Rockman earmarks Rs 500 crore capex for new units, acquisition

Hero Group company has earmarked Rs 500 crore capex to fund two units as well as acquire one for which it has initiated talks with overseas players. Hero Group company, Rockman Industries is aggressively targeting acquisitions and joint ventures for ramping up capacity in aluminium die castings by leveraging more advanced technologies.

The component maker is also entering the four-wheeler segment as a Tier I supplier to OEs with orders in the pipeline from Tata Motors, Maruti Suzuki and Mahindra & Mahindra for their new platforms that are currently at development stage. For example, Maruti Suzuki undertakes a lot of in-house development of castings but is now also eyeing more external supplies as it ramps up capacity with new models. Rockman is keen to bag this business.

At present, Rockman supplies casted components for Hero Honda. It recently began supplies of casted parts in small quantities for the Mahindra four-wheeler light truck Gio that is made at the latter’s Uttarakhand facility. Though Rockman forayed into the four-wheeler business over the last two years, this business has so far accounted for a very small portion of its total business. However, the company has ambitious plans to boost this business to 30 percent of its total turnover over the next three years with various products under development at its in-house R&D centre for passenger cars and light duty trucks.

Rockman supplies aluminium castings and casted component assemblies like brake drum assemblies, engine crank cases, engine covers and brake panels that are then machined and assembled with various other parts. It also produces transmission parts like clutch covers and transmission covers.

On the acquisitions front, managing director, Suman Kant Munjal told Autocar Professional, “We are in touch with technology leaders in Europe, America and Japan. It is important for us to be competitive or we will be left out of the race.” He elaborates that the companies with whom talks have been initiated either produce final aluminium products or are high-technology value added aluminium casting companies. “We are open to partnering with all kinds of companies,” SK Munjal adds.

Ujjwal Kant Munjal executive director elaborates that Rockman’s strategy is to first focus on attaining the current technology threshold by keeping in touch with overseas companies. The second approach revolves around acquiring advanced technology to make value added products for moving up the value chain either through joint ventures or the inorganic route.

The castings maker has earmarked a capital expenditure of Rs 500 crore for moving to the next level of growth with Rs 300 crore envisaged for establishing two new plants, and Rs 200 crore slated for an acquisition. Funding will be primarily through internal accruals along with some debt. “All automotive companies are launching global platforms and as a result, technology requirements are very crucial for them. A huge gap exists between castings suppliers, their capabilities and the needs of the global platforms. We expect to bridge this gap over the next three to five years,” says UK Munjal.

Banking on new tech

New technologies are being sought after by the industry with changes taking place in terms of conversion of parts from cast iron to aluminium, in blocks, heads, knuckles, steering columns with the capability, competence and the number of producers in India for it being very limited for servicing OE requirements. Aluminium castings also facilitate a reduction in terms of lightweighting of the component. “Technology transfers are also an option but a little difficult at this stage as companies do not want to share technology but are keen to participate in the growth,” explains SK Munjal.

Recently, Rockman’s Haridwar plant bagged the best foundry award for low pressure and gravity die casting from ALUCAST. The plant, established in 2008, is the first in the country to purchase liquid aluminium. Normally for the manufacture of castings, the process involves buying of solid ingots, melting them and then transferring them to the machines for making castings. In the company’s Haridwar foundry, the melting process has been dispensed with. “We have a supplier located nearby from whom we buy liquid aluminium straight into our machines. This significantly reduces our ecological footprint, cuts down on the pollution during melting and is more cost effective especially with rising input costs,” says UK Munjal. Earlier, the company was into high pressure diecasting.

