The Anand Group is going after the aftermarket in a big way. The component maker is in the process of tying up the loose ends of a joint venture that will be spun off into a single entity to market the aftermarket products of the entire Group. Till now, individual group companies were selling their replacement market products through separate distribution channels in their own brand names. With a 60:40 stake to be held by the foreign partner and the Anand Group respectively, the new JV will be a central entity for marketing activities, leveraging a separate distribution channel under a different brand name to garner additional market share for the Anand Group. While the Letter of Intent has been signed, shareholder approval is still awaited.
The proposed JV is with an existing partner which has a large presence in the auto component sector in India. While the partner's existing product range does not compete with the Anand Group's product portfolio, it also has many global aftermarket products currently not available in India. The new distribution channel will help introduce them in the Indian market.
“We will have a JV company exclusively centered on the aftermarket under a different brand that will be either the partner's or a combination of both partners, or an acknowledgement of Anand in some way as the Anand name is not used as a trademark,” clarifies Group CEO Deepak Chopra. All efforts are being taken to ensure that the partners don’t cannibalise each other's sales in the local market.
The seven-odd product portfolio for the new aftermarket JV will include filters, shock absorbers, engine parts, drivetrain components and electrical parts for which there is a large market potential. Capitalisation of the floated company will be not more than 2 million euros for investments in systems. The JV is targeting a turnover of 50 million euros (around Rs 320 crore) by 2015-16 with a higher profitability expected from the business compared to the OE segment where margins are lower.
More JVs on the anvil
The Anand Group is also holding talks for a second aftermarket JV with another existing partner. This JV, expected to go on stream within a couple of months, will have a five-product portfolio and is expected to notch a higher turnover of Rs 500 crore by 2015-16 as it will include aftermarket sales from the existing products as well. Both JVs will be non-exclusive arrangements that do not restrict the Anand Group from taking on another partner.
Manufacturing will be undertaken through independent companies and Anand will also be sourcing part products from a third party as well as marketing them under the new brand name. The core will be a common marketing platform. This will facilitate Anand to partake a bigger share of the replacement pie. At present about 40 percent of the aftermarket is ruled by small players from the unorganised sector which also leads to the menace of spurious parts, the penalty for which is still low. In the organised sector, the Anand Group holds an over 30 percent share in filters including third party branded products.
The Group is also exploring another JV for electronic power steerings with the subsidiary of Mando Korea based in India for the last four years and producing steering systems. It is in talks to convert the existing Rs 500 crore Mando India Steering Systems into a JV company by acquiring about 26 percent stake in it. Anand already has a partnership with Mando for brakes and shock absorbers with major supplies being to Hyundai Motor India. However, with the carmaker’s capacity almost static for some time, not much improvement in sales is expected. Mando India has other customers as well such as Ford, General Motors and Renault but business from Hyundai remains the largest.
Eyeing the CV, two-wheeler markets
Anand foresees much growth potential in the commercial vehicle segment where margins are higher though the cyclical nature of business is a constraint. The Group already supplies axles and driveshafts with axles targeted at LCVs and driveshafts supplied for all CV categories.
“We want to expand the CV range and discussions with some of our existing partners are underway to address this segment more forcefully. The two-wheeler segment is also another growth area for us as it is a profitable business,” says Chopra.
The two-wheeler sector has witnessed a steady growth of 15 percent and has shown itself to be a more stable sector than the passenger car segment. Group company Gabriel, which currently supplies front forks for motorcycles, will be developing more products for two-wheelers. The product portfolio is proposed to be further expanded by the induction of either new products, a new partner or a new technology albeit opportunities for product expansion exist in the current JV.
Anand is keen to shore up growth opportunities for Gabriel India, which is the only listed company in the Group. This will facilitate it to become a bigger global player with a turnover of Rs 2,016 crore by 2015-16 from the current Rs 1,200 crore level.
