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As with most other companies in the capital goods space, German multinational ThyssenKrupp's business in India was hit by economic slowdown and regulatory uncertainty. Michael Thiemann, chief executive officer of the company's India region, tells Aneesh Phadnis things are now changing for the better. Edited excerpts:
Capital goods sector companies were impacted by slowdown and lack of decision making in the previous government. Has the situation changed?
The Narendra Modi government is taking steps in the right direction and removing the blocks to investment. Investors want clear laws and regulatory certainty. We see change in that front. The government is addressing issues, whether it is labour law reforms or the land acquisition law. I was not expecting big-bang changes in one year. You cannot change things overnight. But, the reform intent is clearly there.
Which sectors are showing opportunity for you?
We are seeing these from the mining and cement sectors. We are well placed in offering equipment and solutions for transport, loading and unloading, and crushing and milling of coal and other minerals, including iron and bauxite, and we are excited about the prospects following the allocation of coal mines. We are currently developing facilities for loading and unloading at Mundra (in Gujarat) port and setting up loading facilities for coal and iron in Malaysia and Indonesia.
We also see growth in the elevator business and are setting up a manufacturing plant in Pune. Over 90 per cent of the elevator components will be made there and we hope to make the plant operational in next two years. Another focus area for us, going forward, will be exports. Currently, the share of exports to revenue for our companies in India is about 10 per cent and my target is to increase it to 20 per cent. Exports will help to de-risk the company from future economic slowdowns.
The company is also interested in defence and aerospace projects?
We'd like to participate in the indigenous manufacture of submarines and are in discussion with public sector and private shipyards. We expect the government to shortlist shipyards for the project in the next six to eight weeks. We have the technology and expertise and are willing to collaborate with Indian companies, by offering design, engineering and implementation knowhow.
We have also invested in a service centre at Bengaluru for the aerospace industry. This is for material processing of aluminium and titanium used in manufacture of aircraft. At present, the revenue size of the aerospace business in India is small but we expect opportunities as the aviation sector grows. We do not want to lose out on opportunities.
What growth are you expecting in order intake and revenue?
This year, we expect to grow our revenue and orders by 10 per cent. Most of the growth is coming from industrial solutions i.e material handling (mining solutions) and the boilers and elevator businesses. We also expect the engine component business to pick up. Currently, India contributes only one to two per cent of our global revenue and we hope to raise it with the next level of reforms.
How do you see the global economic environment impacting India? Do you see overcapacity in core sectors in China as an area of concern here? How can Indian companies meet the challenge?
We see two phenomena shaping up, declining crude oil prices and a slowing of the Chinese economy. While the first is a positive for India, hugely dependent on oil import, a slowing in China poses some concern. There is tremendous over-capacity in core sectors such as steel and chemicals, and I fear China will dump these products here.
Indian companies need to remain cautious, cost-competitive and efficient. Competitiveness on cost is not only about saving labour costs but about labour efficiency and skills. I think the Modi government is addressing this issue, too. Investment in manufacturing is not only about providing jobs but on the right skill-sets to the workforce. I don't like the tag of India being a low-cost country. For me, India is the best-cost country, as there is a right balance between product quality and cost.
Capital goods sector companies were impacted by slowdown and lack of decision making in the previous government. Has the situation changed?
The Narendra Modi government is taking steps in the right direction and removing the blocks to investment. Investors want clear laws and regulatory certainty. We see change in that front. The government is addressing issues, whether it is labour law reforms or the land acquisition law. I was not expecting big-bang changes in one year. You cannot change things overnight. But, the reform intent is clearly there.
Which sectors are showing opportunity for you?
We are seeing these from the mining and cement sectors. We are well placed in offering equipment and solutions for transport, loading and unloading, and crushing and milling of coal and other minerals, including iron and bauxite, and we are excited about the prospects following the allocation of coal mines. We are currently developing facilities for loading and unloading at Mundra (in Gujarat) port and setting up loading facilities for coal and iron in Malaysia and Indonesia.
We also see growth in the elevator business and are setting up a manufacturing plant in Pune. Over 90 per cent of the elevator components will be made there and we hope to make the plant operational in next two years. Another focus area for us, going forward, will be exports. Currently, the share of exports to revenue for our companies in India is about 10 per cent and my target is to increase it to 20 per cent. Exports will help to de-risk the company from future economic slowdowns.
The company is also interested in defence and aerospace projects?
We'd like to participate in the indigenous manufacture of submarines and are in discussion with public sector and private shipyards. We expect the government to shortlist shipyards for the project in the next six to eight weeks. We have the technology and expertise and are willing to collaborate with Indian companies, by offering design, engineering and implementation knowhow.
We have also invested in a service centre at Bengaluru for the aerospace industry. This is for material processing of aluminium and titanium used in manufacture of aircraft. At present, the revenue size of the aerospace business in India is small but we expect opportunities as the aviation sector grows. We do not want to lose out on opportunities.
What growth are you expecting in order intake and revenue?
This year, we expect to grow our revenue and orders by 10 per cent. Most of the growth is coming from industrial solutions i.e material handling (mining solutions) and the boilers and elevator businesses. We also expect the engine component business to pick up. Currently, India contributes only one to two per cent of our global revenue and we hope to raise it with the next level of reforms.
How do you see the global economic environment impacting India? Do you see overcapacity in core sectors in China as an area of concern here? How can Indian companies meet the challenge?
We see two phenomena shaping up, declining crude oil prices and a slowing of the Chinese economy. While the first is a positive for India, hugely dependent on oil import, a slowing in China poses some concern. There is tremendous over-capacity in core sectors such as steel and chemicals, and I fear China will dump these products here.
Indian companies need to remain cautious, cost-competitive and efficient. Competitiveness on cost is not only about saving labour costs but about labour efficiency and skills. I think the Modi government is addressing this issue, too. Investment in manufacturing is not only about providing jobs but on the right skill-sets to the workforce. I don't like the tag of India being a low-cost country. For me, India is the best-cost country, as there is a right balance between product quality and cost.
