Aequs working to become part of Apple's global supply chain from India

It manufactures and supplies components and systems (as many as 5,000-odd parts) to global aerospace majors ranging from Boeing, Airbus, Spirit, Collins and Honeywell to SAAB, apart from other Tier-I players. And it does so through its factories located in India’s Karnataka, Paris and Cholet in France, and Houston in the US. And sources say that it is also working closely with Apple Inc for possibly becoming part of its global supply chain from India.

 

But the over ₹1,000 crore Bangalore-based contract manufacturer Aequs, which a few year ago raised private equity (PE) of $51 million from marquee investors like Amicus Capital, Catamaran, and Sparta amongst others, is now expanding its horizon from aerospace and toys, and is all set to enter the consumer electronics space.

 

Leveraging the recently announced production-linked incentive (PLI) scheme for electronic components, the company is investing $100 million to enter into mechanics, where there are already other players like Tata Electronics, which makes enclosures for Apple iPhones, and Dixon, which has publicly announced it is interested in this space.

 

Aequs Chairman Aravind Melligeri says: “Currently, 85-90 per cent of our revenues come from aerospace; toys is very small. Our aim is to move to a balance between aerospace and consumer electronics business. We will be applying and believe will be qualified in the PLI. And we already have two clients in this space.”

 

Melligeri concedes that it is a capital-intensive business, and the country faces numerous disabilities like the high cost of capital and problems in getting raw materials. He, however, sees these issues getting resolved because of the financial incentives under the PLI scheme, and he expects a capital-to-revenue ratio of 1:2.

 

He points out that it is a large market accounting for 10 per cent of the bill of material in consumer electronics, so demand is not a constraint, especially as their focus is on the global market, like in aerospace.

 

In aerospace, says Melligeri, as much as 99.5 per cent of the components are exported out. And they make critical parts like the pylon system, which includes hundreds of components that hold the engine to the wheels, the over-wing emergency doors for the Airbus A321, its door plugs, and 40 per cent of the front nose landing gear’s main fittings in France for Airbus planes.

 

Melligeri says the market where they operate in the mettalics space accounts for 50-60 per cent of the cost of the aircraft bill of materials, so the scope for them is very big. But he points out: “India only has a 2 per cent share of the global aerospace sourcing opportunity currently. However, it has a disproportionate share of around 10 per cent of the total global orders for planes. What we are aiming at is to get a similar proportionate share of the sourcing market too,”

 

Sure, India is more competitive than countries in Southeast Asia like Malaysia and Thailand in aerospace sourcing. But the big challenge is that the West does not have capacity to make more parts and that is because shortage of engineering talent. The key concern for OEMs (original equipment manufacturers) is service: on time delivery and zero defect.

 

Says Melligeri: “That is the bigger problem, as turnaround has to be quick. They don't have capacity. We are uniquely positioned as a country to bring in unlimited engineering capacity on board. While our biggest challenge was the cost of capital historically, that also has been addressed in a way with the global cost of capital going up.”

 

In the toy business, Aequs says it is getting more and more queries from the top five-six global players, that are now controlling bulk of the manufacturing in China after the US hit punitive 145 per cent duties on Beijing. Talks are already on as they look to shift to India, which has the lowest labour cost compared to Indonesia and Vietnam.

 

AEQUS AMBITION

 

* Company exports over 99.5 per cent of its aerospace components and systems to global majors from India

 

* Leveraging the new PLI scheme for electronic components, plans to enter mechanics space

 

* To invest $100 million in this space, will focus on being part of the global supply chain

 

* Has already started supplying to two global clients. Sources say Apple Inc is in dialogue with the firm

 

* Is talking to some of the top six toy manufacturers in the world in China that are looking at shifting capacity to India