With the casting industry running short on capacity, being a capital intensive business, Rockman has decided to set up its third and fourth plants leveraging high technology for servicing the four-wheeler segment. It has already started working with other component makers in the National Capital region such as Denso, Gaziano and Magneti Marelli. Rockman is also setting up a greenfield plant at Bawal in Haryana to produce aluminium die castings both for exports and to cater to its four-wheeler business. The plant is expected to begin operations by end-2011. It will involve an investment of Rs 200 crore. The nine acres earmarked for the plant will be fully utilised with capacity ranging around 1,000 tonnes of castings per month by FY’13 end. SK Munjal says the non-Hero Honda business has been steadily growing in the last three years and exports to Europe have also been increasing due to a shortage of castings. Many European plants have shut down as the economy is still struggling to recover from the recession. In the face of cost pressures, European companies are aggressively looking at India for casted components.

Rockman's Haridwar facility has reached 170 percent utilisation capacity and nearly double of what it had been designed for. The facility produces castings for all three processes – high, low and gravity – with extensive painting, machining and assembly capability and also undertakes production of alloy wheels. Initially Rockman had acquired technology from a Chinese company for alloy wheels but now it has become self-sufficient with its in-house R&D centre though the technical collaboration continues. The company’s plant at Ludhiana has been recognised as an R&D centre by the Department of Scientific and Industrial Research. According to UK Munjal, Rockman is also working with Indian Institutes of Technologies for technology acquisition and improving its working processes on the shopfloor as well as manufacturing systems and equipment design. It is also working with the Fraunhofer Institute in Germany and a Japanese R&D consultant on product design and manufacturing processes and systems.

Improving processes

Munjal says global trends in castings are exemplified by the use of much larger machines and multi cavity tools that produce casted parts with greater accuracy and less machining in terms of design process and control work. Rockman is trying to produce the same parts on larger machines and with greater precision with the technology supplied by the Japanese firm. This reduces the extra cost on machining of parts. Currently, existing products like alloy wheels are under development for two-wheelers and these are being redesigned from scratch. The process is in the initial stages and will take around 12 to 18 months to reach completion. This will also meet head-on the competition from Chinese alloy wheel products which are entering the Indian OE market.

Another growth avenue for Rockman is the manufacture of motorcycle chains that could find their way into the replacement market in large numbers. Some months ago, the company had launched chain kits in the aftermarket. A new plant is under construction at Ludhiana for this with production expected to go on stream early next year. The second facility at Ludhiana is being established on around 10 acres with a funding of Rs 120 crore. The production capacity that is currently about 30km length per day of chains will be increased to 100km when the new plant begins production. The first plant in Ludhiana produces chains for OEs and castings and the chain production will shift out of that plant once the new facility is ready. Currently, chain making constitutes a very small business of Rs 60 crore of the company’s total business but Rockman is planning to step on the gas for this, achieving Rs 300 crore from it in three to five years. About 85 percent is contributed by the OE segment today but going forward, the equation is likely to change in favour of 40 percent for OE as demand volumes rise in the replacement market.

Rockman initially started out in 1960 as a manufacturer of bicycle chains and components for Hero Cycles and later expanded into the aftermarket and exports. It entered into the production of aluminium die castings eight years ago and diversified into production of motorcycle chains. Thereafter, it discontinued the production of bicycle chains and components. SK Munjal remarks that Rockman’s ambition is to become an Indian auto component company with a global footprint in the next 10 years.

Consolidating growth

In 2010-11, Rockman notched a topline of Rs 1,002 crore (unaudited) with a growth of 45 percent and is targeting a growth of 25 percent over it in 2011-12. The current financial year will be a stabilising period for the company when it consolidates with new plants with results to show in FY’13. But UK Munjal clarifies that margins of castings manufacturers continue to be under pressure and Rockman is working on ways to improve operating costs and working efficiency internally with process technology from Japan. This is expected to add two to three percent to its bottomline. Meanwhile, Rockman also has ambitious plans of expanding geographically in the west and southern regions of the country where the auto hubs are located close to new customers over the next three years. This has been triggered by the growing number of parts in use for new OE models and platforms and their permutations and combinations in the future.