Krishna Group plans EoU in Dubai

It will supply components to a UE-based OEM

Autocar Pro News DeskBy Autocar Pro News Desk calendar 05 Dec 2011 Views icon3332 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Krishna Group plans EoU in Dubai
What strikes you most as you step into Ashok Kapur’s cabin at the Rs 3,000 crore Krishna Group’s Gurgaon headquarters is that he is seated in the midst of a vast pantheon of Gods. His visiting card is equally unique, being the Hanuman chalisa and a chocolate. Chairman Kapur, who humbly attributes his quantum leap in his auto component business to divine forces, is now etching another milestone in his metals business.

He is in the process of setting up an export-oriented unit (EOU) in Dubai for a European OE customer that will allow the car manufacturer a 100 percent buyback facility of parts in Europe from Dubai. This would guarantee sales of all that is produced at the production unit. Moreover, the EOU has enormous potential to grow into a formidable business supplying parts not only for the existing OE’s global operations but to develop as a strategic export base for other global OEMs as well. This would ensure a large revenue stream for the Krishna Group as well.

According to his son and vice-chairman Sunandan Kapur, who is spearheading growth in the metals division, the geographies of East and West Europe as well as Brazil are the targeted markets from Dubai. Later, the Krishna Group could look at setting up small assembly units closer to the OE locations for undertaking small finishing works on the transported components.

The EOU, which is to be set up in the Jebel Ali Free Zone that offers tax- free incentives as well as finished infrastructure and other facilities, will trim production and logistics costs for the group as Dubai is in closer proximity to Europe compared to India. Besides, components produced in Dubai would also find non-auto applications.

The group has estimated a conservative initial investment of $ 10 million in the EOU funded through a mix of internal accruals and debt. Company officials have been in discussion with Jafza for the last three months for about 100,000 square feet of covered area in the first phase. The economic viability of the project is currently underway with production expected to kick off by March-April 2012. An initial production capacity worth an annual 100 million euros is being envisaged.

Inside story

The Krishna Group’s business is equally bifurcated between vehicle interiors including seating, door trims, roof headliners and mirrors and its metals portfolio that produces body parts, exhaust systems, fuel tanks, suspensions, tubular parts, gear shifter systems and axles. About 95 percent of the group’s supplies and revenue are from its biggest OE customer and JV partner Maruti Suzuki.

Krishna Maruti manufactures seats, injection moulded door trims and tooling for the carmaker with the Krishna Group holding 55 percent stake in the JV and Suzuki 29 percent with 16 percent stake held by Maruti Udyog. The group also has JVs with auto component manufacturers like Magneti Marelli for exhaust systems, SIAC-Cabs for cab systems and SILA S.p.A. of Italy for gear shift systems, Magna International Inc. for seating, Grupo Antolin of Spain for roof headliners besides Teijin for textiles, Ishizaki Honten of Japan for mirrors, and Quinette Gallay of France for auditorium seats. It also has technical alliances with Okamoto for fuel tanks and Futaba of Japan and Benteler of Germany for frame suspensions. Its seating division won the Japanese Deming Prize in 2005.

The Krishna Group forayed into sheet metal parts in 2005 with the acquisition of Mark Auto Ltd now rechristened SKH Metals. Krishna holds a 51.29 percent stake in this company, with Maruti Udyog holding the balance 48.71 percent. The group is now on the verge of adding two more joint ventures to its portfolio by December-end. Both will be inked with European Tier I component suppliers with one being in alternative fuels to produce CNG and LPG kits and the second to produce chassis components. Production for these is likely to commence within six to eight months after the signing of the JV. Another partnership in automotive plastics is in the discussion stage and is likely to be signed within a few months.

The group is also in talks with one of its existing JV partners to globally merge with them in Europe for a product that would service a new segment that could be trucks, buses or tractors as it now foresees growth in the commercial vehicle, tractor and two-wheeler segments.

Kapur says this initiative will bring global exposure and large volumes for the Krishna Group that could be five to seven times higher than what the JV has etched in India.

Due diligence for the process kicked off two weeks ago and the merger is expected to reach finalisation by FY’12 end adding Euro 250-300 million to the group’s turnover by 2014-15.

Interestingly, the number of Indian auto component manufacturers nursing overseas ambitions in recent times has been on the rise. For instance, horn maker Roots Industries recently inked a JV with Russian hornmaker Avtocom. The partners propose to jointly manufacture horns at Lyskovo, Russia customised for the VW Polo from January 2012. Later, the JV will target other OEs in the country as well.

Steel Strips Wheels is in the process of establishing its manufacturing facility in Morocco for supplying steel wheels to Renault and Peugeot in Europe to avail of lower logistics costs. Similarly, the Ruia Group of Kolkata, a late entrant in the auto component sector, has been strengthening its foundation through foreign acquisitions.

Closer home, the Krishna Group experienced a dip of Rs 200 crore in business to Maruti Suzuki during the recent labour unrest at the carmaker. Kapur confirms: "We were badly affected as we do a lot of products for Maruti Suzuki, both in interiors and metal systems.”

The 17-year-old group first entered into a JV with Maruti in 1994 with the first factory being established at Gurgaon. The Krishna Group currently has around 19 manufacturing locations of which three are in Pune from where it supplies to VW, Fiat, General Motors and Mahindra & Mahindra. Overall, it has 25 customers.

Eyeing growth in the metals business

The group foresees metals as a big growth area going forward as seating is an expensive proposition and voluminous. Moreover, OEs prefer to continue supplies from existing global vendors in vehicle interiors. Though today, the group’s revenue from both vehicle interiors and metals is almost equal, Kapur expects the equation to change with 70 percent contributed by metals and 30 percent by interiors over the next five years. Currently Rs 500 crore revenue accrues from non-auto applications like real estate, infrastructure, an NGO and travel.

In line with this growth strategy, the Krishna Group is expanding southwards and a new manufacturing facility is soon to commence construction at Sriperumbudur in Chennai. Talks are underway with Ashok Leyland and Renault Nissan for a package solution in metals from the plant. Later, all southern OEs will be tapped. About 10 acres of land has been already bought for the facility that is expected to go on stream within nine months.

From rugs to riches

Kapur hails from a 122-year-old family of jewellers. He had a brief stint with the home furnishings business becoming the leading supplier for the Taj, Oberoi and Maurya hotels.

In 1987, the family entered the auto component business with Sona Steering but in 1993 after a family arrangement, his elder brother took over the reins of the company and Kapur spun off Krishna Maruti that grew phenomenally in sync with Maruti Suzuki. Thereafter, the group branched out into various companies under the Krishna and SKH banners.

Among its automotive products, the group commands a market share of 50 percent in fuel tanks, and 35 to 36 percent in seating with competitors being Hanil Lear, Tata Johnson Controls and Bharat Seating. Its market share in other products ranges between five to 72 percent.

In anticipation of growth in the industry, the group earmarked a capex of Rs 300 crore for expansion during the last fiscal of which Rs 200 crore was spent in stepping up capacity in Krishna Maruti and SKH Metals to 1.5 million units annually. The balance Rs 100 crore will be invested in upping capacities in other group companies during FY’12.

At present, exports constitute less than two percent of the group’s business and are primarily in metals that are expected to get fresh impetus with the new export base at Dubai.

“The group was poised to cross a turnover of Rs 2,800 crore in its automobile business during FY’12 but with the ongoing slowdown in the Indian industry fuelled by recent fuel and interest rate hikes, it will fall short of its target by Rs 300 crore,” reveals Sunandan.

However, despite the negative market sentiments, the group is surging ahead with its expansion plans during the current fiscal.
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