Interview with Prabhakar Kadapa, Chief Executive Officer, Avtec Ltd.

The Hosur plant manufactures both automatic and power-shift hauling transmission for domestic and global off-highway enterprises. Now is this area showing signs of increased demand, both in the domestic as well as global markets?

When I started in 2009-10, this plant was a much smaller plant but with a very large area. It was only into mining and construction equipment gearboxes. The generic talk was that this plant could only produce batch production, small order production, the people are content and given their best. During the meeting with employees, we got to know they wanted to learn more, want to produce more products, and the opportunities that lay before them. That made me realise that this plant has the capability to host the other set of products. One of our customers for whom we have been loyal suppliers for 14-15 years, proposed to us whether we could set up a facility in Chennai which would be next door to them. They were going in for a major expansion in India. We told them we would set up a facility in Hosur which is four hours away from Chennai and I would be able to supply all the goods that you talked about. We also told them that simultaneously we would offer them a cost advantage because coming to Chennai would mean that I would have to have a place, have management bandwidth, etc. We told them we have everything ready here in Hosur and it would be like a plug and play facility. They agreed and that was a turning point for us. We set up a capacity of 200,000 units per annum initially. In the meantime our esteemed customer had set up a plant in Western India and gone for an expansion in the country. We have set up an adjoining facility which is another 250,000 units per annum. Put together we are capable of assembling 450,000 transaxles and each transaxle is completely tested as per international standards. That’s a success story there. Built up on that, we set up a component plant here because this part of the region there are a lot youngsters who are professionals. We were thus able to pick the right talent here and train them from quality and price point of view. We were able to offer a value to the customer. That’s where the component park has come.  There is no limitation as to the components are to be made only for off highway or on highway. We have had an opportunity to work with the Indian Railways. Hitherto they were importing parts from the US, now we have been able to give them import substitution solution to them. Year on year we are getting more orders from them and newer parts are getting added.

Since your company is into highly engineered products, how much of emphasis do you give on R&D? Can you give us details on that?

Initially we used to have a normal product engineering cell. We were into high tech mechanical engineering super laced with electronics and controlling. We thought this could be in close proximity to Bangalore. We started this tech centre in 2012. We have around 50 engineers working here and in the plant we have around 12 such people. The total strength here is around 62 people. We also have around 10 to 12 very qualified engineers working in Switzerland. In a year’s time we hope to increase this total number to around 100 from the present level of 72.  A lot of testing is done in the respective plants. Basically the development, machining and other things like prototype building is all done at the respective plants. The engineers based in Hosur will coordinate with the ones working in other plants. The conceptualisation, design and development are all done here in Hosur.

Your business depends a lot on contract manufacturing, especially when it comes to engines and transmissions. But with OEMs too investing big in this area, what do you think is the scope for this activity in the coming years?

Our business model is as follows. We do contract manufacturing. If an OEM has a proven design they want us to manufacture. Our capability of indigenisation, sourcing, assembling and providing the right quality  comes into picture. Around 65pc of the business we do is this. As far as the remaining 35pc is concerned, we develop products, we have an IP rights, and we produce the quality product and supply to the product. These two are not competing with each other. In fact they are complimentary to each other. When we talk to our customers, they want our early involvement in the development of the product. In fact our design capabilities are also helping us to get an order on the contract manufacturing as well.

When a customer envisages a large volume, they may want to do it in house. There are exceptions there. Some customers want to outsource engines, some believe in outsourcing transmissions, and some believe that below 50,000 volume, they leave it to a good vendor. The vendor is not just a supplier but a business supplier or a business partner. All in all one requirement which predominantly comes is that we need to be good at design. The days are gone where you just build it to the print. There is huge value addition possible today. We are having the design which promotes our contract manufacturing. A simple manufacturing company is less preferred than a company which has engineering skills coupled with manufacturing skills. For us it is very complimentary to have a design. In other words it is essential to have a design. Our Switzerland based company which essentially designs and prototypes want to transform themselves into a volume producer using Avtec in India as a backend. Thus, we are capable of designing. If a customer has a design, we can even deliver to his print. The USP of the Switzerland based company is that it has got a lot of Intellectual Properties. There is a technology called face gear. We are the global patent holder for this particular gear profiling or gear designing. Hitherto they were only producing customised gear box, using only the technology. The proliferation of this technology is a little slow because the way we were manufacturing cost competitiveness was little difficult, given their cost structure. So what we decided as part of our strategy is that we are having a big plan to do the manufacturing in India to offer a cost effective solution to the design of Switzerland so that the combined revenue between Avtec and Assag would go up multi-fold. That is one strategy. The second is that they are very competent in creating gear boxes for varieties of applications. That is another area we are working very closely.  Third is that supporting Avtec here, a couple of design programmes are given to them so that they design and give it to us and Avtec will do the piloting, validation and testing for the customers. All this will help us to harness their intelligence competency in the design field. All these three put together will support the Avtec growth plan of Rs 3000 crore before 2019-20. We want to grow to a Rs 3000 crore company. They have a larger role to play in product development. For our clients Assag will give design solutions and Avtec will manufacture. As for the customers of Assag, the latter will do the design and we shall manufacture for them. In other words a seamless integration of the parent company and the acquired company. 

Will you take an organic or an inorganic route for growth?

The strategy for the next three years is very clear. We want to grow organically. Inorganic growth could happen after three years. Today the Make in India programme is coming very strongly. Poeple have already seen it at a distance. But if you see it closely, it is going to provide a lot of manufacturing in India for hi tech components. We are seeing an organic growth in the fields where we are there. We are also seeing a huge business opportunity in the powertrain field in the defence sector. All in all put together I would see that organic is the first strategy of the company. Inorganic comes later on.