The situation is “grave and serious”, admits Shrinivas Shirgurkar, managing director of Ace Designers, part of the group that leads Indian machine tools industry. For the group, business was flat in the current financial year till September, but then it “dropped to a third of capacity".
To meet the rising demand, capacity and productivity had been raised, so that “even with a 30-40 per cent drop in capacity utilisation we can break even”. The Indian machine tools industry has to adopt new strategies and drastically reorient itself if it is to emerge fighting fit from the current downturn. Its future is important as despite the industry’s relatively smaller size the world over, it mirrors the health of manufacturing in any economy.
The immediate problem with the industry, which has been growing at 15-20 per cent annually for several years, is the overall slowdown in manufacturing and the severe downturn that has affected the automotive industry. This has meant sales in the current year running at around 15 per cent less than the previous year.
“When the going was good we did things for which we are now paying a price,” says Shailesh Sheth, a past president of the Indian Machine Tool Manufacturers Association and an industry expert. The industry had been riding the automotive boom in the country and last year as much as 40 per cent of its output was accounted for by that one industry. Quite simply, the industry forgot “the risk of single industry dependence.”
The survival and buoyancy of the industry is in diversifying into areas such as aerospace, construction, power, alternative energy, plastics and medical implants manufacturering. The machine tools industry had geared itself up to meet the needs of the automotive industry, which required volumes and productivity improvement. But sectors like aerospace and medical implants require far greater precision and medium to heavy duty machines able to handle newer materials.
For Ace, the current strategy consists of preserving cash, chasing receivables and not building new machines.
“By working a five-day week and focusing on customer service and reconditioning of machines we will be able to avoid touching people till the end of the calendar year,” he predicted, leaving unsaid what will happen if the slowdown persists.
The longer term strategy is to reduce dependence on the automotive sector and raise the importance of sectors like defence and earth moving equipment. In doing so, he feels “there is no big technology gap to fill as we are already looking at these areas”. The industry has been doing most of its own R&D.
Not everybody is so optimistic over the longer term. “Indian industry has to access new technology, particularly in high-tech areas like aerospace though maybe not so much in oil and gas,” says Kapil Grover, MD of HEI, a leading machine tools importer and exporter.
He is worried about the future of the Indian machine tools industry because with his familiarity with global players he feels the Indian manufacturers’ domestic market (small as it is with imports outdoing domestic output 2:1 or worse) “can be threatened.” This is because “foreign players are likely to come and set up plants here” to take advantage of our low cost metal handling skills.
Not everybody is drowning in gloom. S N Mishra, vice-president of Bharat Fritz Werner (BFW), now entirely Indian owned, asserts, “We have also been adversely affected -- current year 15 per cent down on last year -- but we have had the foresight and taken the correct decisions. We are upbeat on the new requirements of sectors like aerospace. Plus, we are setting up a new division for medical implant manufacturers.”
The reason why BFW is less severely affected by the downturn is its lower dependence on the automotives sector, 30 per cent, than a lot of the industry. Among its diversified clients are L&T, DRDO, Bhel and HAL.
Indian machine tools industry is facing a pincer move of foreign challenge -- from Japan, Europe and the US at the upper end of the market and China at the low-cost end. Grover feels that on quality Indian manufacturers are better than the Chinese at the lower end but the latter makes a compelling price proposition.
What is unusual is that despite the industry being so severely troubled, experts do not see much prospects of consolidation or acquisition by foreign players. Ace, says Shirgurkar, is getting into contract manufacturing arrangements and BFW is in talks with some troubled foreign firms with acquisition in mind. Sheth says that when revival comes in three-four years, “plants will shift to India to meet the growing demand in emerging markets, so that will not mean orders for Indian machine tools manufacturers”. And he has a dire prediction — in a few years, the Germans may have a bigger share of the Indian market than Indians.
