Deepak Chopra, CEO of the Anand Group, tells Shobha Mathur how the 19-company, multi-product component major is driving a new dynamic and looking to set up assembly facilities abroad to cater better to clients there.
12 Oct 2014 | 2188 Views | By Shobha Mathur
How does the Anand Group foresee its fortunes evolving in 2014-15?
The past couple of years were not so good for the industry, so we were trying to consolidate and somehow try to preserve our margins. We were looking at some of our companies which had very low capacity utilisations ...
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How does the Anand Group foresee its fortunes evolving in 2014-15?
The past couple of years were not so good for the industry, so we were trying to consolidate and somehow try to preserve our margins. We were looking at some of our companies which had very low capacity utilisations or were underperforming to improve their performance at the Group level. We were trying to focus on internal efficiencies so that we could preserve our margins and ride out this difficult period which is now almost over.
The past two years were also particularly difficult because of currency movements as they impacted input costs which rose as each of the system supplies do have a significant content of imports. But this year, at least the currency is stable and most of the segments are showing a growth – commercial vehicles are still not showing growth but passenger vehicles are coming out of the downturn and two-wheelers are doing well, and tractors also showed a better performance last year. So we are quite optimistic that now we will be able to utilise the capacity which was unutilised.
Hence, our focus in the past 2-3 years was to ride out of this difficult period and still have some reasonable results at the group level. So, obviously, in terms of any inorganic growth, opportunities took a backseat. But definitely one of the things that happened in the past 1-2 years when the domestic market was difficult was that we intensified our efforts to grow on the export front, so individual companies made significant progress in improving their exports.
Due to our partnerships with global partners, we performed much better and companies like Spicer India and, even Gabriel for that matter, and a few other companies also made good progress in terms of going out to global markets with the help of our partners.
In the case of Gabriel, it was independently because there we don’t have any major global joint venture partner and it is a standalone company.
Now that the growth seems to be returning, we are watching the situation and will look for opportunities for growth overseas. Gabriel is seriously looking at opportunities to expand and maybe to set up some plants overseas.
There is nothing immediately like a joint venture on the horizon but with the green shoots of recovery, we will be addressing new products and looking at new ventures for new product lines in India.
Can you detail Gabriel’s overseas plans?
We are looking at assembly facilities to service our global markets closer from those markets. We don’t have substantial business but we do have some OEM business and do have a large amount of aftermarket-related business.
We also have a large amount of exports happening in South America, in the US to our former collaborators, but these opportunities would merge based on the discussions we are having with our global OE partners to access some business overseas.
We are serving some of these OEMs here in India, so there are opportunities of supplying to them in some overseas markets as well. Likely locations could be South East Asia and South America and, if we can get some large OE business which we have been trying, it could be in Eastern Europe as well. But again, nothing is firmed up yet, so no definite decision has been taken for setting up any plant overseas but these are the various opportunities we are exploring. However, these will not be very high investment plants. They will be assembly facilities or last-mile plants where we could gradually, depending on volumes, increasingly integrate and start doing more and more.
How many assembly locations are envisaged initially?
Starting with one or two, we are actively looking at South East Asia and South America; maybe we will set up one plant in one of these locations and then another. The main thing is that we should have the right volumes. We don’t want to make the mistake of committing some investments and then have those plants sit idle. So we are being a little cautious, precisely because the capacity utilisation, even in the domestic market for us, has been low in the last 2-3 years.
Overall at the Gabriel level, we still have low exports – currently less than 5 percent – and there is tremendous opportunity going forward. While in the past we have not been able to make much headway, we are now concentrating on it besides the domestic market.
Eastern Europe will be mainly for OE business but these assembly plants will be both OE and aftermarket servicing, both for two-wheelers and four-wheelers.
As far as other companies are concerned, overseas plants are not really an opportunity as our partners are doing that. In the past, there has been some discussion to have joint ownership of some new plants that are being set up globally but that has not materialised, except to supply parts from India.
That we are doing for our partners and those exports are doing pretty well and in most of our joint ventures like with Mando and Takata we have initiated exports, besides catering to the domestic markets as we have some cost advantage.
At the Group level, exports are less than 10 percent of turnover and we plan to raise it up to 16-17 percent in the next couple of years in the first stage.
