Oerlikon plans Gujarat plant, to shift small equipment manufacturing to India
Swiss maker of high-performance gearboxes and transmission equipment plans Rs 346 crore investment in India and exports to developed countries, says Shobha Mathur.
After experiencing one of its worst labour problems in 2008 and remaining low key thereafter, Oerlikon Drive Systems is back in action. The company plans to script an Asia growth story and at the helm of those efforts is its new global chief executive officer HeribertoDiarte, who joined the company last December and has recently been posted at New Delhi. The plan, broadly, will highlight the role that India can play in its overall gameplan and its deep interest in emerging markets. India’s role is envisaged as a manufacturing hub for Oerlikon's global operations.
This strategic posting will also allow Diarte to keep an eye on developments in China (where its facility is just a year old) and other ASEAN countries where Oerlikon has already chalked out long-term plans.
As part of the India revamp, Oerlikon is building a third manufacturing set-up at Sanand, Gujarat. One of Diarte’s priorities, he told Autocar Professional, in an exclusive interview, is to put on stream the Gujarat project successfully.
Though well established in the West with a clientele that includes John Deere, Caterpillar and Case New Holland, it has an almost negligible presence in emerging markets, for example among Indian OEs like Mahindra & Mahindra and Tata Motors. These are now in Oerlikon’s line of sight as it sets out to become ‘a trusted partner’ to them.
Oerlikon currently sells products worth $ 160 million (Rs 898 crore) a year out of India, of which 40 percent is for the local market and the remainder, exports. About 2,500 people work here and when the third plant is operational in 2015, the India staff strength is expected to be about 3,000 employees, out of the total 6,000 globally. That itself explains India’s key role.
Game for Gujarat
According to Diarte, construction at Sanand will kick off by end-2013 or early 2014 and production is slated for both the domestic and export markets. A range of products will be produced in Gujarat, one of them being transmission synchronisers for which India is a competence centre worldwide.
Oerlikon has a claimed 90 percent of the Indian off-road market for synchronisers and these supplies will continue from Gujarat. The direct exports of synchronisers has recently started to some customers and some synchroniser parts are made in India for Italy; production of these parts will also be shifted to Gujarat.
Besides, the plant will also make assemblies for full and final transmissions – the CVT or the continuously variable transmission for a Case New Holland tractor sold in the US. At present, it is produced at Oerlikon’s Noida facility where it is trying to free up space by transferring production of all assemblies for final transmissions to Gujarat while high-performance gears can be produced at Noida.
The CVT will be basically for exports. At present, a limited range goes for passenger cars to Mahindra & Mahindra and Tata Motors from its Belgaum, Karnataka unit, mainly for SUVs. “We are not as big as ZF or Bosch but our niche is quality and performance for high-end trucks or for off-road applications,” clarifies Diarte.
For Oerlikon, the Gujarat cluster is a key for good engineers for assembling products and prototyping. “The infrastructure in Gujarat is good, power and transportation is very reliable. It is also close to the port and that is good for the export of heavy assemblies that we plan,” says Diarte. He is all praise for Gujarat’s business-friendly policies too.
Big-ticket investment
The company has bought 30 acres in Gujarat and is considering an investment of 60 million CHF (around Rs 346 crore) till 2020 with 9 million (about Rs 50 crore) already invested in land and related activities. Production capacity at its peak will be
$ 90-100 million (Rs 560 crore) per annum by 2020.
Exports from Gujarat are expected to account for 30-40 percent of the total, worth $25-35 million and will be supplied to US, China and Europe for use in transmissions. While supplying critical parts – like gears and synchronisers to M&M, Tata and others for use in transmissions that they make themselves – Diarte says that Oerlikon can even design the full transmission if required.
