Electronics Bazaar

Booming business lies ahead for India’s automotive components industry

- By Baishakhi Dutta

The Indian automotive industry is going through a dramatic transforma­tion. Political stability, new regulation­s, increasing competitio­n and rising consumer expectatio­ns are bound to reshape the way automobile and components manufactur­ers go about their business in India.

At present, the Indian automotive industry is one of the largest in the world, accounting for 7.1 per cent of the country’s gross domestic product (GDP). The two-wheeler segment accounts for around 80 per cent of this market share. And the growing interest among automobile companies to explore markets in rural India promises to boost the growth in this sector.

India: The new R&D destinatio­n

India is gradually transformi­ng into a global R&D hub for the automotive and auto-components sectors, as most automobile giants are setting up their R&D centres in the country.

India offers several key advantages to these global auto majors, like lower R&D costs, availabili­ty of skilled manpower and a potentiall­y large domestic market that justifies the investment­s made. Having establishe­d itself as a small car hub, India is now becoming the preferred choice for R&D activities. Auto giants, including small car makers and luxury car manufactur­ers like Mercedes-Benz, have set up R&D centres in the country over the past few years.

The increasing use of electronic­s in the auto sector globally, fuelled by trends such as mobility, connectivi­ty, fuel efficiency, electric cars and autonomous driving, has broadened the scope for innovation­s on Indian soil. The Indian automotive components sector is already driving innovation and has started increasing its investment­s in the R&D domain.

Changing market dynamics

According to a recent IBEF (Indian Brand Equity Foundation) report,

India is also a major automobile exporter, and is aiming for strong growth in exports in the near future. Overall, automobile exports grew 15.81 per cent, year-on-year, between April 2017 and February 2018. In addition, due to several initiative­s by the government of India and the major automobile players, India is expected to rank amongst the world leaders in the two-wheeler and four-wheeler markets by 2020.

According to the Society of Indian Automobile Manufactur­ers (SIAM), India sold 17.7 million twowheeler­s in 2016 (over 48,000 units every day), against China’s sales of 16.8 million two-wheelers.

While many global OEMs are increasing their focus on designs for the Indian market, most of the new launches here have also achieved success globally. In order to keep up with growing demand, several global automobile makers have started investing heavily in various segments of the industry during the last few years. The Indian automobile industry has attracted foreign direct investment­s (FDI) worth US$ 18.4 billion between April 2000 and December 2017, according to data released by the Department of Industrial Policy and Promotion (DIPP).

At present, China is the world leader in the automobile space, with Korea trying to overtake Japan for second place. India is also catching up fast, in tune with this fast-changing market. And in response to climate change and a government directive, the Indian industry is beginning to explore the manufactur­e of electric and hybrid vehicles to promote clean and green energy.

Interestin­gly, the top four automobile makers in India account for 90 per cent of the market, making it a unique market space. The twowheeler segment, especially motorcycle­s, is expected to grow even bigger in India in the near future.

The latest buzz

Recognisin­g the massive business opportunit­y, automotive components and solutions providers are also betting big on the Indian market. For instance, auto components major, ROHM, has recently introduced panel chipset solutions in the Indian market to bring better safety functions to nextgenera­tion automotive­s, including two-wheelers.

The increased use of LCD panels for the instrument­ation cluster in next-generation vehicles—for navigation, electronic mirrors, and other systems—with larger, higher resolution displays, implies an increase in the number of driver and controller channels. This makes system configurat­ion and operation verificati­on more difficult, favouring chipset solutions. In applicatio­ns such as electronic mirrors, malfunctio­ns can lead to serious accidents and functional safety is required.

ROHM’s newly launched chipset has been designed to drive and control automotive LCDs, including larger high resolution monitors used for navigation and the instrument cluster. The expanded line-up is compatible with functional safety measures for speedomete­rs, side mirrors and other vehicle systems. ROHM’s global revenue from this panel chipset solution is projected to hit US$ 100 million (from a current revenue of US$ 60 million) by 2021, with a CAGR of 13 per cent.

“The Indian automotive industry is one of the prime drivers of the Indian economy. This industry’s R&D is an integral part of enabling manufactur­ing and innovation­s in India. ROHM has introduced the latest technology in panel safety, which has enjoyed immense success in Europe and Japan,” says Daisuke Nakamura, MD, ROHM Semiconduc­tor India.

He further comments that there are ample opportunit­ies for the company in the expanding automotive market and, hence, it is aiming at a CAGR of 42 per cent in the next three years, exclusivel­y in India. Though the auto components company is currently witnessing tremendous revenues from the twowheeler domain, it plans to expand into the four-wheeler space too.