One of the Top 10 shock absorber manufacturers worldwide with seven plants in India, Gabriel also has ambitious plans of extending its presence overseas, especially in China. “We visualise growth potential in China through our ownership of the Gabriel brand or through an alliance with an existing ride control product manufacturer or through a greenfield venture,” elaborates Chopra. There is huge scope for rich pickings in the Chinese automotive market for shock absorbers, struts and front forks for two- and four-wheelers.
The Group is also keen to expand the Gabriel brand in Egypt, South East Asia and the Middle East. Gabriel was once a US brand and the Anand Group’s partner but following a split, the business was sold piecemeal, and Anand acquired Gabriel India. The Indian company now exports shock absorbers to Gabriel America that is currently owned by a private equity player. Chopra says the American investor may look at divesting its stake at a later date to rake in a good profit and this opportunity could tie in with Anand’s ambitions to make Gabriel one of the top five players globally by 2015-16.
At present, the Group sources products worth $20 million every year from China and has developed tie-ups with existing suppliers there. It now eyes this as another growth area for components and finished products, besides the India defence sector.
The Anand Group has set an ambitious target of crossing a turnover of Rs 10,000 crore by 2016 and plans to achieve this through both domestic sales and aftermarket products. Inorganic growth is also not ruled out.
Cautious approach
The company was quite aggressive on the acquisition side till recently but now plans to tread cautiously with the slowdown in the passenger car segment. Commercial vehicles, SUVs, two-wheelers and agricultural tractors are faring well.
Anand is however doing a rethink on foreign acquisition, given the considerable risk factors of operating in a foreign country like political, currency volatility, market perambulations and liabilities of acquired companies. Some component makers who acquired overseas companies, failed to read the fine print in takeover agreements and the liabilities they had taken on till much later. This severely impacted their Indian operations.
While not ruling out inorganic growth, Chopra says that the Group’s greenfield installations have grown faster. Last year, Anand concluded a small acquisition of Yutaka Autoparts, a Japanese company in Pune engaged in making exhaust systems. A former JV partner of TACO, the Anand Group is in the process of merging this company with Fauresia Emission Control Technologies, a JV between Anand and Fauresia, a sister concern of French carmaker PSA Peugeot Citroën.
The Group closed 2011 with a 22 percent growth over the previous year at Rs 5,100 crore. Its pre-tax margin ended lower than last year’s five percent with the post-tax margin being 3.5 percent.
Calendar year 2012 is expected to close lower with a growth of 19 percent due to high inflation, rising interest rates and falling passenger car sales. Input costs are also up and foreign currencies like the yen and dollar strengthened against the rupee. However, by 2016, the Group is optimistic of achieving pre-tax margins of 8.5 percent and post-tax margins of six percent.
Capex plan for existing businesses
The Group is now considering a capital investment of Rs 1,500 crore over the next five years in its existing businesses. Chopra says that it has adequate debt capacity for funding acquisitions.
Many of the Group companies like Takata India, which is a big supplier of safety systems for automobiles, including seatbelts, airbags, and steering wheels to Honda, were badly impacted as the floods in Thailand and the tsunami in Japan last year badly hit Honda operations.
Takata India produces safety electronics at its Chennai and Neemrana plants while Behr India has leveraged evolving technologies in air- conditioning and engine cooling systems.
Last year, Mahle started its filtration plant in Chennai and commenced the production of complete air intake manifolds in plastics, with the injection moulding made in-house in India for the first time, a technology that will enable it to meet the requirements of Euro 5 and 6 norms. Emerging technologies are being sourced from partners as they are not yet available in India.
The Anand Group has three plants at Sanand, of which two are operational with a third one under construction. One is Gabriel’s, another is Behr India’s air-conditioning assembly plant, while the third one under development is for exhaust systems for Fauresia to meet the requirements of Tata Motors.
The Group plans to acquire an additional land bank of 30 to 50 acres in Sanand as more OEs flock to the region. Though Peugeot has rescheduled its plans of setting up its greenfield facility at Sanand by a few months, the carmaker is an existing customer of Anand’s overseas partners and the Anand Group will be a preferred vendor in India.
All in all, the Anand Group is poised to both consolidate growth and drive future revenues.
SHOBHA MATHUR