Meanwhile, Group companyOerlikon Drive Systems is a combination of two brands – the Italian GrazianoTransmissioni with its plant at Noida and the BSE-listed American entity Fairfax Atlas Ltd with its facility at Belgaum. These companies began operations in India for exports to the rest of the world leveraging the manufacturing skills and low cost of India. Slowly, they started to acquire local clients like M&M and Tata. In 2006, both merged and came under one umbrella – Oerlikon Drive Systems – which makes transmissions, gears, gearboxes for tractors, big trucks, mining equipment, oil and gas equipment with 92 percent servicing off-road applications globally. Out of the $ 1 billion global sales, an estimated $ 900 million services off-road applications.
The small high-performance automotive division constitutes the balance of around 8 percent of sales including complete transmissions for high-end cars from Lamborghini, Ferrari, Aston Martin and McLaren, and which are built entirely in Italy. Diarte says that in future if these car majors seek cost reductions, then Oerlikon will evaluate making the components out of India.
Oerlikon’s Noida facility will meanwhile concentrate on high-performance gears that are difficult to make. It already has advanced technology like electro-beam welding that welds parts stronger than the normal way. The facility at Belgaum on the other hand is focused on bigger products like big shafts for locomotives. While both the Noida and Belgaum facilities have engineering centres staffed with design engineers, Diarte is mulling concentrating design and engineering at one location as a centralised hub.
Both these plants have a production capacity of $183 million (Rs 1,027 crore) at full capacity with Noida selling $ 100 million and Belgaum the balance.
Expansion is currently underway at Belgaum and is expected to be completed by this month end with capacity increasing from $60 million to around $83 million. At Noida, there are space constraints and hence the need to shift assembly production to Gujarat. Expansion at Noida will be taken up depending on market needs and will include more electro-beam welding and installation of some high end cutting machines.
Oerlikon’s initial plans for its upcoming Gujarat unit are to use only half the land, leaving the balance as buffer for future expansion. At Belgaum, a new heat treatment equipment is being built to handle big gears and parts. Before acquiring new customers, Oerlikon plans to first increase its share from existing customers and sell more to TAFE and M&M. It is also exploring opportunities in the electric vehicle segment where it has capabilities in single-speed electric vehicle transmission technology for EVs and has already tested the prototype for two-speed and four-speed transmissions.
These transmissions are currently being tested on a Mercedes overseas. Besides, it also has transmissions for electric buses and hopes to rope in a Chinese client. Initially, the order will be supplied from Italy with localisation taking place later. At the moment, the company is scouting for clients in China.
It is targeting another $150 million (Rs 842 crore) out of India within five years with $100 million contributed by the domestic market and $50 million from exports. In China, it plans to grow from $25 million to $150 million so that both countries will garner $150 million worth business during this period. However, in China the focus will be more on mining and energy as well as on trucks.
In Brazil, Oerlikon has sales of $25 million and requires some local manufacturing to shore it upto $100 million. It is studying the Russian market for supply of synchronisers from India for off-road applications. It is also looking at increasing exports to the US and Europe of final assembled products for the construction and agriculture industry.
For Oerlikon, its key competitors are ZF, Carraro and Bharat Gears. By and large, Diarte visualises a more steady and secure growth in India compared to China where big growth has already happened but that is based on India’s policies and infrastructure growth.
Last but not the least, Diarte plans to increasingly use India to transfer manufacturing from other locales and export from India if cost and quality levels are met. At present, the manufacturing sites are in the US, Italy, China and India. In America, Oerlikon has huge capacity to build very big equipment used by GE Locomotive and for oil and gas applications. What is being contemplated though is to shore up sales of big machinery in the US while smaller stuff of half a meter diameter and below is made in India. Hence, factories in the US and Europe can specialise in high-end machineries while the mid-market segment, that is easier to ship, can be built in India. Whatever the outcome, it is expected to be a smooth transition and if the markets recover in the US and Europe, the India part could well begin by 2014.
The main challenge for Oerlikon though will be whether Indian OEMs want to move up the value chain to manufacture products with low fuel and maintenance costs. If this evolution up the value chain happens, Oerlikon will facilitate OEM growth and grow in synch or remain a niche player.