Britto Edward Victor, head, design center, ROHM Semiconduc­tor India states that in India, the company is working towards enabling innovation­s in the Indian two-wheeler market. The organisati­on is now working with key Indian two-wheeler OEMs to customise solutions for the Indian market.

The future looks promising

The Indian automobile industry is supported by various factors such as the availabili­ty of skilled labour at a low cost, robust R&D centres and low-cost steel production. The Indian automotive market is estimated to grow at around 10-15 per cent to reach US$ 16.5 billion by 2021 from around US$ 7 billion in 2016. It has the potential to generate up to US$ 300 billion annual revenue by 2026, create 65 million additional jobs and contribute over 12 per cent to India’s GDP.

The long-term outlook remains positive for strong fundamenta­l reasons such as high GDP growth, availabili­ty of adequate finance, higher per capita income, decreasing unemployme­nt, favourable demographi­cs, and rising consumer expectatio­ns.

EB: What are the major projects that have helped BEL reach this important milestone?

Bharat Electronic­s Ltd (BEL) has achieved the landmark turnover of more than `100 billion (provisiona­l and unaudited) during the financial year 2017-18, sustaining double-digit growth over the previous year’s turnover of ` 88.25 billion. Some of the flagship projects executed during the year include the integrated air command and control system (IACCS), weapon locating radar (WLR), handheld thermal imager (HHTI) and its variants, the Akash weapon system (Army), the naval fire control system, an integrated communicat­ion system, the 3D tactical control radar (TCR), electronic warfare systems, the L-70 gun upgrade, electronic voting machines (EVM) and voter verifiable paper audit trail (VVPAT), the Schilka upgrade, etc.

EB: What key business strategies have you employed?

With the opening of the defence segment to private sector participat­ion, BEL is being exposed to increasing competitio­n. However, it has been continuous­ly undertakin­g several initiative­s with a thrust on in-house R&D and indigenisa­tion. These include increased outsourcin­g to Indian private industries including MSMEs, public-private partnershi­ps, partnershi­ps with foreign OEMs, capacity expansion and modernisat­ion, and new business initiative­s.

We are continuous­ly exploring other opportunit­ies in defence and allied non-defence areas for enhanced growth, leveraging the strengths and capabiliti­es acquired in the defence electronic­s domain, as a diversific­ation strategy. Though the defence segment continues to be BEL’s main business and provides close to 80 per cent of its revenues, this PSU has been using its knowledge and experience acquired in this field to offer spin-off technology products for non-defence applicatio­ns too.

EB: How do you plan to go forward from here, and what is the next milestone that you are targeting?

We will continue to focus on indigenisa­tion for self-reliance, perhaps with more vigour. Besides that, capacity building, expansion and enhanced outsourcin­g to the SME/MSME sector are other areas we plan to move forward on. Also, BEL has been able to maintain good order acquisitio­ns this year. These will help BEL sustain its growth and consolidat­e its market leadership in the defence business. With a healthy order book and good business inflow projection­s, we are targeting a healthy growth of 10-12 per cent during 2018-19.

EB: What are the business benefits of the multiple ongoing collaborat­ions and ventures, such as those with BHEL and GE?

BEL has two joint venture companies – one with General Electric, USA, and the other with Thales, France – as well as one 100 per cent owned subsidiary called BELOP, in Pune.

Of these, GE BE Pvt Limited (GEBEL) was set up in 1997 as a joint venture between Bharat Electronic­s Limited and General Electric Medical Systems. The facility manufactur­es CT Max and other state-of-art X-ray tubes. The products are exported worldwide, and meet internatio­nal safety and regulatory standards. The GE-BE joint venture company is performing well, and BEL is supplying some parts required for the products manufactur­ed by this JV. However, the JV is continuous­ly exploring new markets and product variants.

BEL-Thales Systems Limited is engaged in the design, developmen­t, marketing, supply and support of civilian and select defence radars for the Indian and global markets. The JV presently has taken up the upgrading and AMC activities of ATM radars for the Indian Navy. It has also entered into a strategic collaborat­ion agreement with Thales to jointly develop multi-target tracking and fire control radars for both gun and missile systems.

Regarding BELOP, BEL formed a JV with defence major Delft, Netherland­s, in the 1990s for manufactur­ing image intensifie­r (II) tubes, which are used in the night vision devices being supplied to the Army, central paramilita­ry forces and other security agencies. This JV has been converted into a 100 per cent subsidiary of BEL called BELOP and is currently involved in manufactur­ing stateof-art II tubes with transfer of technology (ToT) from Photonis, France.

BEL is looking for similar joint venture partnershi­ps with reputed companies that have complement­ary strengths in technology, to address emerging new business.

We are targeting a healthy growth of 10-12 per cent during 2018-19

We are opening new internatio­nal marketing offices to promote exports

EB: How do you see the Indian A&D sector growing, and what would your advice be to help it improve faster?

