Tata AutoComp Systems is executing a strategy to be among the top 50 global auto component players by 2025
No dream is too big when the focus is right. Not so long ago, the auto ancillary arm of the Tata group, Tata AutoComp Systems, was struggling to stay above water. It took a major restructuring exercise that involved exiting several joint ventures and a focused cost cutting initiative to put the organisation back on its feet. Today, Tata AutoComp is a profitable dividend paying company. Moreover, it has developed a global footprint and is eyeing its next milestone — to be in the global top 50 by 2025.
One of the big steps in its growth journey has been achieving its dream to break free of domestic boundaries and go global through the acquisition route. It was an intensive exercise that started with the identification of 3,500 companies. The target list was analysed from three perspectives — size, relevance and strategic fit — to be cut down to a shortlist of 116, and then whittled down further to 32 ‘dream targets’.
The company finally homed in on TitanX, a Sweden-based global supplier of powertrain cooling solutions to commercial vehicle manufacturers. “TitanX was a good fit and made us a global player. We acquired the company in December 2016,” recalls Ajay Tandon, MD and CEO of Tata AutoComp.
This was a big deal in many ways, given the company’s ambitions and the changing contours of the business. For one, TitanX gives the Pune-based auto component major an access to customers in two key markets, the US and Europe. TitanX’s product development and manufacturing centres in Sweden, USA, Brazil, China and Mexico also provide Tata AutoComp access to a wide range of technologies, especially in the manufacture of radiators that are compliant to Euro VI standards.
Another area of good fit is TitanX’s advanced testing facilities. “The next few years will see a growing need for testing in the automobile sector,” points out Mr Tandon. “TitanX has full truck-testing capabilities for power train cooling solutions at its two large facilities in Sweden and in the US.” The TitanX acquisition also added strategic value to Tata AutoComp by helping it de-risk its business. “This year, 35% of our revenues will come from outside India,” says Mr Tandon.
Another aspect of de-risking its operations has been the expansion of its domestic customer portfolio. Tata AutoComp has literally grown by getting ‘closer’ to its customers. Component suppliers are typically required to set up factories close to the plants of their major customers. The company has 41 plants in operation today, including eight outside India. It has seven JVs running currently, three of which were signed in the last four years. Amongst the new facilities is a plant in Changshu, China, for Jaguar Land Rover; one in Chennai for Renault; in Sanand, Gujarat, for Ford; and in Sri City, Andhra Pradesh, for Isuzu.
In the period 2008 to 2013 the company underwent a massive restructuring exercise. We have grown rapidly over the past few years and today, Tata AutoComp is a global company. We are present in three industry verticals — interiors and exteriors; cooling, emission and suspension; and aftermarket and services.
Last year, we grew by around 20%; this year, we expect to achieve around 50% growth. Our ambition is to be among the top 10 Indian auto component manufacturers and top 100 globally by 2021, and top five Indian auto component manufacturers and top 50 globally by 2025. Our current aggregate turnover adds up to 47 billion; by 2025, we expect our turnover will be in excess of 300 billion.
We focus a lot on technology. In the past, we used to come up with 35 to 40 entries for Tata InnoVista (the annual Tata group innovation platform). Last year, we had about 280 entries. We encourage our engineers to think differently while coming out with new products.
We set aside 1% of our turnover as budget for new technology — to upgrade laboratories, to put up new R&D centres and procure new equipment. Many of our engineering centres are accredited by the Department of Scientific and Industrial Research.
We supply to almost all automobile manufacturers in India. We have de-risked our business, ensuring that 35% of revenues are from outside India and that no single customer will account for more than 35% of our business. At the same time, we have stuck to our philosophy of catering to our ‘anchor customer’, which is Tata Motors. In spite of the market environment, we have not lost any orders from them and, going forward, we will continue to meet all their needs.
