Jayant Davar, Sandhar Technologies’ co-chairman and MD, on staying abreast of the rapid technology evolution, gearing up for new potential opportunities like manufacturing two-wheeler helmets, new product lines, joint ventures and investment plans in India and overseas. An interview by Amit Panday.
This is touted to be the most dynamic period for the auto industry where everyone is debating future modes of transportation. Component suppliers, who manufacture parts for ICE engines, are going to witness this transition. How are you extrapolating the potential opportunities that might click in the long run and help secure growth for the company?
You are absolutely right about the vehicle technology evolution at play. Some companies might choose to bury their heads in the sand and think that 10 years is too far. But there will be some who will obviously think that 10 years is not too far either.
For companies engaged in the drivetrain and associated parts business, they will possibly have to move from ICE engine technology to the other form(s) of drivetrain that are expected to come in the vehicles of tomorrow. If they are not prepared today and are not working for tomorrow, then the obvious will happen to them.
There have been several cases in the history of not just cars, but any industry, where large names have disappeared. Xerox disappeared from the market because it did not evolve in a timely manner. Ten years from now, 40-50 percent of a car’s typical value will comprise of auto electronics and artificial intelligence. We don’t know what will particularly happen five years from now in the auto industry, which route it will take, what new modes of transportation will come. In my 30 years in this industry, this is perhaps the most dynamic period of evolution.
The speed at which this evolution is happening today was never seen before. Will the automotive industry still be an owner-driven industry, is it going to be the Ubers of the world or will we have self-driving cars driving us through in the future? It’s very difficult thing to project how much of what will last. The only fact is that this will happen tomorrow.
Technology is rapidly evolving and the companies which do not change with the changing times will cease to exist unless they change their respective models of business.
Do you see more of optimism or more of anxiety across industry currently?
I see apprehension. No questions about it. People do not know where to start from. For instance, it is difficult for a company which makes pistons to select which technology it must invest in the future. This is a crucial call many companies will have to take. Some decisions will be right while some will go wrong.
Does the company plan to foray into new product lines in the coming years?
A lot of new products are / will be based on environment, safety and comfort as defining parameters. This is largely led by the foundation in auto electronics. In the context of safety, we have tied up with HJC Helmets because it is becoming mandatory for every motorcycle manufacturer to sell two helmets along with the bike. This means an industry, which is roughly 17-18 million units strong will suddenly require 34-36 million helmets.
The helmets sold in the market do not meet international specifications. Riders wear helmets because the government says wear the helmets. The quality of existing helmets in the market is unreliable. HJC is one of the world leaders in manufacturing safety helmets including those for bikers. We will start manufacturing these helmets from the next financial year.
We are also looking at parking sensors and several kinds of antennas. The demand for antennas will grow as we are heading towards connectivity and information flow. I believe no company makes the latest technology in antennas in India yet and probably we would like to take the lead.
We have also got into a JV for magnesium castings and we are doing smart key systems under another JV. We are also getting into a different kind of sensors. We are putting up a new plant in Mexico, which will be our second plant there. We are also setting up a new plant in Serbia and another for Kobelco, the Japanese cabin maker, in Chennai. We are coming up with an aluminium cast plant in Hosur. Another new plant in Jaipur is being planned for supplies to JCB, which is going to add to our existing fabrication business.
To summarise at this point, there are 17 projects that Sandhar Technologies is working upon including joint ventures, new greenfield and brownfield projects.
Do you plan to set up any new plant for manufacturing motorcycle helmets as early as next financial year?
Yes, we aspire to have three plants for manufacture of helmets, initially with a production capacity of one million units each and set up under different phases.
We plan to set up the first one in the coming financial year. One of them will probably be set up in Bawal (Haryana). The second facility is being planned as an export-oriented unit and will come up near a port, which could be in Gujarat or Chennai in Tamil Nadu. It’s difficult to give accurate details as of now.
What investments are earmarked by the company for FY2018?
We have been investing a little over Rs 100 crore every year. It would be slightly more for the next two years. With multiple projects from start to commissioning and in different stages, I estimate that we will be investing more than Rs 300 crore over the next two years.
A McKinsey study says that given the increasing role of electronics in vehicles, companies which have not invested in building their own electronics capability over the last three years have possibly missed the bus. How would you define the investments in electronics at Sandhar Technologies?
