WE’RE BACK: Sakthi Auto Component’s manufacturing facility at Mukasipallagoundampalayam, 60 km from Coimbatore

Praveen, 26, a shop floor manager at an auto-components company, has an exacting work schedule. His day begins at 8:00 a.m. Time races by as he charts schedules, turns components and allots jobs to team members. In between, he manages to squeeze in 30 minutes for lunch. By the time he heads home, it is 9:00 p.m. But he isn’t complaining. For someone who worked only six hours in an eight-hour shift in the early days of his career six years ago, the non-stop activity has been a welcome change.

The busy schedule of people like Praveen heralds the revival of the engineering and auto-components sectors of Coimbatore, Tamil Nadu’s second largest industrial city, 500 km west of Chennai. After a period of heady growth in the early to mid-1990s, these sectors faced a slump for nearly six years.

Happily, the last two years have seen a resurgence. Textile equipment manufacturers are having a dream run.

Exports are looking up for both engineering and auto-component firms. Revenues and profits have seen marked improvement (see ‘Improving Financials’).

Companies are pumping in money (see ‘Increasing Investments’) to build greenfield projects, expand capacities and acquire smaller companies to gain scale. Supply agreements with global majors are piling up fast. (Visit the headquarters of any large company and you almost always find business delegations, foreign and domestic, engaged in lengthy discussions.) Some companies are even looking at foreign markets.

Meanwhile, attracted by the buzz, companies like Larsen & Toubro (L&T) and Tata Consultancy Services (TCS) are setting up shop here. What is important is that entrepreneurs here are thinking big, a welcome change from the conservative mindset that had set in during the downturn.

The confidence is also bringing in money and equity participation. IFC, an arm of the World Bank, picked up a 6.58 per cent stake in auto-component manufacturer LG Balakrishnan & Bros (LGB) for $5 million in May 2005, besides lending it $15 million for the long-term.

Reaching this point, though, has been a bit of a roller-coaster ride.

Liberalisation’s Children
Well-known for its yarn, pumps and the Perur Patteeswarar (Shiva) temple, Coimbatore’s engineering story actually took off in 1991, when the economy was liberalised. Around 1993-94, textile equipment manufacturers like Lakshmi Machine Works (LMW) and Veejay Lakshmi Engineering established several facilities in the city. An ongoing boom in textiles, of which Coimbatore itself was a hub, served as a catalyst.

Action also began in auto components. Companies like Pricol, LGB and Sakthi Auto Components (SACL) upped their capacities and entered into technical collaborations with global firms like Denso of Japan and George Fischer Foundry System of Switzerland. During that time, the auto-components industry was growing at 12-13 per cent.

But things began to go wrong around 1997. Expecting the boom in textiles to continue, Coimbatore’s equipment manufacturing companies had created additional capacities. But textiles, especially spinning, went into a slump due to a demand recession. Consequently, demand for textile equipment plunged, stocks piled up, and additional capacities lay idle for several years.

Meanwhile, around 1998, the demand for automobiles in the country declined. Since Coimbatore’s auto-component industry was mostly dependent on domestic demand (of both four-wheelers and two-wheelers), the order pipeline started tapering out. Investment flow virtually stopped and jobs became scarce.

Things looked bleak till 2002, which was when the tide began to turn.

1 | 2