Zipping ahead

VIEW FROM THE TOP/ Sachin Khandelwal

'Southern states are poised well to reap advantages of the boom in the auto components sector'.

There is simply no doubting the domain expertise that Sachin Khandelwal, general manager, ICICI Bank, has in the automotive industry. He's been associated with it earlier at Honda and then with ICICI Bank. He speaks about the myriad changes that are affecting the future of auto components players and how southern part of the country is really racing ahead in this sphere.

What do you think are the prospects for the auto components industry and how competent are the souhern states to tap on to the potential of this segment?

India is the fifth largest producer of vehicles in the world and with focus coming back on small cars, especially with what is expected from Tata Motors, the country is well poised to be a global hub for automotive industry. This will naturally encompass the auto components sector and its players as they are already catering not just for domestic needs today, but are sizable contributors to exports as well.

Also going by spread, we see that production will necessarily be split between north and south for cost reasons. I see south benefiting more. The consumption of the region is going up and the C and B-Class towns are getting more cosmopolitan in their mix. So what we will see is the industry really growing in north in the Greater Noida and NCR region. And in Chennai, in the south, we also notice Bangalore coming up nicely there is Toyota there. We have to keep watching the action on this front.

Meanwhile, Tamil Nadu has so many big groups such as TVS, Hyunda, Rane, Amalgamations and Visteon to name a few. There is a sizable investment getting stacked up in these parts. Hence, southern states are poised well to reap advantages of the boom in the auto components sector.

Do you notice players graduating in this segment in terms of their organisation setups and their offering?

Yes, there is a definite trend among players to graduate and value-add within their activity sphere. Many players are moving up the value chain. In fact, the way the structure is changing, many auto component parts are not even consumed in India and are meant for the overseas market.

Southern and western parts of the country can again reap advantages as they already have experience with heavy commercial vehicles as well as LCVs. This being the case, players have to have a good mix and the ability to provide standardisation, quality as well as flexibility in their production.

They cannot say no to clients who just want small orders. Also, there is a situation where their design capability should be able to cater different safety standards that prevail in various countries.

How have their financing requirements evolved and been met in time?

Earlier the industry used to be unorganised with few proper balance sheets and most small players used to source unsecured loans from friends and family or through private finance.

That is changing, most reach out to banks in a big way today and many factors are contributing to this shift. First, many MNCs operate with their own subsidiaries changing the nature of the industry. Second, large Indian players are coming into their own and many have a tie up or a JV with a foreign partner and finally, many local vendors need to get organised and invest in technical and financial infrastructure.

Today we have a plethora of offerings such as debt syndication, cash credit limit, forex and working capital demand loans among others. We have dedicated teams and relationship managers who keep track of the needs of clients.

Do you find small players very knowledgeable about the finance instruments and how they can reap advantage from them?

Very often, we find that many small players are not very clear about what kind of loan and instruments will meet their requirements and we help them out. In fact, we have one of the biggest range available for clients to choose from.

Players are increasing their exports to global manufacturers, what is the kind of assistance that a bank like yours provides to such players?

There the key lies in managing the various products effectively as there is forex fluctuations and interest rates involved. We have an internal credit team and players into exports have to figure out export bill negotiations among others. We help clients with the pre and post shipment credit needs as we have excellent capabilities in these areas.

Are SMEs future ready and typically what are common pockets of concerns for these players?

Auto components SMEs are no different from SMEs in other sectors. They have some key issues the involve low capital base, limited generation of surplus funds that can be reinvested into the business.

Lack of awareness is often a major issue among small players and we find that many players stay limited within a certain geographical boundary and are unwilling to explore options outside of their domain, that can eventually result in growth for their business. The use of obsolete technology is an issue that continues to plague many players who do not again want to try new way of doing things and as a result tend to lose out on many growth opportunities.

In fact, due to the lack of innovation in terms of adopting new manufacturing techniques, many players are unable to manage costs and their raw material input which leads to a pressure on their margins.

All this is also reflected in the way so many players still tending to depend on traders, agents and middlemen, who again add to the costs and keep them on the fringe of the industry. But in overall terms, the market is good and there is great scope for diversification in the product area. Smaller players have to consolidate and integrate backward and forward to make the most of the this boom.