Same Deutz-Fahr bets big on India

Fortune favours the brave, they say. Despite the troubles of a global economic downturn, there remain a few companies willing to chance their arm and take a risk, but one that they believe is a calculated risk. The Italy-based Same Deutz-Fahr Group (SDF), one of the world’s leading manufacturers of tractors, combine harvesters, engines and agricultural machinery, is doing just that and expanding its production plant in Ranipet, in Vellore district, near Chennai, to enable increased production volumes. It has also introduced its premium Deutz-Fahr tractor brand in the Indian market.

Clearly, the company which is now going ahead with a Rs 25 crore capacity expansion programme at its Ranipet facility is betting big on its Indian operations. The euro 1.2 billion tractor manufacturer plans to shut down its engine operations in Italy and make Ranipet its engine manufacturing hub. Also part of the India gameplan includes production of Euro 3 tractors for export to the Chinese market.

Franscesco Carozza, chairman of Deutz-Fahr, confirms: “We will close operations of the engine plant in Italy and relocate the machinery to Ranipet. The company will export tractors to China soon from our Ranipet plant till the completion of the new plant in that country by the end of this year.”

Shripad Shidore, managing director of Same Deutz-Fahr India, says: “We will export the 35-70hp tractor range besides exporting components, engines and transmissions. Last year, we exported 1,500 units to both the European and the US markets. This fiscal we have targeted exports of 3,000 units. Our Indian facility will act as an export hub catering to neighbouring countries including Bangladesh and Sri Lanka, besides African markets”.

Premium Agrolux series launched

After announcing its expansion programme on March 4, SDF took the opportunity to reveal its latest product for the Indian market. The premium Deutz-Fahr Agrolux series, previously made exclusively for export markets, comprises a range of all-round tractors designed for multipurpose applications. It consists of two models — Agrolux 60 (55hp) and Agrolux 70 (70hp) and is marketed with a starting price of Rs 4.5 lakh. These models are equipped with three-cylinder, naturally aspirated or turbo-charged engines, with liquid cooled high pressure direct fuel injection. The 70-litre fuel tank ensures a long time between refills. The forced lubrication transmission is mechanical, available with eight plus two collar shift gearbox or with a fully synchronised 12 forward and three reverse gearboxes. The PTO offers speeds of 540 and 54 ECO and the differential lock is mechanical. The power lift offers draft, depth, float and mixed control. Available in two- and four-wheel-drive versions, the Deutz-Fahr Agrolux models are agile and manoeuvrable, thanks to the 55-degree steering angle. Also, good weight distribution allows the tractor to work safely with excellent grip and traction in all conditions.

Recognising the continued development of the agricultural market, combined with the growing demand for modern technology, SDF seized the opportunity to introduce its premium tractors to Indian farmers and contractors. While the Deutz-Fahr brand is targeted at progressive farmers, the Group will continue to sell its current products in the 40-60hp range under the Same brand.

Francesco Carozza says: “Our Deutz-Fahr brand has 85 percent local content. In India, the present market size for over-50hp tractors is around 35,000 units and has grown four times in the past four years. With the introduction of new tractors, we will be able to further accelerate growth. We have been making these tractors for export to Africa, Europe, West Asia and the US markets. We will soon be commencing exports in all ranges to China and we will also produce sub-70hp tractors for our global customers. Once the facility in China goes on stream, we will produce higher capacity engines in the 80-100hp range." What is evident is that the Ranipet plant will be contributing sizeably to global operations.

Capacity expansion

Current production capacity at the Ranipet plant, which produces 40-70hp tractors equipped with three- and four-cylinder engines, is 6,300 units per annum. The ongoing expansion programme, slated to be completed by end-2010, will augment capacity to 11,000 tractors and 15,000 engines a year. Total tractor production at this facility grew by 28 percent last year, rolling out 400 units. This year, the Group plans to introduce a new 65-75hp platform with Tier III specification engines for the export market.

Andrea Bedosti, vice-president – executive sales, marketing & aftersales, says: “The production of the new 50-70hp tractor range in Ranipet for both the export and domestic markets strengthens our presence in India, a strategic market in which the Group has been present since 1996. Russia, China and India are the emerging markets for us. In 2008, these three countries constituted 50 percent of the market share, the US and Europe registered 35 percent growth and others were 15 percent. Our five-year forecast of tractors is that China, India and Russia will grow by 60 percent, Europe and USA 30 percent and others 10 percent.”

The Group strategy, which has long been oriented towards internationalisation, combines decentralised production activities with an extensive sales and service network providing full coverage of all key markets. Sales, aftersales service and spare parts distribution are handled by 14 subsidiaries, 120 importers, and 3,000 dealers located in all parts of the world.

Innovation is the key to growth

The Group focuses on innovation and internationalisation. The first challenge is to understand how the lives and work of farmers can be made easier, not just through reliable and functional machines. Research into new technologies ensures those competitive advantages to make the company a leader in world markets – things like engines fuelled through bio-diesel, continuous transmission gearing and hybrid engines.

