Set up in 1972, Lakshmi Precision Screws (LPS) has established itself as a prominent name in the auto component business in the country. Based in Rohtak, Haryana, the company manufactures high-tensile fasteners for automobiles. The largest purchaser of LPS’ fasteners in the automotive industry is the truck segment with customers like Eicher Motors, Mahindra & Mahindra, Tata Motors and Volvo India. The company also makes fasteners for industrial applications and it has recently diversified its business into the manufacturing of high precision forged auto components.
Last year, the company recorded sales turnover of Rs 210 crore and around 30% of its products were exported to well-known OEMs. Recently, the company entered into a joint venture with Bossard AG of Switzerland to create state-of-the-art fastening solutions and technology for customers. It also opened a new manufacturing facility at Manesar on the outskirts of Delhi to ramp up its productions. Lalit Kumar Jain, CMD of Lakshmi Precision Screws, explains the opportunities and challenges for the auto component sector in the country in an exclusive interview to fe’s Saikat Neogi . Excerpts:
What are the advantages for Indian auto component manufacturers over foreign players?
Due to cost disadvantage, auto component manufacturers in Germany and other parts of the world are closing down their operations and are sourcing from India and China. In fact, many companies in the west are finding Indian components better in quality and competitively priced. Though, China does more volume, the top end of the value chain like designing, research and development is being done by Indian companies. Wherever there is need for IT intervention in component manufacturing, Indian companies have the edge and they are dominating the world space. So, we can say that designing and prototyping is being done in India and if it is higher volume mass production, it is done in China.
So, can we actually see India becoming a hub for the component market?
Over the years many auto component manufacturers in the country have ramped up their capacity by installing modern machines and production units. Most of them have world-class quality products with competitive pricing and are meeting the demand of companies like DaimlerChrysler and General Motors. Since manufacturing costs in the US and Europe have increased significantly and no new production facility has been added in the past few years, India could well become a global hub.
Despite this advantage, why are so many players still operating in the unorganised sector?
In the unorganised sector, a majority deals in spurious parts and dominates the replacement market. The cost difference is huge because they do not pay any excise duty and the cost to the user is very low. The industry has to put together all its resources to fight this evil.
Where do Indian companies source the latest cutting edge technology from?
Most Indian companies have established their R&D facilities through joint ventures with foreign companies and have over the years invested in indigenous research. Now, foreign companies are trying to increase their holdings and stakes in Indian companies and also trying to establish their presence directly. Foreign competition is a threat to the domestic industry.
How imminent is the threat?
It is difficult to quantify it, buy my hunch is that the Indian industry has lost 25-30% of the business to foreign competition in the last few years. Most of the foreign auto component manufactures have a long-term tie-up with companies in their respective countries and they supply components directly to them. They also supply to other neighboring countries like Thailand and Indonesia. Thus, they take advantage of cheap labour and input costs from India and ship products to the West.
How well equipped are Indian companies to counter the challenge?
The pattern of purchase from Indian companies is improving and India is moving up the value chain in auto component manufacturing. Everybody is looking at a different product mix and at acquisitions to scale up operations.
Why is everyone looking at acquisitions?
The domestic industry has its own limitations. So, as part of diversification, Indian companies will now have to look at the inorganic route to maintain their growth. For achieving higher growth rate, exports is the only way out and companies are now focusing on the export market in the US and Europe. Moreover, it is very difficult to establish a greenfield project because of cost and time overruns. Since the automotive companies in the US and Europe are not doing well, Indian companies are looking at acquisitions in these markets.
Where else can Indian companies look for mergers and acquisitions?
There are many automotive component companies in Europe particularly in Spain, Italy and Germany that are not doing well and are ideal for acquisitions. Their valuations are also at an all-time low, but they have good fundamentals. Due to the financial turmoil abroad, it is a wait-and watch kind of situation. Also, the bullishness of banks facilitating acquisitions is missing now because of the liquidity problems.
How much has the slowdown affected your company?
Since we are a small and medium scale enterprise, we are the worst affected because the cost of interest has gone up from 10% to 13% in the past six months and raw material cost has gone up by 70% in the last six months. We were able to pass a part of the increase to our customers and were able to do well in the first and second quarters, but I really do not know now how the third and fourth quarter would be for us. In fact, the third and fourth quarters have been always good earlier.
Do you think the slowdown in the auto sector will stay for a long period?
The slowdown is affecting the automobile sector, but the silver lining is that the two-wheeler industry is doing well and showing positive results. I would safely assume that the government will take some proactive steps.
What are your investments plans?
Last year we invested $7 million for a new plant in Manesar near Delhi to augment the existing capacity. We have acquired land in Talegaon near Pune for setting up a plant. Our focus has been on exports to the US and Europe and we will consolidate our position in these markets. We would like to expand our product mix so that we are a ble to supply to foreign companies that are operating out of India. We are also upgrading our technology . We do have a small R&D set up, but I am negotiating with an American firm to upgrade our R&D facility. Globally, a lot of research work is happening and we need to learn from these efforts. We are also trying to work for the aviation sector and by April next year we would have our certification to produce fastners for aircratft.