We have, very clearly, understood that we cannot go to the root of the technology, which means we are not the ones who are going to start manufacturing semiconductors. Those things have become a commodity in the (auto) industry. To set up a semiconductor plant, you need billions of dollars.
Instead, we are looking at the applications of the technology. For example, we have the LED light industry. How many companies manufacture LEDs? Possibly, only a handful of companies around the world. The remaining LED industry is based on the technology application. When you (company) buy LEDs as a light source, you buy them in million units as a commodity.
So we as a company have decided that we will not be present in the root of certain technologies but will be present in the application of those technologies. What does an application model mean? That you have software in place and you apply it for certain functionality. For example, you need a small piece of hardware within the automotive framework but the whole assembly is driven by the software and smartphones. I am not going to start manufacturing smartphones. Instead, I will leverage the smartphones, the technology and the system availability, which means the network in place, to be able to do what I am supposed to do.
There are some companies engaged in manufacturing wiring harnesses today. Tomorrow there might be no need for wiring harness as everything is going to become wireless. Hence, obsolescence of electronics is huge. Things are changing very quickly. So, we are not investing too much money in one of these applications. We are developing many applications across generation one, two and three.
Sandhar Technologies is known for being among the largest producers of automotive locks in the world. However, it is possible tomorrow that locks might not be required anymore for vehicles’ security. These locks can be controlled and managed by a simple smartphone app.
So it’s important for us to ensure that I am available for my customers on that front too. Also, if my customers ask me what is your next-generation technology in locks? I have to be available for them within the same (lock / security) framework.
Sandhar Technologies has a history of signing joint ventures with technology providers. Can you throw some light on the recent JV with the Malaysia-based MCE Holdings Berhad?
The technologies that we are getting into are largely based on the regulatory environment and continuous progression to safety and comfort. The JV with this Malaysian company will focus on building rear parking sensors. Now, rear parking sensors are going to become mandatory from April 2018. If this happens, all of a sudden, the four million vehicles manufactured in India will all need to have parking sensors. This Malaysian company, which is one of the 14 JVs that we have signed so far, has a strong supplier portfolio that includes Honda, Proton, Toyota and many others. They were looking to enter the India market and we needed a proven name in that technology.
Are you reviewing your annual targets in the wake of demonetisation and its impact on the auto retail market? What kind of growth are you now eyeing for Sandhar Technologies in FY2017?
I don’t have an answer for that. In many cases, I won’t know how this would impact the numbers this year. To my mind, in the two-wheeler arena, component suppliers especially won’t see any growth in the current financial year. So whatever growth was there, in our case we were up by 10-11 percent, we will lose that growth between November 2016 and March 2017. So we will have a flat year. Now since this has been exercised along with the rise in commodity prices, in terms of profitability, I think the costs would go up. Our topline would remain the same as last year but I think our bottom line will suffer as compared to last year.
What is the level of preparedness for upcoming BS VI emission norms at Sandhar Technologies, given that you had showcased new fuel level senders and assembly at Auto Expo 2016?
The fuel senders won’t work in isolation. They will have to work with fuel pumps. The new breed of fuel pumps are all UFIs, which means all electronics. We tied up with a company called Daewha, which manufactures these new advanced breed of pumps. We will be manufacturing pumps along with these fuel senders, and we plan to start supplying the combined entity (of fuel senders and pumps) as an assembly unit from 2018 or so to the motorcycle and passenger car segments.
This means that the design and development of these fuel pumps and fuel sender assembly units must be underway in association with several OEMs for their ongoing projects?
To my mind, everything is collaborative working. There is no company which can do everything on its own. It’s important for us to understand that you need to find synergies with international and domestic partners and labs overseas to ensure that everybody works together and take advantage of what India has to offer. The Koreans, Japanese or Europeans we collaborate with know that they (also) have to enter India and they need to find low-cost source(s) to manufacture and who knows the OEMs well. In India, we have large and growing volumes. For example, we have pegged the two-wheeler industry to be around 20 million units soon. Just estimate what a new regulation such as mandatory ABS will do to the market. You can calculate what an ABS manufacturer, which sells one ABS unit for Rs 8,000, is going after.
This interview was published in the March 1, 2017 issue of Autocar Professional magazine