Escorts outlines aggressive gameplan
New Delhi-based major to spend Rs 350 crore on new products, aftermarket
The automotive category had, till lately, taken a backseat as Escorts grew its tractor and CE business but the company is now consolidating this vertical by acquiring new orders from OEMs as the automotive sector grows.
Escorts had initiated its corporate restructuring way back in the 1990s when the Indian economy started looking up and the company’s foreign collaborators who had been taken on board in the ’60s and ’70s, many as joint venture partners, began armtwisting the Nandas family owned business for a majority stake.
Unwilling to dilute its stake, Escorts started shedding off its foreign collaborations starting with the Ford Motor Company for tractors, merging Escorts Tractors into the parent company in 1996. Others on the way out included JCB for earthmoving equipment, Claas of UK for harvester combines, Mahle of Germany for pistons and Goetze from Federal Mogul for piston rings besides a technical collaboration with Fichtel & Sachs for automotive shock absorbers. Another technical collaboration was with Kayaba of Japan. Escorts is now resting on the laurels of its in-house knowledge management centre of 60 people to lead the product development.
Sanjeev Arrora, head of sales and marketing, says that Escorts has earmarked additional resources of Rs 350 crore spread across the next three years to develop the automotive component business. Of this Rs 100 crore has been allocated for developing new products for the aftermarket with funding primarily through internal accruals.
The auto component division meanwhile is in touch with international majors for becoming a global channel partner at the backend for truck manufacturers of both LCVs and HCVs in Europe and USA during the current fiscal, with orders worth Rs 30 crore in the pipeline during FY’13.
Escorts is optimistic of supplying shock absorbers for three orders starting end-October 2011 for 700,000 vehicles annually in USA and 200,000 units per annum in Europe at an average price of $22 (Rs 990).
Bagging new business
Nearer home, the component business has also bagged a number of new orders and is gearing up to be the single source for supply of shock absorbers and telescopic front forks for Suzuki Motorcycle India’s new 110cc motorcycle (codenamed GE 110) that will be showcased at Auto Expo 2012 in January.
During 2012, Escorts expects a business of Rs 30 crore to accrue from supplying components for 120,000 GE bikes with the order likely to increase upto Rs 50 crore during 2013 as the bike volumes grow to 240,000 units. The GE 110 is an entirely new model from Suzuki designed especially for India and is expected to have three variants in the under Rs 50,000 price range.
Suzuki is believed to be nursing ambitions of becoming a volume player in India with this entry level bike. Its earlier XD 331-110cc was not designed for Indian conditions. Being a foreign product, it could not chalk up mass numbers in the country.
Suzuki is now planning to take the competition head-on in the entry level bike segment dominated by Honda Motorcycle & Scooter India and Hero MotoCorp and is introducing new comfort and ride feature in the new bike. Escorts, with its prowess in suspensions and shock absorbers, is expected to give rivals a run for their money.
Arrora told Autocar Professional that the components will be supplied from Escorts' Faridabad plant from November onwards with a January 2011 launch on the cards for the bike.
Moreover, Escorts will also be the single source of supply for shock absorbers for Italian two- and three-wheeler maker Piaggio, which is entering the Indian scooter market in January 2012 with its Vespa 150cc and 125cc scooters. These products have been already introduced in Italy, Vietnam and Spain and are now headed for India.
Escorts is targeting supply of shock absorbers for an estimated 150,000 Vespa scooters per annum. Arrora is of the opinion that Piaggio is way ahead of Japanese companies in technology and styling.
Initially though, Piaggio had partnered with the Kanpur-based LML in 1983 for producing two-wheelers but they split up after a spat. Prior to that, Piaggio had licensed its Vespa scooter technology to Bajaj Auto in 1960 but the association ended in 1971. Now Piaggio is entering the scooter market on its own, enabling Escorts to garner a business of around Rs 12 crore from this order. The scooter maker has set up a plant at Baramati in Gujarat with an investment of Rs 200 crore for rolling out its India scooters. The plant has a production capacity of 150,000 units per annum. This number is likely to be stepped up as the Piaggio scooters are likely to be in the range of 60,000 units annually.
While the Vespa will be launched in early 2012, the Piaggio will hit the market later in the year, around November 2012, with Escorts to commence supplies of parts for the scooters around January next year.
Furthermore, Escorts has also bagged the order for supplying shock absorbers and front forks for the 600cc Trike bike of Piaggio with the concept model to be showcased at Auto Expo 2012. The parts maker is supplying components to Piaggio’s Italian plant for the bike. The Trike rubs shoulders with the likes of Harley-Davidson bikes, the German Trump bike and Ducatis in the Rs 7.5 lakh-plus pricing range. Piaggio is believed to be testing the waters in India with its Trike concept model.
Also under development by Escorts is a new product in front struts for the new version of the Tata Magic Iris that will enter the three-wheeler space in the 0.5-tonne range in both passenger and goods versions.
At present, Escorts is a vendor for the Tata Ace providing 50,000 shock absorbers per month for the LCV from its new Rudrapur plant that was commissioned in November 2010 exclusively for Tata Motors.
Supplies for the new Tata Magic Iris are slated to commence from November-December this year with trials currently underway. Trials are also underway for the new eight-seater passenger carrier, the Tata Venture with Escorts supplying the front struts and rear shock absorbers. These new models will generate additional business of Rs 20 crore in 2012 for Escorts.
Escorts has a manufacturing facility at its base in Faridabad with a production capacity of 3.6 million units per annum with the Rudrapur plant producing 1.8 million units of shock absorbers and struts annually. In addition, another half a million front forks are produced at Faridabad.
With the new orders in its kitty, the auto products division is targeting a topline of Rs 250 crore in FY’12 from the existing Rs 140 crore. At present, its domestic business accounts for 60 percent with exports bringing up the rear. Furthermore, Escorts is also strengthening its aftermarket offerings by entering the consumable products segment with lubricants, grease, coolants, brakes and batteries this year. It has already launched its oil and grease product bouquet and plans to expand its two-wheeler batteries operation. It will also be launching batteries for four-wheelers and tractors by end-2011. The consumable products are expected to generate a revenue of Rs 20 crore while the four-wheeler batteries are likely to record another Rs 20 crore in FY’12.
The component division will also roll out chains, spark plugs, sprockets and brake pads for two-wheelers in the aftermarket from which revenues are likely to clock Rs 60 crore in FY’13 and post a topline of Rs 160 crore from the total aftermarket business within three years. At present, the company’s aftermarket products constitute shock absorbers and struts and are worth Rs 40 crore.
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