India has immense potential to lead the aerospace industry

Aravind Melligeri, Chairman & CEO, Aequs | Aequs targets revenues from the automotive business to grow to $30 million by 2020 and says that higher levels of FDI in aerospace and defence will help boost both volume and capability of the company Jayashankar Menon | @TheDollarBiz Helped by the growing reliance of leading global automobile manufacturers to outsource their auto component manufacturing to India, the country's exports from this sector are forecast to surge over three times from the current levels of $12 billion to $40 billion by 2020. Buoyed by the growing demand, the India-based precision engineering component manufacturer Aequs is targeting $30 million of its revenues to come from its automotive business alone by 2020. The company already supplies precision engineering components to companies such as Airbus, UTAS, Eaton, Baker Hughes, Halliburton, and Bosch. Recently, the company launched a new auto component facility in Belgaum, Karnataka, with an eye on a major expansion in the USA and European markets. In an exclusive interview with The Dollar Business, Aravind Melligeri, Chairman and CEO, Aequs, spoke about expansion plans and claimed that his company has provided zero defect delivery for over six years now. Excerpts:
Araving Melligeri-The Dollar Business Aravind Melligeri, Chairman & CEO, Aequs
TDB: How does your client list look like and how will the new plant help in the company’s expansion plans? AM: We have developed long term relationships with key global players like Airbus, UTAS, Baker Hughes, Halliburton, Bosch and Danaher corporation to name a few. With our diversified skill sets we are able to provide our range of services that help our customers increase business efficiency. The new plant (under construction phase) is a move to reinstate Aequs’ commitment towards the automotive manufacturing space in India. We already have a plant in Bengaluru which caters to the domestic as well as the export markets. However, we are recently witnessing a good amount of traction in the automotive space in India. To cope up with the demand and our expectations off the market in the short run, we decided to build a new plant in the Aequs SEZ which will boost our machining capacity by over 100,000 hours a year as well as benefit from the Indian SEZ policy. This plant will support the company’s rapid expansion plans in the US and Europe markets this year. Aequs aims to increase its revenues from the automotive business to $30 million by 2020 and is scouting to joint ventures to add to its capabilities in this vertical. Aequs will manufacture engine and transmission parts, sub-assemblies and assemblies in the new plant. TDB: How much has the company invested in the SEZ?   AM: Aequs SEZ is spread over 250 acre. We have several 3/4/5 axis machines and latest technology equipment. Our present machining capacity is 400,000 hours per annum. Recently we have procured 10,000 tonnes closed die hydraulic press dedicated to aerospace forging, a one of its kind in India. Apart from land and machinery, we are investing in our people. We are actively working on training and development of the skill sets, and we have already established an occupational health centre in SEZ as well. TDB: How long will it take to yield results? What kind of JVs are you looking for? AM: The new plant will increase our machining capacity by over 100,000 hours per annum but since it is in the construction phase, the capacity addition will not happen this year. Once it becomes operational (in 2015), along with the benefits of an SEZ and the export policy, the plant will focus on exports. We are looking for joint-ventures (JV) similar to our lines of the aerospace business. The JV approach to automotive manufacturing will enable us to offer top quality ancillaries and sub-assemblies to global customers at a very competitive price. TDB: Besides manufacturing engine and transmission parts, what else you are planning to make? AM: Apart from engine and transmission parts, we actively seek to manufacture several critical small to medium assembly parts through collaborations with global automotive companies. TDB: What are the industries you are catering to in terms of overseas markets? AM: Apart from automotive, we are active in aerospace and oil & gas industry. Our SEZ at Belgaum has multiple manufacturing facilities catering to aerospace industry. We have a manufacturing facility at Houston, Texas and one at SEZ, Belgaum catering to Oil & Gas. TDB: How is the global component manufacturing sector changing and what are the opportunities for Aequs? AM: Global outsourcing takes a long-term holistic view of the client enterprise and aligns its business goals to the outsourced service offerings, in contrast to tactical short-term contracts that take a piecemeal project-by-project or simple 'out-tasking' approach to outsourcing. Global outsourcing mitigates risks for the customer as it is not country-specific or geography-dependent and allows more freedom and flexibility in decision-making and operations during the outsourcing process. We see a big opportunity in automotive space in coming years and especially when global majors are eyeing to outsource form countries like India. India has a huge advantage of low cost manufacturing. In alignment with the growing market needs, we plan to increase our product offerings in future by efficiently pursuing joint ventures with other companies. TDB: Why is the focus of aerospace companies across the world increasingly turning to India? AM: India has immense potential to become a leader in aerospace industry as the sector is growing at a faster pace compared to the recent past and provides access to raw materials and skilled manpower (across levels) at very competitive scale. Further, relaxations on the entry on foreign players in India has opened the scope of JVs which foreign firms prefer to stick to as it assures them of standardised supplies and equal cost of ownership and accountability to production. TDB: What kind of support from the Government does the Indian aerospace sector need? AM: Aequs welcomes greater FDI in aerospace and defence manufacturing in India. According to media reports, the current cap of 26% has attracted just $5 million in FDI since the sector was opened up in 2001. This is insignificant and clearly shows that foreign companies are reluctant to invest in India unless they have management control. Permitting a majority stakeholding (greater than 51%) would reassure foreign companies about both intellectual property and quality control. India's national interests relating to technology transfer and ensuring supply through political turbulence can be addressed through offsets and contract obligations. Aequs already works with global majors in aerospace and defence through joint ventures. We see no threat to our business from higher levels of FDI in aerospace and defence. In fact, we see enormous potential for scaling up both in volume and capability. TDB: What target have you envisaged for your Belgaum SEZ? AM: Aequs SEZ in Belgaum, Karnataka, is spread across an area of 250 acres. Aequs has taken a unique approach making it the first company to found an SEZ with an objective of creating an aerospace manufacturing ecosystem at the same premises thereby reducing lead-time and additional logistics costs. This ecosystem helps to perform different processes like forging, machining, assembly and processing at same premises. With its manufacturing processes streamlined into the SEZ, Aequs has a faster TAT (Turnaround Time) capability compared with others. Also, the integrated manufacturing approach helps in a reduced cost and hence a reduced pricing of the products with world-class quality assurance. Our target is to add more manufacturing facilities by pursuing joint ventures in the SEZ and create a manufacturing ecosystem which leads to business efficiency. Our target is to generate revenue of $20 million by the financial year 2015 through aerospace business.