MANUFACTURING BOOM
The growth in the machine tools business in India is spawning start ups, encouraging big investments by traditional players, and attracting the who's who of the global industry

Sujit John TNN

Bangalore: K S Prasanna, Ramchandra Hegde and Keshava Murthy quit Ace Designers in Bangalore about a year ago, pooled in all their savings and founded a company called Pride Machine Tools. They received support in the form of a bank guarantee from Ramesh Kumar, a machine tool components maker. All three are hardware engineers, with little business and financial management experience. So they take the guidance of their company secretary.
In the one year since they started, they have assembled and sold about 50 machines. Big players in the machine tools business today boast profit margins as high as 25%, but Prasanna says Pride has to make do with much less -- "because input costs are high on account of our low volumes, and because customers expect lower prices from new players like us". Still, Prasanna & Co are happy with their start-up's progress and are working to indigenise products faster to lower costs.
So phenomenal has been the machine tool industry's growth in India in the past three years that it is now spawning a number of start ups, encouraging big new capacity creation by traditional players, and attracting the who's who of the global industry. At the on-going machine tools exhibition IMTEX 2007 in Bangalore, there is literally a sea of foreign and domestic players displaying their wares -- CNC (computer numerical controlled) lathes, complex robotic arms, grinding technologies, slotting machines, drilling machines.
C P Rangachar, president of the Indian Machine Tool Manufacturers' Association (IMTMA), says the 40% growth in the industry in the first half of this fiscal and the over 30% per annum growth in the preceding few years explains the excitement. Figures like these and more, rivalling the growth of the IT industry, are echoed by just about everybody in the business.
Bharat Fritz Werner (BFW) chief finance officer Nabonita Baruah says the company will see a 48% growth in revenues to about Rs 300 crore this fiscal. Ace Micromatic Group director S G Shirgurkar says the group has seen a 30% CAGR in the past four years, with turnover expected to be over Rs 650 crore this year. The Tata Group's TAL Manufacturing Solutions MD Lalit Kumar Pahwa expects a 40% growth in 2006-07.
The adjoining graph shows that the kind of growth India has seen in machine tools consumption since 2001-02 is unprecedented. While some worry that the industry is hitting a peak, others argue that the trend indicates the beginning of a China-like sustained boom in manufacturing. Machine tools are the base of all manufacturing. Typically, a machine tool generates demand for ten times its worth of capital goods, which in turn generates ten times its value in final goods. So, the boom in machine tools is an indicator of a boom in manufacturing. While the auto industry remains the leading demand generator, others like capital goods, textiles, aeronautical, railways are all making significant claims on the sector.
Consequently, most Indian players are making fresh investments. BFW, for instance, has already built capacity for Rs 1,000 crore worth of machines, three times its revenues for this year, and is looking at a new facility to produce its own sub-components (high precision parts).
But domestic consumption at Rs 6,000 crore remains far above what Indian firms can produce (Rs 2,000 crore). Which explains foreign firms' excitement about India. Imports today cater to two-thirds of consumption. Many new foreign players are entering the sector. Rosa Ermando of Italy is forming a 49:51 joint venture with Bangalore-based Ucam to manufacture machine tools in India. Spain's Pinacho is said to be setting up a lathe making facility in Coimbatore. Liebherr of Germany, Nagel of Switzerland are others who have set up joint ventures in India.
Many, including major domestic firms, are establishing tech centres. DMG India, part of the Gildemeister Group, Germany, on Friday announced it is setting up a 15,000 sq ft technology centre in Bangalore, to develop customised solutions and application support in areas like tooling and fixtures.
All of this action is also raising the interest among foreign players to use India as a sourcing base for machine tools. The cost of manufacturing in India is 20-40% lower than in the US and Europe. Ace's Shirgurkar says foreign machine tool brands have approached the company to do private label business for them. Indradev Babu, MD of Ucam, says about 30% of the production from its JV with Rosa will be for overseas markets. TAL's Pahwa is confident India can deliver products that are much better than China's at equivalent cost: "They are not as good as us in engineered products."
But this progress is still slow. For, the domestic market is so, so attractive.