Not too many companies can hope to achieve a turnover of Rs 10,000 crore. But auto component-maker, Tata AutoComp Systems Ltd (Taco) has set its sights on the number and believes it can get there by 2015. If it does, the Tata-owned firm would have nearly trebled revenues from the Rs 3,436 crore that it reported in the year to March 2010. For sure, its key customer, Tata Motors, will drive growth at the Pune-headquartered firm, but RS Thakur, CEO, Taco, is hoping to bag some new customers. He also wants to make a fresh set of components, mainly in the emission norms and safety spaces. There?s also the non-automotive components space where Taco is eyeing an annual 20% in the next five years; should that materialise, the firm?s turnover could cross Rs 10,000 crore.
The target may seem a tad ambitious because the firm?s fortunes are inextricably linked to those of the automotive industry and Tata Motors. But Yezdi Nagporewalla, who tracks the auto space at KPMG, believes that the auto industry could to grow at a compounded 13-14% in the next few years. That means component-makers should be able to clock similar growth rates, though there are those who put the number at a more conservative, compounded 11% between 2008 and 2015. Of course, Taco could come up with better-than-industry numbers and India is becoming an auto hub. Revenues for the components industry, say experts, could double to $40 billion by 2016 from $20 billion in 2009. There?s potential abroad, too; the addressable market is estimated at $1.9 trillion by 2015, of which around 40% is expected to be sourced from low-cost countries like India. Indeed, if Taco wants to derisk its business model, it would need to look elsewhere; exports account for just 10% of the firm?s revenues now.
Nevertheless, with two-thirds of its revenues coming from Tata Motors, Taco is on a good wicket. And business from the Nano, for which Taco supplies nearly 25% of the parts, will help. At the same time, Thakur says the firm is looking to diversify its clientele and adds that it has been knocking on the doors of Maruti Suzuki and Hyundai Motor India, even as it caters for General Motors, Fiat and Toyota. Ideally, Thakur would like a mix of 50:50, but that could take time unless Taco?s able to convince global majors setting up car-making facilities in India to buy from Taco. ?We see global launches out of India as a great opportunity for us to become a supplier to companies globally”, he explains. The company has had some luck with Toyota, which will soon be launching the Etios. Thakur is also banking on the light commercial vehicle and bus segments. Already a supplier to Ashok Leyland, Taco is hoping to win more orders in the future.
One focus area for the firm could be the emission norms and safety standards space, a hitherto unexplored segment since Taco?s current range of products are mainly plastic interiors and exteriors, composites, wiring harness, batteries, suspensions and seating systems. Also, as KPMG?s Nagporewalla points out, products would need to be not just technologically superior but also attractively priced. Thakur?s clear that technology will be top priority at Taco and, therefore, it could add to its list of collaborators. However, not all ventures have worked and those that haven?t achieved the desired scale have been wound down. Over the last two years, Taco has exited six of its global tie-ups and is mulling another couple of exits. “We?ve ended the tie-ups where we were burning cash,” explains Thakur. Clearly, Taco was in no position to keep losing money at a time when its biggest customer Tata Motors was going through a rough time.
But the business environment has changed and now Taco is open to buying assets if they come at an affordable price. Meanwhile, it has planned capital expenditure of Rs 600-1,200 crore in the next four years, which should be funded by internal accruals. One objective of the upgradation is to bring in greater manufacturing efficiencies, something that, Thakur says, has not been given much attention in the past. That could help the firm sustain an operating profit margin of around 10-12 % for a few years, leaving it with net margins in the region of 3-4%. But to get there, Taco must build scale. It?s the topline that matters.