Till 2008, our group exports were 18 percent. Then due to the global recession exports did not grow because both Europe and the US were doing badly. Till 2011, the domestic market continued to grow very well and we had growth numbers of more than 26-27 percent but the overall growth percentage fell because while domestic sales were rising, exports were depressed though in absolute terms our exports have been going up.
You mentioned that you are looking at ventures in the domestic market for new product lines?
What I meant was that in the past 2-3 years we have been looking at expanding our product portfolio. At present, we have 18 operating companies in automotive, besides Sujan in hospitality, and each has multiple products, so together we would be doing 30-35 products. So far we did not want to expand this product portfolio further. Last we did were safety products with Takata spanning airbags, seatbelts and steering wheels and we are very happy with the recent government announcement to tighten safety norms in India.
We are already hearing that safety legislation will be introduced from 2017 onwards and all new models will compulsorily have driver and front passenger airbags and from 2020 all models including running models will convert to that. So there will be a lot of opportunity for us and we can seriously think of adding to this product line or bring some of the products existing with our JV partner that we currently don’t have in India.
Entering into new JVs for entirely new products can also be considered. In the past we examined some areas like electronics in automobiles and will enter into products that are at the high end of technology and are more system-oriented and engineered products where we could be Tier 1 suppliers to OEMs. We will take a call as growth numbers come back.
So how much investment is envisaged in future growth plans?
What is really important is to take things year by year because it depends on how fast and with what speed the growth comes back to the industry.
We are cautious; this year the capital expenditure is worth Rs 300 crore at the Group level. Each year the investment on capex will be to the order of Rs 200-300 crore and will be funded by internal accruals and some debt as most of the companies are self-sufficient. In some of the companies, the debt levels are higher like in Mando and Takata which have had high investments and utilisation has not been so good but at the Group level we are very healthy.
Recently there has been a lot of restructuring in the Anand Group, especially in Mando and Takata, also witnessed recall of cars due to defective airbags. What are your comments on this?
There is no restructuring as such in the Anand Group but from year to year, people who represent the Anand Executive Committee could be sometimes changed, sometimes they retire, some new people get inducted but those are internal changes.
At the organisational level, it remains the same – in the supervisory board Mrs Anjali Anand Singh is the chairperson, I am the Group CEO and I also chair the Anand Executive Committee. Below that is the Anand Management Committee so that basic structure remains the same.
We were looking at how Mando was running and it was not meeting the expectations in terms of returns, so we felt we should revamp it. We have an understanding between the two partners – Anand and Mando of South Korea – that we must try to reinforce the management of the company. So there has been a change – my colleague Sandeep Balooja, who was president of Business Development at the Group level, has taken over as executive chairman in a full-time role. But he will continue to play the role which involves representing Anand and Mando in institutional bodies like ACMA, SIAM and talking to the media or discussing with various OEMs about pitching us.
We have strengthened the Mando board and I have stepped into the board and the Group CFO is also part of that. The Mando CFO and CEO is also part of it so overall we have taken the board to a higher level. There has been no shareholding change.
As far as Takata is concerned, you are absolutely right. Globally, they were involved in a vehicle recall that was announced a couple of couple of years ago. It related to airbags relating to a period between 2000-2003. What happened was that the volumes involved in the recall got expanded due to mutual discussion between the affected OEM and Takata Japan.
Last month in August, there was a comparatively smaller recall, 10-15 percent of the original global recall in volume. The first recall did not affect us in India because we were not associated with Takata then. But this recall though is in smaller numbers and does not affect India much, but it definitely affects the reputation of the supplier in such recalls. One component – inflators that were used in airbags – had some issue and the recall was concerned with it.
How does the Anand Group plan to leverage the ‘Make-in-India’ manufacturing vision?
That is a very good thought of the prime minister. It involves inculcating some pride in producing products in India. In terms of manufacturing, the automotive and particularly the auto component industry is exporting fairly large quantities, and has taken good advantage of the global manufacturing practices. Parts makers have been able to satisfy the global OEMs who have come to India, their exacting standards and their service levels as well as global customers.
So we have already proved that the auto component industry can be an example of the pride in ‘Made in India’ brand or ‘Made in India’ products and are already well on our way. We will further improve exports to become major players globally. We are talking about a 3.5 times growth in exports from $10 billion to $35 billion by 2020 which is very ambitious.
Everything like the economy and infrastructure development has to keep pace to be globally competitive and be able to achieve the ambitious targets that we are setting for ourselves.
This interview is published in Autocar Professional’s October 1, 2014 ‘NCR Special’.