The Rs 4,000-crore pump industry in Coimbatore is all set to touch the Rs 6,000 crore in sales revenues over the next two years. Nevertheless, it says that a number of small and medium enterprises (SMEs) in the industry are either closing shop or increasingly becoming suppliers to large companies, due to erosion in their profit margins due to increases in raw material prices.
Jayakumar Ramdass, president of the Southern India Engineering Manufacturers’ Association (SIEMA), said that while the industry is set to grow, manufacturers are facing mounting pressure due to rising raw material costs.
The price of copper, the main raw material for pump makers, has increased to $9,000, from $7,300 at this time last year, he said. Similarly, the prices of other raw materials – including steel, stainless steel and bronze – have increased by 15 per cent.
“To compensate for the increase in the cost of copper alone, the industry has to increase prices of pumps by 7.5 per cent, but in the last one year we could increase them by only 5 per cent, since customers are not willing to take on the burden,” said Ramdass.
“Overall, we need to increase prices by 15 per cent, but we could increase them by only 10 per cent. Though the topline is good, the bottom line is bad,” he added. Ramdass is the managing director of Mahendra Pumps, one of the leading pump manufacturers in Coimbatore.
This had resulted in many units, mainly SMEs, either closing down or converting themselves into suppliers to big companies. Currently, of the industry size of Rs 4,000 crore, a mere 10 companies account for sales of Rs 3,000 crore.
Exports account for 10 per cent of the industry’s total sales revenues. The town exports pumps to Europe, United Arab Emirates, East Europe and countries on the Indian subcontinent.
While the bigger companies can withstand the erosion in margins, small units are unable to, Ramdass said. Earlier, Coimbatore was home to 600 smaller units employing 10-15 people each, but this has now come down to 300-350, he added.
Another 100 units, which used to manufacture their own brands, have already become suppliers to the bigger brands. He noted that earlier, the number of Coimbatore-based brands used to be 350, and this has now come down to 200. Over the next five years it is expected to further come down to 100.
According to Ramdass, the advantage for small and micro units in converting themselves into suppliers is that they no longer have to worry about raw materials, technology and testing. He noted that the bigger companies are investing around Rs 200 crore to expand capacity in Coimbatore.
