Auto firms boost Pune's feeder units

Volkswagen plans to set up Rs 2,200 cr manufacturing facility, General Motors to invest Rs 1,500 cr.

Pune's small and medium automobile industries never had it so good. With global automobile players announcing plans to set up manufacturing facilities in and around the city, the small units are experiencing a boon in their businesses.

While the US-based General Motors plans to build a Rs 1,500 crore plant at Talegaon, 40 km from Pune, German car major Volkswagen has decided to start a ¤410 million (around Rs 2,200 crore) manufacturing facility at Chakan, an upcoming industrial hub.

Volkswagen's production plant will house a press shop, a body shop, a paint shop and assembly lines at the 230 hectare site in Chakan. The company will develop a vehicle specifically tailored for the Indian market.

Not to be left behind, domestic auto majors are also chalking out plans to set up facilities. Indian bike maker Bajaj Auto has planned a Rs 500 crore plant for motorcycles at Chakan and also a four wheeler plant, which will be operational in the next three years.

Tata Motors, though not expanding in Pune, is planning huge capacities for the much-talked about Rs 1 lakh car in Singur, West Bengal and setting up a facility with Fiat at Ranjangaon, 80 km away from Pune.

Besides factors like proximity to the strong Western India market and availability of qualified and experienced manpower, the presence of a strong base of suppliers of components and sub-systems, largely in the SME segment, is the main reason for international as well as national automobile players to consider Pune and its surroundings.

R Balendran, director and vice-president (corporate affairs), General Motors, says: "Apart from nearness to the Western India market and the Mumbai international port, availability of quality components has contributed to our decision to set up a factory near Pune."

Manasi Phadke, an economist and chief economic advisor to the Maharashtra Chamber of Commerce, Industry and Agriculture (MCCIA), says the impact of the bigger fish in the region has been both positive as well as negative on local SMEs.

"The positive aspect is that more original equipment manufacturers (OEMs) imply more orders, and of course, more business. The clustering of many big auto companies in Pune will also lead to better visibility for smaller suppliers. What is interesting is that global sourcing companies are eyeing Pune more than they were five years ago," she points out.

The extremely promising scene has encouraged many small automobile component makers to expand capacities and even start new plants. Uma Precision Ltd, for example, has four plants in and around Pune. Its fifth plant is coming up in Uttarakhand.

The company manufactures over 500 different components for auto majors such as Bajaj Auto, Tata Motors, Piaggio, Kinetic. It is, in fact, gearing up to go public with a share issue of Rs 70 crore.

According to Rajendra Kankaria, managing director, Uma Precision, the company is setting up a cold forgings facility and expanding capacities in bright bar manufacturing.

Autoline Industries, another automobile player, is going public to raise funds for its expansion plan, which will include a tool room, a press shop and a body building area for tippers and other construction vehicles. The company, in fact, was close to acquiring a controlling stake in Belgium-based Stokota for which it makes bodies for tippers.

According to Gopal Patwardhan, director, Autoline Industries, automobile companies are increasingly looking at forging alliances in the areas of pressed and machined components, mechatronics and car information systems.

"These companies only make engines and power-trains for vehicles, leaving the rest for the vendors who are largely in the SME segment," he adds.

Interestingly, the feeder units, which are mostly family-run organisations, are looking beyond the definition of "just being suppliers" and considering opportunities in the high-tech area. This has taken them closer to the original equipment manufacturers and many have become direct online suppliers for them.

Yezdi Nagporewalla, a partner at global consulting major KPMG, says: "Over the last 5-10 years, faster and greater technology absorption has been witnessed in the SME sector. This is mainly pushed by the OEMs as they want the vendors to match their standards. Original manufacturers (OMs) either give technology or make it necessary for the vendor SMEs to acquire it themselves."

Uma Precision could be a case in point. This Rs 78-crore automobile components maker, with facilities in two states including Maharashtra and Karnataka and two more in Australia, has recently signed an agreement with German chemicals giant Doerken MKS System for surface coating technology for its fasteners.

Under the agreement, Uma plans to set up a project for zinc-aluminum flake coating for cathodic protection, which is an advanced micro-layer system that replaces hazardous plating and other coating operations. Kankaria says the move will give Uma Precision 30 times higher realisations from the components it will supply.

Phadke, however, warns that the SMEs must not overlook the cyclicity of the automobile sector. The main safeguard, according to her, is to limit the client specific exposure and not to put all eggs in one basket.