Kennametal India to turn sourcing base for parent

Kennametal Widia India, the Bangalore-based arm of the $1.8 billion metal working major Kennametal, expects to turn into a sourcing base for the parent by next fiscal (starting July 2005).

The company is already benchmarking its manufacturing operations against its peer plants in North America and Europe and is on course to meet those quality, cost and delivery norms in the next six months, according to Kumar Kanetkar, Managing Director.

Having managed to do that, the Indian arm has got the go ahead to ramp up and metamorphose into a base to serve Asia Pac and other markets. First inline is a Rs 50 crore investment (70 per cent for capacity increase). The addition is targeted to go on-stream before this fiscal end.

This will be followed by similar levels investments in the next two to three years. While this round of investment will 60 per cent cater to the growing Indian market, the ensuing ones will be vice versa, with the major part of the additions skewed to meet external requirements.

Kanetkar said, " Once we reach the QCD benchmarks, it will essentially be pull based exports. Our other selling locations will necessarily turn to us, if we are competitive."

He added that the investment planned, factors all these concerns. For instance, from an Indian market perspective alone, the company will require just 20 per cent of the proposed captive power capacity.

This round of investment will see the installation of new machine tools, furnaces, tools for advanced R&D besides a further 2 mw heavy oil based power plant to the existing 2 mw. The power plant, while taking up about Rs 8-9 crore, will insulate the company from the vagaries of the grid power.

The possibility of the Indian arm turning an outsourcing hub for Kennametal comes in the wake of falling capacity for exports, as a consequence of the high domestic growth rates.

Exports for the year ended June 2004 stood at 15 per cent of its Rs 230 crore topline compared to 24 per cent the previous year. Officials clarified that this was only an indicative figure as the 2003 and 2004 results were not strictly comparable. The company reported a 18 month accounting period for the year ended June 2003.

The transformation to a Kennametal sourcing base will mark the next phase of Kennametal Widia's integration with the parent, post acquisition in August 2002.

Kennametal, the world's second-largest metalworking company, acquired a 88 percent stake in the Indian venture as part of its global acquisition of Widia from Milacron.

After the acquisition, Kennametal, handed to the Indian operations several of its technologies, invested over Rs 50 crore while the Indian company cleaned up its balance sheet. Besides, it also sold its non-core mining and construction tools division in February this year to Sandvik Smith for Rs 65 crore.