The Tier 1 supplier plans to start commercial production of crankshafts by July 2013, allocates capex for engine valves and also builds a technical centre at Aurangabad for polymer business. Amit Panday reports on all the action at the Varroc Group.
Fuelling growth through new technology, innovation and niche products is the mid-term goal for the US$ 1.2 billion (Rs 7,159 crore) Varroc Group. The crankshaft is one such niche product which offers good margins. The metallic vertical, a part of the flagship Varroc Engineering, is gearing up to start the production of crankshafts at the Aurangabad plant from July 2013. B Padmanabhan, chief financial officer, Varroc Group, says, “The commercial vehicle (CV) segment is not showing any signs of growth this year, so I don’t think there will be ample demand. I see that we would be producing marginal numbers this year. However, by next fiscal, the crankshaft business is expected to bring in good numbers for us and subsequently will boost the revenues generated under the metallic product line further. The metal business currently stands at 18 percent of total revenues.” The company posted a turnover of $ 1.2 billion (Rs 7,159 crore) during 2012-13 and records claim that the firm is growing at 20 percent per annum. Of this, Varroc Lighting Systems (VLS) is the biggest growth driver with a share of 40 percent of the total revenues, thanks to the recent acquisitions of Visteon’s lighting business and the Italian two-wheeler lighting major, TriomSpA. Varroc Polymers contributes 23 percent, followed by the electrical and electronics division and metallic (forging and valves) division contributing 19 and 18 percent respectively. The electrical, lighting and metallic divisions together come under Varroc Engineering while Varroc Polymers stand as a separate entity.
Capex to fuel growth
The company plans to expand the existing production capacity of engine valves by 45 percent, and plans to invest nearly Rs 55 crore
($ 1.2 million)into the capex. On the other hand, with an initial investment of Rs 10 crore on land and machinery, the company has recently set up a plant in Bangalore to supply seating assemblies to Honda Motorcycle & Scooter India (HMSI) at its Narsapura facility. “We have set up a lot of plants near the production facilities of our customers. For example, we had raised a unit in Pant Nagar which is an integrated division looking after all the requirements of Bajaj Auto in 2006-07. We have dedicated plants for Yamaha India and HMSI in North India as well. We had opened up a plant in Indore last year for Mahindra Two-Wheelers which will now also supply components to Volvo Eicher Commercial Vehicles (VECV). The latest one is our Bangalore facility (production commenced in June 2013) from where we plan to supply air filters and moulded components besides the seat assemblies that are currently being supplied,” clarifies Padmanabhan. Though HMSI remains the first priority for Varroc’s Bangalore facility, the firm is open to supplying components to other clients as well in future.
New tech centre
Though the CFO says that it has been a flat market in last two months of this fiscal, he is expecting the Group to get new orders across all verticals in the coming months. The company has recently set up a technical centre exclusively for its polymer division at Aurangabad which employs over 100 skilled engineers. According to the company, the centre will drive R&D for the polymer business and has already hosted multiple OEM-led teams in last two months.
The technology-driven company has 8 research centres globally which employ more than 600 engineers and has filed over 100 patents so far. Tapping the recent trend of OEMs partnering innovation-led Tier 1 suppliers for complete product development cycle, the Varroc Group commits spending 3-4 percent of its annual turnover into its R&D operation every year and maintain its leadership position.
Maharashtra’s role-play
The Varroc Group has a total of 23 production facilities in India with 17 of them located in Maharashtra. The Group also has four engineering centres in the state. The Group draws various fiscal benefits which it is entitled to for making consistent investments over the last 4-5 years in the region. For instance, Varroc Engineering falls under the mega project category based on the investments made and the employment generated by the entity in the region. “When one complies with the additional investments made and the additional employment generation in the region, one becomes eligible for reaping the benefits. We pay all taxes to the government and then at the end of the year, we submit proper proofs, audit certificates based on which we get refunds on the sales tax. In Aurangabad, the tax refund scheme offers a 100 percent refund of the paid amount applicable on the incremental investments while the same is 75 percent in Pune,” explains Padmanabhan. Putting it simply, he mentions that “essentially, the cycle is to generate adequate employment, manufacture and sell enough to create adequate sales tax liability to get the benefit of filing for tax returns.”
The state government devises the investment conditions for private firms to reap the incentives with the objective of promoting the backward areas more thereby generating employment and contributing in altering the economic landscape of the region. However, Padmanabhan sees two obstacles – land and labour. “The process of getting the land in possession is longer than usual as the time involved in the bureaucratic processes is too long. The gestation periods of some of the upcoming projects in relatively smaller areas are longer than usual. Secondly, the availability of skilled labour is a big issue which is predominantly felt by many industries in Maharashtra,” he underlines.
Suggesting two basic steps, he stresses on introducing a single-window approach and creating a talent pool at the government level. “There is a lot of room for improvements in terms of having a single-window approach for giving clearances, addressing the roadblocks deterring the execution of projects, focus on compressing the time involved in the whole process can be introduced by the state government. Additionally, it should create a pool of skilled, trained diploma holders and can supply workforce to private firms at some cost. Finding trained shopfloor managers and other skilled employees who can overlook them is a problem. However, the issue exists across the nation,” reasons out Padmanabhan.
“Focus on lean manufacturing practices, maximising efficiencies, adding new customers to its portfolio are some of the immediate priorities for the Group companies,” he signs off.