Maintaining this wide spread of customers is essential for the business.“No customer will account for more than 35% of our business,” says Mr Tandon. Tata Motors continues to remain the ‘anchor customer’, but Tata AutoComp’s client list includes almost all Indian and international automotive majors operating in the country (see box).
The strategy has helped the company stay afloat during tough market conditions. “The last three to four years have been very tough for auto component makers; there was slow growth of business of original equipment manufacturers (OEMs) in India and, at the same time, there was a cost pressure due to increase in costs of raw materials, wages, power, etc,” points out Mr Tandon.
Moreover, the nature of the auto ancillary industry is such that even when OEMs decide to source new products, component suppliers have to wait much longer for orders and revenue realisation. Mr Tandon explains that “it can take six months to get an RFQ (request for quotation) from an auto OEM, another six months for an order to be finalised and then another two to three years for production to start. We have to make an upfront investment in plant and equipment, and spend time in designing or developing the parts. The cash bells start ringing only in the third or the fourth year.”
Fortunately for Tata AutoComp, it has built up a healthy balance sheet and order book over the past three years. “The industry has grown in single digits, but we worked very hard on our profitability. We did a lot of good work on order booking, and on cost cutting,” says Mr Tandon.
Last year, Tata AutoComp’s revenues grew at around 20%. “We expect both revenue and profits to grow this year,” says Mr Tandon. With the acquisition of TitanX, Tata AutoComp’s topline will grow by around 50%.
To ensure that it will have enough production capacity for this growth plan, the company is developing a new plant on an 80-acre industrial site at Chakan near Pune. The company is also re-envisioning its future by exploring digital technology and plant automation processes.
Even the company’s product range is changing. Over the years, Tata AutoComp’s product range has focused on three aspects of automobiles — comfort, emission and safety. With the auto components market in India currently estimated at around $39 billion, and globally at $1.75 trillion, Mr Tandon sees huge potential for the company to grow over the coming years.
This can happen through new products, both in existing lines of business and emerging ones. Right now around 40% of the components that Tata AutoComp produces are meant for use in cars while another 40% go into commercial vehicles. The rest are slated for new business areas such as two-wheelers, tractors, and construction equipment.
Tata AutoComp is also working to reduce its dependency on conventional automotive streams. It has plans to supply indirectly to the Indian Railways, and has been working with the new metro rail projects coming up across the country through principal suppliers such as Cummins and Bombardier.
But the real action will be seen in the upcoming breed of technology-driven vehicles. “As part of the strategy to seed and grow new business, we are also backing some of the top emerging trends in the automobile sector today, such as electric cars and connected vehicles,” says Mr Tandon. “We have started preparing for the next wave. The auto components industry is in the technology space now with a significant upside for growth.” These are good times for the sector in India. The government has declared the automobile and auto components industries as growth sectors, and they are also part of the flagship Make in India programme.
Tata AutoComp’s ongoing transformation phase covers more than topline growth; it also includes people and productivity initiatives. Employee engagement has been a critical aspect of the transformation journey. A few years ago, when the auto ancillary industry was going through a slump, Tata AutoComp’s employee engagement had dipped to a low of 38% (in 2013). The situation called for some intensive measures.
“We focused on employee engagement and capability building,” says Mr Tandon. The company set about building a talent and leadership pipeline. So far, around 300 of Tata AutoComp’s managers have undergone the global SHL assessment used to identify potential leaders in an organisation. A chief technology officer and a chief transformation officer have been brought on board. For its successful people transformation efforts, Tata AutoComp won the Aon Hewitt Best Employer award in 2016 and 2017.
The company is also targeting some big goals in both quality and safety. “Safety is critical, both from the employee and customer perspective, and we have worked hard on this issue. Workplace accidents have come down. In the last four years, no fatalities have occurred. Our employees feel more engaged and safe, and our customers are assured of supply continuity. We want to be a Deming Award company by 2022 and want to win the Sword of Honor for Safety before that,” says the MD.
Tata AutoComp has all its plans in place for big-time growth. The dream is coming true, and the timing seems to be right.