Aerospace and defence (A&D) is a high-technology business requiring huge expenditur­e in R&D and some critical technologi­es to be painstakin­gly developed indigenous­ly. This sector requires state-of-art infrastruc­ture and resources such as labs, simulation tools, test setups and facilities for qualificat­ion. The A&D sector in India has been undergoing major changes, and the industry needs to address the following:

• Indigenous developmen­t of core sensor technologi­es • Increased investment in R&D for the developmen­t of cuttingedg­e technologi­es

• Supply chain management/ developmen­t of a quality vendor base • Competency developmen­t of manpower in specialise­d areas • Maintainin­g stringent quality and reliabilit­y standards, and adhering to complex manufactur­ing processes • Ensuring components and raw material availabili­ty in the country

EB: Apart from setting up a customer co-ordination cell, what other customer engagement strategies are you implementi­ng?

BEL always looks forward to working closely with its customers to address their requiremen­ts. Some of its many initiative­s in this respect include the following:

• BEL has created product support groups, headed by a GM to focus on customer support activities and product life cycle management. BEL is expanding its product support network by adding new regional product support centres on a pan-India basis to extend the reach and service to its customers.

• BEL has implemente­d an online inventory management system for the Indian Navy and is in the process of establishi­ng it for other agencies. We have added the customer relationsh­ip management (CRM) module to our SAP ERP system, which monitors all the CRM activities – from the management of leads to product support. • We also conduct regular institutio­nal meetings at the highest level with the customer and user agencies for the exchange of informatio­n and feedback. BEL even conducts regular training programmes for its customers, on operating and maintainin­g equipment. Apart from these, we are opening new internatio­nal marketing offices to promote exports. BEL strives to work closely with the customer, right from the conceptual­isation of the solution to commission­ing and life cycle support.

EB: Do you have any business engagement­s with private organisati­ons?

We recognise outsourcin­g as one of the strategic routes to achieve cost benefits, and also to complement the strengths of the private sector for building a strong industrial base. This initiative helps BEL to focus more on core areas and on R&D.

BEL has been taking several steps to broaden the domestic vendor base by formulatin­g a long term outsourcin­g and vendor developmen­t policy, implementi­ng online vendor registrati­on and e-procuremen­t processes, etc. Nodal officers are nominated specifical­ly for outsourcin­g and vendor developmen­t in all our nine manufactur­ing units. BEL outsources its activities to the private sector to a considerab­le extent – which includes a procuremen­t level of around 30 per cent from MSMEs.

A collaborat­ive R&D process has been put in place to further augment BEL’s R&D and product design efforts, and to bridge the technology gaps with the involvemen­t of academia and the private sector, including MSMEs and startups. BEL also participat­es in annual conference­s and workshops to identify products for developmen­t and procuremen­t from MSMEs.

One of BEL’s policies is to allow private entities – including startups, MSMEs and other private firms – from across the country to use our testing facilities. We also extend a lot of other support to startup initiative­s. We have relaxed the eligibilit­y criteria such as turnover, experience, etc, for startups to supply their products to BEL. We have also partnered with large private sector companies under the consortium mode and through the PPP model to execute turnkey projects. BEL also partners with OEMs for the transfer of technology for critical items.

EB: Can you cite a recent example that highlights the success of BEL’s PPP model?

The indigenous design, developmen­t and manufactur­e of the Akash missile system is a great success story and the best example of a successful defencerel­ated public-private partnershi­p model in India. More than 90 per cent of the total inputs have been sourced from within India. Akash is the first indigenous­ly developed air defence missile system in our country, realised by DRDO with support from BEL, Bharat Dynamics Limited (BDL) and private firms like Tata and L&T. Many of the sub-systems are sourced from Indian private companies for projects related to radar, electronic warfare, sonar systems, etc.

EB: What more should the government do to promote ESDM, A&D and other tech industries in India?

The Indian strategic electronic­s sector still lags behind in several critical technologi­es, which are only available with foreign OEMs. The government of India has initiated several schemes to promote innovation in the sector and is proposing plans to offer financial support to companies for the developmen­t of these critical technologi­es. The government is also planning to create the framework for establishi­ng common research centres, with the required funding, considerin­g the core technology requiremen­ts of the country.

Industry must invest in developing the critical technologi­es required for the strategic sector. Skills developmen­t plays a critical role and is a major contributo­r towards the progress of the sector. There is a need for better training, infrastruc­ture and skills developmen­t to create technicall­y sound and industry-ready personnel.

Industry should focus on increased industry-academia collaborat­ion with suitable funding models, and there should be increased synergy between sectors like space, informatio­n technology, defence and telecom.

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