‘Aerospace and defence to be growth drivers for us’
Udayant Malhoutra was barely 20 when he had to return to Bangalore from Mumbai to head Dynamatic Technologies, the venture his father J K Malhoutra had incorporated in 1970. The business at that time was making a revenue of Rs 1.6 crore and there was a lot of debt on the balancesheet. Almost 23 years after that, Malhoutra (who carries a nickname Toby), a graduate in economics from the Sydenham College in Mumbai, has metamorphosed the company into a Rs 500 crore business with focus on diverse sectors including automotive, aerospace, metallurgy as the CEO and MD. The company has now got overseas manufacturing capabilities in the UK and is catering to well-known names in these sectors like John Deere, Boeing, Tata Motors and Hyundai among others. In an interview with Bibhu Ranjan Mishra, Malhoutra discusses on the company’s strategy and way forward post the recent global economic crisis. Here are some excerpts.
Could you throw some light on the early days and how you managed to bring about changes to make Dynamatic Technologies to reach about Rs 500 cr business today?
I joined the business at 20, fresh out of college. We had a business which was very small and not doing well. The challenges were many-fold. We were not only losing money, but also talents. Because of our size, banks were not ready to lend us money. The hydraulic business at that time was just Rs 1.6 crore. So the only option was to refinance the company not by going to the banks, but by going to the trade and replacement markets for the products we were making. We went to establish and found the dealer network. We managed to run the company like this for 4-5 years. In 1991, we saw revenues of Rs 4 crore and the company was profitable. It’s almost like the re-birth of the company.
When did you start diversifying into aerospace and automotive?
Till 1991, Dynamatic was just a manufacturer of hydraulic pumps. When we posted profits from that business, we started our aeronautics business from a small garage which was not a very large investment. We set up a small foundry for metallurgy. Then in 1995 we set up our automotive business which today is a Rs 200 crore business. We were able to expand our businesses quite rapidly after that.
What made you to look at those areas at that point of time?
In 1991, two-three things happened which changed our direction and prepared us for the future. The company became profitable and we were able to attract good talent with me as an entrepreneur who was just 25 then. In 1991, Manmohan Singh became the finance minister and changed our vision of India by liberalising the economy. There were many companies in India at that time built like ours, but after 1991 their growth slowed down. They were very good at the licence permit raaj period while we were very poor in it. After 1991, the only companies that grew like us are software companies, not industrial companies.
Now when you look at Dynamatic, how well placed are you for the future?
In 1991, we made a vision to be part of roti, kapada, makaan and surakshya of this country, by building highly engineered and technology products that support building of a larger society around us. If you look at us today, we make hydraulic gear pumps for 80 per cent of the tractors, bulldozers, driller, cranes, excavators in India. We make engine transmission products for 40 per cent of cars made in India today and we build products that are going to all our fighter jets and battle tanks. We have a hydraulic business which is about Rs 200 crore, an automotive business which is about Rs 200 crore, aeronautic business of about Rs 100 crore and metallurgy business of Rs 45-50 crore. What ever we have done upto now is just the foundation, and the future is now built on this capability going forward.
Which are the businesses you expect to drive faster going forward?
The biggest growth for our business will come from aerospace and defence sectors. We are filling the gaps and skills, compared with our competitors. We have a great partner in India such as HAL and internationally, we work very closely with Spirit AeroSystems, the world’s largest manufacturer of aerostructures. We supply flaptrack beams to Airbus for its single aisle A-320 family of aircraft worldwide. In nine months, we will be the single source supplier for the Airbus A320 family of aircraft.
It’s only in the last couple of years you turned aggressive in terms of acquisitions. Is this inorganic pursuit expected to continue going forward?
Our growth had been largely organic. The inorganic growth was based more on the opportunities that rose at that time which was strategic for us. Our acquisition of the hydraulic business (Swindon unit) of Sauer Danfoss in the UK was aimed at giving us a global scale to help us become the world’s largest hydraulic company. Our acquisition of Oldland CNC is also a strategic one as we perceive aerospace and defence to be the biggest growth areas in our business. We needed Oldland piece of our offerings to scale up fast enough, not just in terms of size, but also by getting the skillsets.
So you are saying you need to have a scale and right skillsets to compete with global players in the aerospace business?
The opportunities from these sectors is expected to be huge as we go forward.
Because, we are competing with companies who are billion dollar companies. We are better positioned by programmes, but we are far smaller than them. So we looked at the acquisition strategically to fill the skill gaps.
The global slowdown seems to have affected your business last year, and the margins were squeezed?
Our operating margin used to be around 20 per cent. We have found our operating margin degrading during the last year largely due to the downturn. But it’s a temporary blip and we will go back up north of 20 per cent operating margin in the next few months. Besides, we don’t want to be unfair to customers by asking for more price. The idea is keep our operating margins in the range of 30 per cent and deliver our products at the best value to our customers.
While going for the acquisition of Oldland in October 2008, you diluted your stake to raise funds. Any plans for diluting the stake further?
When I joined the business, the promoters’ stake was 45 per cent which I increased to 63 per cent subsequently. Last year, I diluted my stake by 11 per cent to raise Rs 75 crore which along with the debt was more than enough for the acquisitions and expansion we undertook at that time. Now the promoters’ stake has fallen to about 55 per cent. The idea is to keep the promoters’ stake over 51 per cent because that gives stability to the company.
Any plans to raise more funds for future expansion?
We are not looking at any further fund raising as we continue to have Rs 30-40 crore of unused funds lying with us, what we raised last year through a mix of debt and equity. We made huge expansion last year including the acquisition of Oldland, setting up a new plant in India and acquisition of the wind plant in Chennai. Since we did all that in one shot, we had to raise funds.
How do you expect to close the current fiscal?
This year we are targeting revenues of Rs 550 crore. There is not much growth this year but from next year the growth will be good. Because this is the first year of consolidation post-recession.