Carozza says, “We are only at the beginning in China, but in India we have been around for 11 years. It has been a difficult few years and the price we paid to join a world that was unfamiliar to us was certainly high. But today, the financial results are positive, thanks to the increase in the ratio of production destined for export and global sourcing activities. In terms of units sold, the Indian tractor market is the biggest in the world, but still unimportant in the combine harvester sector. One of the recent trends in India is the slow but constant growth in the average power of tractors, which are sold mainly through financing options.”

Shidore says: “We have an advantage of having our design and technical inputs coming from Italy. The very first diesel engine tractor in the world and the first four-wheel tractor were made by Same Deutz-Fahr. From 2002, in terms of stakes and ownership, SDF India is a 100 percent subsidiary of the Group. However, now the methods, processes and systems adopted by the Group are implemented in the Indian subsidiary.”

Bedosti says: “The new approach after Europe identified India and China as the nerve centre to tackle emerging markets. Same India and Same China, companies with increasing operational independence, are entrusted with handling not only the large domestic markets but also the two macro areas of the Indian Ocean and Asia-Pacific. Equally, the production strategies are destined to be adapted to the updated organisational model of an increasingly international group.”

Shidore points out: “For the Indian market, we have our own strategy and we are implementing certain rationalisation and consolidation strategies in the marketplace. We know India is a very vast country with a tremendous potential for our brands. And from that point of view, we would concentrate on certain areas, where relatively higher horsepower tractors with good features would be required.”

Increasing localisation and exports

Like several multinationals operating in India, the key to reducing product costs and achieving improved efficiencies is increasing localisation levels. SDF is taking the same route and achieving considerable success with an aggressive localisation plan.

Shidore says: “The new global tractor produced from India is not only state-of-the-art but also addresses a number of features required for good farming in India and the world over. A heavy rear axle, with the latest braking system adds to the strength of the tractor. As an optional feature, 4WD facility with front braking is also offered. An attractive front with the latest headlamps and noise level contained within 86 DBA guarantees a very comfortable drive for the farmer. The new global tractor offers a number of features, different from existing tractors in India. A very aggressive indigenisation programme is in progress and so far, we have achieved 85 percent localisation. We may reach up to 95 percent by 2009-10.”

Another priority for SDF India is exports. “We were already exporting the tractors produced in Ranipet. With the introduction of the new global tractor, opportunities have hugely increased. We are now exporting even to the developed countries and will soon start exports to the US. Our new global tractor is able to meet all the homologation needs of countries with stringent norms,” says Shidore.

The company is implementing a capacity expansion as well as technology upgradation programme at both its engine and tractor plants. As a strategy, the company has decided not to carry out any machining operation in-house. It has already finalised the vendors for machining critical components of engines and gearboxes.

The upgradation programme at the engine plant will be completed by March 2009 and for the automated engine testing facility for Euro II and Euro III engines by July this year. Component stores, spare parts warehouses and a despatch facility for domestic and export tractors, engines and buyback components are part of the company's future plans.

Production hub

SDF makes below-100hp tractors at its Indian and Chinese plants for the global market. It uses two types of engines in its tractors – one made in Treviglio, Italy and also at Ranipet, and the other being a Deutz engine manufactured by Deutz-AG (the SDF Group has a 45.1 percent stake in Deutz-AG). The product gameplan is to shift manufacture of Same engines (three- and four-cylinder) to its plant in Ranipet and the current upgradation and expansion programme is in line with this. There are also plans to produce 4WD front axles in India, according to Shidore.

For any vehicle manufacturer, its partnership with suppliers, vendors, dealers and distributors plays a key role in an increasingly global approach, creating a value chain to improve the competitiveness of the product. The tractor maker has developed hi-tech components for the global tractor with one of its vendors in India. This development work is an illustrative example of how European technology was transferred to India by a team comprising engineers from the parent company in Italy, the Indian subsidiary and the vendor company in India.

SDF India is also undergoing a process of vendor rationalisation. “With the manufacture of global tractors and engines in India, we needed to induct a few new vendors to our portfolio, essentially to take care of technological needs of the global tractors. The rationalisation work also gives an opportunity for our vendor base to supply us components or assemblies of higher levels,” Shidore points out.

Research and development is another priority area for the tractor maker and the Indian plant works as an extended arm of the Group R&D in Italy. Not only is there online connectivity but there is a continuous deputation of R&D engineers from India to Italy for new projects in India. R&D also takes care of homologation and testing activities in India while endurance tests for the Group products are carried out at the testing facility in India.

Overall, the SDF Group is betting big on India. Its own internal assessment reveals that the market will expand more towards higher horsepower tractors and more feature-rich units. The competition between 12 players comprising four large indigenous players (Mahindra FES, TAFE, Escorts and Sonalika), three global MNCs (John Deere, New Holland and SDF) and five regional players (HMT, Bajaj, VST, Preet and Indo Farm) is intense. Nevertheless, it believes it can wrest new market share on the plank of new technology and increased productivity.