Ease of Doing Business for MSMEs: Anshuman Agrawal of Pune-based Minimac Systems, which is into manufacturing of lubrication and hydraulic oil systems and supplies to BHEL, GE, Adani Power, Aditya Birla Group, HP, Reliance, NTPC, and others, didn’t have enough money to set-up manufacturing capacity when the company was launched back in 2012. However, Agrawal, who was earlier part of the product development team at Tata Motors, had incoming interest from companies in the purification and reconditioning market for various machines used in the manufacturing sector.
So, much like any other MSME, Agrawal too raised collateral-based bank credit. However, he didn’t deploy it towards setting up fixed assets including land, manufacturing units, and owning machines. “We didn’t have a strategy where we first invested a lot before starting the business. We outsourced a lot of things and uses the installed capacity of other plants to manufacture. Since then, we have been sticking to an asset-light approach and continue to outsource a majority of our manufacturing. My balance sheet today hardly has any fixed assets. We have invested almost entire money raised in working capital,” Agrawal told Financial Express Online. Minimac Systems is among the Department for Promotion of Industry and Internal Trade (DPIIT) recognised MSMEs.
Fixed assets otherwise have been like a debt fund for Agrawal as recovery from such investments takes a longer time. Minimac Systems has raised Rs 5 crore debt from banks so far and current revenue has been under Rs 20 crore. Around 30-40 per cent of the entire manufacturing process at Minimac is done in-house including the design and concept of the machinery while the rest is outsourced.
“We have certain parts in our equipment for which we need vertical machine centres and horizontal machine centres. These are machines that help you manufacture those parts. Outsourcing them might cost me 5 per cent of my margin but doing them by myself, I would have to create resources that would be recovered in around 10 years,” said Agrawal.
At Tata Motors, Agrawal noted how the company had created a strategic sourcing group to identify all components of an automobile that can be outsourced to other parties without sharing of intellectual property. The same strategy could work for manufacturers across industries where multiple processes are involved in manufacturing a machine.
“So that’s the area you first need to think about. If your product has multiple processes and out of those processes, if you can create a setup for one of them and the rest you think are too costly, you can outsource others. Moreover, one should also understand how much overlap is there among products. If you make 10 products in a year and all of them have different processes, then look for the common process in at least eight of those products. That common process you can do at your own end and build an asset for it but if there processes which are exclusive for one or two products, would you want to build an asset for that product?” added Agrawal.