engineered products, how much of emphasis do you give
on R&D? Can you give us details on that?
Initially we used to have a normal product engineering cell. We
were into high tech mechanical engineering super laced with electronics and
controlling. We thought this could be in close proximity to Bangalore. We
started this tech centre in 2012. We have around 50 engineers working here and
in the plant we have around 12 such people. The total strength here is around
62 people. We also have around 10 to 12 very qualified engineers working in
Switzerland. In a year’s time we hope to increase this total number to around
100 from the present level of 72. A lot
of testing is done in the respective plants. Basically the development,
machining and other things like prototype building is all done at the
respective plants. The engineers based in Hosur will coordinate with the ones
working in other plants. The conceptualisation, design and development are all
done here in Hosur.
business depends a lot on contract manufacturing, especially when it comes to
engines and transmissions. But with OEMs too investing big in this area, what
do you think is the scope for this activity in the coming years?
Our business model is as follows. We do contract manufacturing. If
an OEM has a proven design they want us to manufacture. Our capability of
indigenisation, sourcing, assembling and providing the right quality comes into picture. Around 65pc of the
business we do is this. As far as the remaining 35pc is concerned, we develop
products, we have an IP rights, and we produce the quality product and supply
to the product. These two are not competing with each other. In fact they are
complimentary to each other. When we talk to our customers, they want our early
involvement in the development of the product. In fact our design capabilities are
also helping us to get an order on the contract manufacturing as well.
When a customer envisages a large volume, they may want to do it
in house. There are exceptions there. Some customers want to outsource engines,
some believe in outsourcing transmissions, and some believe that below 50,000
volume, they leave it to a good vendor. The vendor is not just a supplier but a
business supplier or a business partner. All in all one requirement which
predominantly comes is that we need to be good at design. The days are gone
where you just build it to the print. There is huge value addition possible
today. We are having the design which promotes our contract manufacturing. A
simple manufacturing company is less preferred than a company which has
engineering skills coupled with manufacturing skills. For us it is very
complimentary to have a design. In other words it is essential to have a
design. Our Switzerland based company which essentially designs and prototypes
want to transform themselves into a volume producer using Avtec in India as a
backend. Thus, we are capable of designing. If a customer has a design, we can
even deliver to his print. The USP of the Switzerland based company is that it
has got a lot of Intellectual Properties. There is a technology called face
gear. We are the global patent holder for this particular gear profiling or
gear designing. Hitherto they were only producing customised gear box, using
only the technology. The proliferation of this technology is a little slow
because the way we were manufacturing cost competitiveness was little
difficult, given their cost structure. So what we decided as part of our
strategy is that we are having a big plan to do the manufacturing in India to
offer a cost effective solution to the design of Switzerland so that the
combined revenue between Avtec and Assag would go up multi-fold. That is one
strategy. The second is that they are very competent in creating gear boxes for
varieties of applications. That is another area we are working very closely. Third is that supporting Avtec here, a couple
of design programmes are given to them so that they design and give it to us
and Avtec will do the piloting, validation and testing for the customers. All
this will help us to harness their intelligence competency in the design field.
All these three put together will support the Avtec growth plan of Rs 3000
crore before 2019-20. We want to grow to a Rs 3000 crore company. They have a
larger role to play in product development. For our clients Assag will give
design solutions and Avtec will manufacture. As for the customers of Assag, the
latter will do the design and we shall manufacture for them. In other words a
seamless integration of the parent company and the acquired company.
take an organic or an inorganic route for growth?
The strategy for the next three years is very clear. We want to
grow organically. Inorganic growth could happen after three years. Today the
Make in India programme is coming very strongly. Poeple have already seen it at
a distance. But if you see it closely, it is going to provide a lot of
manufacturing in India for hi tech components. We are seeing an organic growth
in the fields where we are there. We are also seeing a huge business
opportunity in the powertrain field in the defence sector. All in all put
together I would see that organic is the first strategy of the company.
Inorganic comes later on.
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