Financial Daily from THE HINDU group of publications
Saturday, Sep 04, 2004
Electromags hopes to bag order from Bosch
Chennai , Sept. 3
ELECTROMAGS, a Chennai-based manufacturer of auto components, hopes to bag a major order from Bosch, UK.
This order for slip rings (the part that goes into alternators in automobiles) will result in Electromags eventually supplying 13 million pieces a year, which is almost three times Electromags' current slip rings capacity of 4.5 million pieces a year. The order will be worth $6.5 million a year (about Rs 30 crore).
The company hopes to clinch the deal when its officials are slated to visit Bosch's plant at Cardiff in Wales, the UK, later this month. In the first year, Electromags will supply one million pieces of slip rings. This will increase to five million in the second year and 13 million in the third year.
For this order alone, Electromags, a partnership company started by three first-generation entrepreneurs, must invest Rs 10 crore. It hopes to get a major chunk of this money from internal accruals, according to Mr R. Ravi, one of the partners of the Electromags.
Anticipating a boom in export of auto components, Electromags decided two years ago to set up another production facility, close to its existing factory at Seevaram village, on the outskirts of Chennai along the Old Mahabalipuram Road. The facility occupies 17,000 sq ft, and the new plant will be spread over 27,000 sq ft, according to Mr Ravi.
Mr Ravi said this order from Bosch will come after a lot of hard work from Electromags.
"We have been after this business for the last nine years. For the first six years, they refused to even look at us as a supplier because they have never sourced from outside Europe," said Mr Ravi.
Electromags has supplied parts to Bosch in Australia.
Electromags makes 148 varieties of slip rings, and sells to tier-I suppliers, the aftermarket and original equipment manufacturers (OEMs) in both the domestic and export markets. Besides slip rings, it makes 800 different products, including two-wheeler switches, solenoids for diesel fuel injection, parts for air and vacuum brake systems, spark plug caps and some parts for washing machines.
Last year, its turnover was Rs 32 crore with exports and domestic sales contributing equally. The net profit was about Rs 5 crore. The profit from exports was about 20 per cent of sales and that from domestic sales about 10 per cent.
Electromags, formed in 1980 by three persons working in TVS group companies, started making slip rings as an import substitute product. Eight years later, it began to look at the export market, as the domestic market for slip rings was only about 100,000 pieces a year. The global market then was estimated at 30 million. Mr Ravi now estimates this market to be about 50 million pieces a year.
Since India was not known as a manufacturer of auto components then, it was difficult for Electromags to get export orders. It bagged its first export order from a Canadian company, which specialised in refurbishing alternators for the aftermarket. With that order in hand, Electromags aggressively targeted the overseas market.
It's after all that `Poke-Yoke'
FOR an auto component manufacturer, especially in the small and medium enterprises segment, bagging an export order is not just about satisfying the buyer on cost, quality and ability to deliver on time.
It is about a host of other issues - working conditions, raw material source and whether it is ISO certified, and about the systems the parts manufacturer has put in place to analyse and solve problems.
According to Mr R. Ravi, partner, Electromagsoriginal equipment manufacturers take two to three years to evaluate a component manufacturer before placing an order.
The OEMs use a system called failure mode evaluation analysis, not just for the manufacturing process but also for other aspects in the company. This is used to find out whether a parts supplier is in a position to anticipate any problem and whether it has a solution in place. The OEMs also use a Japanese manufacturing concept called `Poka-Yoke' to find and correct a problem as close to the source as possible.
Electromags is close to bagging an order from Bosch in the UK. Bosch knew that Chennai was facing a severe water shortage and wanted to know what steps the company was taking to tackle the problem.
Mr Ravi said this is to make sure that all basic facilities are provided for workers. Every evaluation criterion is important and a tick mark in each one of them is crucial to bag an order, he said.
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