South India parts makers take the road to Gujarat

Leading South India-based component manufacturers are expanding operations to Gujarat to cater to the growing OEM base there.

A number of auto component makers from South India, especially Tamil Nadu, are all set to spread out their wings in Gujarat as that state evolves as another automotive hub. So what exactly has triggered this flight of capital to Gujarat?

One of the key reasons is seen to be the convoy of OEMs flocking to Gujarat over the last two years to tap the financial incentives offered by the Gujarat government. Though GM India set up its Halol plant in June 1996, Tata Motors’ now-famous shifting of the Nano plant from Singur, West Bengal, to Sanand in 2008 is what really kicked off the OEM march to Gujarat. The state in turn was quick to cash in on the investment opportunity with a bounty of land, incentives and state support to woo more vehicle manufacturers. Since then, Gujarat has seen a flurry of major OEMs like Maruti Suzuki, Ford India, Hero MotoCorp commit large investments in the state that will reach fruition over the next two years.

Logistics is the key

To meet just-in-time requirements of OEMs, component makers have to be perforce located in close proximity to vehicle manufacturing plants. As a result, many Southern component makers who are major suppliers to these OEMs are expanding their presence by setting up new production units in Gujarat. Some major players contemplating expansion there include the Rane Group, Wheels India and Valeo India.

According to Harish Lakshman, vice-president of ACMA, a similar scenario was witnessed in Uttaranchal five years ago when large customers like Tata Motors, Bajaj Auto and Ashok Leyland set up new plants due to the tax incentives offered by the region. He visualises more investments by several other parts makers in Gujarat, particularly in the areas of chassis parts and body panels, over the next five years. On an average, one facility would entail an investment of around Rs 10-40 crore.

The component manufacturers' investment together would be, by rule of thumb, 3-4 times the investment of vehicle manufacturers, as it is a capital-intensive industry, adds Vinnie Mehta, executive director, ACMA.

With the Automotive Mission Plan 2006-16 projecting a cumulative turnover of $145 billion by 2016 at around 15-16 percent growth, many more new manufacturing facilities are required by both vehicle manufacturers and component makers to reach the projected figures. However, in view of the current slowdown, SIAM has already projected that the AMP target will fall short by $ 34 billion and spill over the next few years.

Srivats Ram, managing director of the Chennai-based Wheels India says, “As plans of major customers in Gujarat fructify and come closer to finalisation, we will invest there as the business case dictates.”

Another Chennai player, the Rane Group had sometime back started a small assembly facility in Gujarat and is keen to explore opportunities of backward integration and of setting up a larger manufacturing facility once production at OEMs are in full swing.

“We have made a small investment in the Tata Vendors Park. This is a final assembly facility for supplies to Tata Motors. When volumes increase, we will start making some parts and sub-assemblies,” says L Ganesh, chairman of the Rane Group. “The other Group companies have not yet finalised. We will review the progress of other customers there and decide on the timing. We are yet to buy any further land as yet.”

But the hunt for land near Vadodara and Ahmedabad in Gujarat has started with the Rane Group keen to buy 10-20 acres of land with investments to flow in later.

Valeo India is also making a beeline to the state with an array of thermal products. Its new plant at Sanand was originally slated to go on stream by the third quarter of 2013 but due to delays in customer projects that will lower production volumes, it will kick off production only around 2014-15. This plant will not only meet the passenger car requirements of OEMs in Gujarat but also address the needs of Valeo’s Pune-based customers.

The plant, to be set up on a 15-acre site, will initially manufacture fan assemblies and radiators and later compressors. The supplier is believed to be nursing plans of supplying CKD kits of compressors for small cars soon and to later localise them at Sanand. These have been specially designed for entry level cars and are compact and lightweight.

So with Gujarat going the Uttaranchal way in terms of the automotive industry, it may soon become a model for other states to emulate and offer component makers an opportunity of inching closer to the AMP target.

SHOBHA MATHUR