Atul Auto gets set to spread its wings

The Rs 130 crore Atul Auto, based in Rajkot (Gujarat) is keen on expanding its presence nationwide. Thus far, it has been operating its Shakti brand three-wheelers in passenger and cargo applications. Its product range has also been confined to Gujarat and pockets of Western India. As part of its effort to spread its wings, the company recently commissioned a Rs 10 crore plant in Haridwar with production of around 250 three-wheelers each month. It has also got the go-ahead from most regional transport offices to pave the way for launching its vehicles across the country.

Atul Auto has also earmarked Rs 12 crore this fiscal for both units. The Haridwar facility has an annual installed capacity of 12,000 vehicles on a single shift basis. The obvious reasons for the move here are the generous fiscal sops offered by the Uttaranchal government which have prompted other players like Hero Honda, Mahindra & Mahindra, Bajaj Auto and Tata Motors to set up shop here. From Haridwar, Atul Auto will send its vehicles to Delhi, Uttar Pradesh, Jammu and Kashmir and Himachal Pradesh. The Rajkot unit will meet the needs of buyers in Gujarat, Maharashtra and Andhra Pradesh.

“At present 70 percent of our sales come from rural markets and we want to increase the share of the urban segment in five years. We see tremendous potential for our vehicles and are now getting ready with to launch a four-wheeler with one tonne payload capacity in two years,” said JJ Chandra, managing director.

A company in Europe is counselling Atul Auto on the design of the vehicle which will also have a CNG version. Engines could also be sourced from Europe keeping in mind the increasingly stiff emission norms. “We are not in the volumes game and will focus on our core strength of lower costs. Our products offer ten percent more cargo space and are nearly 15 percent cheaper than our competitors. We will be equally aggressive in our four-wheelers also,” he added.

The company is now developing a rear engine version of its three-wheeler with one tonne gross vehicle weight. It recently launched the CNG/LPG Shakti in some parts of Gujarat and the response has been promising. Capacity at Rajkot has been increased from 16,000 units to 24,000 units on a single shift basis. As part of the expansion programme, a Rs 7 crore paint shop has been installed.

Last year, Atul Auto manufactured 16,000 units and has targeted 19,000 units for this fiscal, going up considerably to 30,000 vehicles in 2007-08. This will involve expanding dealerships and authorised service centres from the present levels of 80 and 120 respectively. The idea is to appoint at least 10 dealers in each state where it proposes to make an entry along with authorised service centres to support after-sales service.

##### KICKING OFF EXPORTS

During the last quarter of 2005-06, Atul Auto kicked off its export drive by shipping 150 diesel and petrol vehicles to Egypt, Kenya and Nigeria. Till the first half of this fiscal, it had exported around 400 units. The company sources engines from Lombardini for its export models. Once CNG vehicle production is standardised, it will examine the option of entering Bangladesh, Sri Lanka and Sudan. Atul Auto also initiated a cost reduction programme a few years ago and plans to increasing the level of outsourcing from the present level of 65 percent.

The Haridwar plant has, therefore, been built with very few machining operations. R&D, new product development and cost-effective production process (ultimately leading to lean manufacturing) are the other priorities. Vendors will increasingly be asked to supply aggregates so that the entire assembly process gets a lot easier and increases productivity in the bargain. “This will not only reduce inventory but also optimise resources,” Chandra said.

The company has also installed a 1.25 MW windmill in Rajasthan recently costing Rs 5.5 crore. A second one with a capacity of 0.6 MW has been installed in Gujarat at a cost of Rs 3.5 crore. Power generated in Rajasthan is sold to the state electricity board while the one drawn from Gujarat is meant for captive consumption.

It will be interesting to see how the Atul Auto model pans out on a national level. It is still perceived to be a regional player and will, therefore, face huge challenges in terms of brand building. Piaggio is a strong player in the cargo three-wheeler category while Bajaj leads the pack in the passenger option. Like Atul Auto, there are aspiring regional players in Andhra Pradesh (Lokesh) and Kerala (Kerala Automobiles) who are confident of building a strong customer base over time. In this business, there is this inexplicable sense of loyalty to a homegrown brand.

There are clearly no two ways about the fact that there are tremendous business opportunities in the three-wheeler cargo segment. Companies like Mahindra & Mahindra and Bajaj Auto have been doing reasonably good business and the strategy is to look for opportunity share rather than slug it out for market share. This would call for customised solutions like chicken carriers and the like where Piaggio, in particular, has been remarkably successful.

NEW ENTRANTS

Connectivity within rural India has also improved considerably over the years and there is a constant need to carry goods from one point to another. Three-wheelers fit the bill because they are primarily inexpensive. This explains why there are a host of new entrants into the arena like TVS Motor which will obviously focus on greater value and technology.

This is something that Atul Auto cannot afford to ignore because it would be wrong to assume that the average three-wheeler becomes immediately synonymous with a basic product. Even in the cargo category, customers want something upmarket and this is evident from the huge success of the Tata Ace.

Similarly, in the passenger three-wheeler arena, better features help build up market share and the leader here, Bajaj Auto, is looking at an advanced range in the next two years. Being regional is all right but the moment one makes a big splash nationwide, raising the bar is only inevitable.

The other interesting part about the Atul Auto strategy is the new one-tonne four-wheeler because that has clearly been inspired by the success of the Tata Ace. This segment is going to see tremendous competition in the coming years with a host of companies scheduled to make an entry.

Piaggio will, of course, be the first and its offering is due in a couple of months from now. Bajaj has announced its intent to come out with a vehicle from a new plant at Chakan near Pune. M&M and Force Motors will certainly be looking at this space too because the market potential is tremendous.

To think that Tata Motors began the Ace project at an annual estimate of 30,000 units in Maharashtra and the four southern states! The vehicle took off with a bang and has now become an important reference point for astute corporate strategy. Little wonder then that Tata Motors is looking at numbers of over two lakh units for the Ace at its new plant in Uttaranchal.

Atul Auto will be up against stiff competition at the national level. It can hold its own if it does its homework well on brand building, pricing, strong retail network and quality. The company has been successful at the regional level and the next big step is only natural. No reason why it cannot pull it off.