'We Aim To Be Among The Top Five Globally

Further, that the auto and auto-component industries are fearing a slowdown hardly needs debating. Optimism and over-estimation of the growth potential a couple of years ago translated into major expansions in the sector. Higher costs resulting thereof, coupled with lower sales growth, has now put the pressure on corporate profitability.

While corporates in this segment are working out various strategies to tide over the rough weather, Sundaram Brake Linings (SBL) has chosen to focus on exports. Steering the company is chairman and managing director, K Mahesh, who is also the president of Automotive Component Manufacturers' Association (ACMA). Back from a recent visit to Korea, he spoke to Vatsala Kamat, outlining the differences between the auto-component industry in Korea and India and how Indian component makers should gear up to compete in global markets.

 

Q: The exuberance among auto-component makers seems to have died down with the pace of growth slackening in the mother industry. What do you feel went wrong?

A: I feel, this is the first time component manufacturers went ahead of the auto industry to build up capacity. Most leading players doubled capacity in the hope of catering to the much touted growing middle class. Even the foreign media had reports on the 200 million middle class population in India that was the potential target for the auto- mobile majors.

However, few realised that the Indian middle-class compares very differently with that in the developed world. Our country still produces 50,000 cycles per day for transport and around 1.6 million two wheelers. What we need, therefore, is a graduating 800 cc car. Most auto majors have come in to make higher end cars and are thus fighting for a share of a very small pie. Post-liberalisation, we allowed about 12 players to enter the arena whereas even countries like Korea during development phase had only three car majors.

Therefore, while demand has not burgeoned as expected, there has only been a subsitution of one type of vehicle for another.

In fact, a 25 per cent annual growth is hard to sustain. This year, one could see 10-11 per cent overall growth till October with the commercial vehicles and cars segment growing at around 5-10 per cent per annum.

Q: But, most auto majors in India have expressed their desire to localise at the earliest. Doesn't this augur well for the component manufacturers?

A: No doubt, India has the advantage of a large component base. But, the present duty structures hinder localisation by the global auto players who have entered the country. The duties on raw materials are higher than that on components. For instance, duties on some engine components are 20 per cent while that on the raw material used is 40 per cent.

So, some auto manufacturers are now stating that although their priority is to localise, given the tariff structure they do not want to do so. Therefore, while capacities have come up in the component sector, there is lower offtake.

Q: Having visited your Korean counterparts, how do you think India compares with Korea?

A: One crucial difference is that despite having such a large component base, companies here invest less than one per cent of their sales turnover in research and development (R&D). In Korea, the average investment is around 5 per cent. Also, little time is spent here on worker training and orientation.

An important factor that has helped build the Korean industry is their drive for quality, with the focus being on minimising customer rejects. As opposed to 0.002 per cent reject rate in Korea, it is around 0.2 per cent here with raw material rejects being anywhere between 2 to 3 per cent. The quality drive extends from the process capabilities to machine tools and to shopfloor maintenance. Some years ago, this intiative was taken in Korea by a campaign by Daewoo, Hyundai and the government.

Q: Given the slowdown in Indian markets, what do you think should be the strategy to overcome this situation?

A: In my opinion, an important strategy is to focus on exports. The industry at present exports only 12 per cent of total sales and the growth during 1996-97 was 30 per cent. However, we should aim for 50 per cent growth in exports.

One problem is that in global markets, Indian auto part makers are viewed as fair-weather operators. Companies should look at exports as a long term hedge against excess capacity. And it takes anywhere between two to three years to capture an overseas market.

Besides, conscious efforts should be made to invest in R&D-- to start with invest at least 3 per cent of sales and continue the same over a period of 10 years. Indian manufacturers must also upgrade continuously and maintain quality parameters which must begin with an attitude change among workers and top management alike.

Q: How did SBL perform last year?

A: Well, we exported 17 per cent of the total turnover during 1996-97 as opposed to 25 per cent in the previous year. The lower figure was on account of a slight slowdown in European markets where we have good presence and shipment delays in consignments to America. Although our sales improved by around 13-14 per cent, the interest costs also doubled. This was due to investments in the new plant at Madurai at a cost of Rs 12 crore. Depreciation is also likely to be higher. On account of a conversion, the equity has gone up to Rs 2.75 crore. The bottomline will, however, be marginally higher than the previous year.

Q: What is your share in local markets? Given the tough market conditions, what is your strategy for growth?

A: SBL's presence is largely in the replacement market. We, along with the Rane group, almost equally share 60 per cent share of the market. Our strategy is to focus on the replacement market because for every set sold to OEs (original equipment), there is a replecement market for three sets.

SBL is consciously making efforts to develop sound R&D facilities and about 4.8 per cent of sales has been invested in the last three years. A study was also conducted to find out SBL's position in terms of brand-equity, product pricing, quality and upgradation.

We are also targeting an increase in exports. Realisations are higher in overseas markets. At present, we have a presence in 33 countries. Now, we are attempting a foray into Japan for after-market sales. Our aim is to be one among the top five global players in the heavy duty blocks segment. At present, we have 1.5 per cent share of the after-market in Europe and we hope to take this up to 5 per cent.