B. Vijayakumar, managing director, LG Balakrishnan & Bros IFC put in $5 million in this auto-components company

At the swank corporate office of LMW, the country’s largest textile machinery manufacturer, company officials sport broad smiles. They have reason to feel happy: the company made its largest ever profits last fiscal. R. Rajendran, its soft-spoken CFO, is confident about the Rs 1,300-crore company’s growth prospects. He reckons that even an annual replacement of 10 per cent of the existing 27 million spindles in the country (LMW has a market share of around 60 per cent) would keep the company’s order book (now at Rs 3,000 crore) in a healthy position. With reserves touching Rs 426 crore, LMW has drastically cut down on its borrowings. In fact, it is funding its entire capex earmarked for the last and current fiscal out of its internal accruals.

Then, Veejay Lakshmi Engineering turned things around by rationalising costs and by reducing operating expenditure. This saw operating profits rise by 88 per cent, resulting in a pre-tax profit of Rs 4.68 crore in 2002-03. Smaller players such as Lakshmi Automatic Loom also managed to cut down their losses significantly during the period.

Also in 2002, the city’s auto-component industry, realising that being local doesn’t help, went in for exports in a big way. Pricol, for instance, has seen exports grow from Rs 22 crore in 2000 to around Rs 60 crore in 2006.

Says G. Ranganathan, CEO, Rover Components, an auto ancillary firm: “For many companies, the share of exports (in total revenues) has gone up from 10 per cent to 25 per cent.”

In fact, for SACL, another auto-component maker, exports already account for a third of its turnover of Rs 130 crore. The company expects that to grow to around half of the topline by the end of this year and, ultimately, to about 60 per cent of revenues. Says M. Manickam, managing director, SACL: “Though the risks are higher, the margins are better in exports.”

Last year, exports accounted for Rs 350 crore of the Rs 2,500 crore revenues of Coimbatore’s auto-component industry. And for the current fiscal, CII, Coimbatore has set targets of Rs 3,300 crore in production and Rs 425 crore in exports.

The growth in the auto components helped spur growth of exports in the Rs 1,500-crore pump and motor industry. Says C.R. Shanmughasundaram, president, Southern India Engineering Manufacturers’ Association: “Volume growth has started to come in now.”

Part of this, of course, can be attributed to the quality of work produced by Coimbatore’s engineers, 6,000 of whom graduate every year from various engineering colleges and technical institutes in the city. Says Ranganathan: “Both OEMs (original equipment manufacturers) and tier-I suppliers are confident of Coimbatore as it is known for delivering quality products.”

The Next Frontier
Coimbatore’s entrepreneurs are now looking to expand their horizons, which include acquisitions and global forays.

Last November, LMW bought Jeetstex Engineering, a sick textile machinery maker, for Rs 35 crore in an all cash deal. Pricol acquired 70 per cent stake in English Tools and Castings, a tool and aluminium castings company, in 2005. LGB has snapped up two forging companies in Karnataka, but is now focusing on growing organically. And SACL bought Bonomi Belgium Ventiel India (BBVIL) in June. Says SACL’s Manickam: “Two years ago, this market did not exist. People are now discovering us as a reliable supplier. This is driving the expansion.”

The success of exports has emboldened at least one company to move into global markets. Pricol is setting up PT Pricol Surya, a wholly-owned subsidiary, in Indonesia to cater to the requirements of two-wheeler OEMs like Bajaj and TVS. The unit is expected to start commercial production by the end of this year. Sales and marketing offices in the US and Europe are also planned.

With activity in Coimbatore hotting up, leading Indian engineering companies are now looking to get a foot in. L&T is investing Rs 500 crore, the largest investment by any company in the city, to set up a ‘Coimbatore campus’ over 300 acres. The unit would offer direct employment to 1,200 people, mostly engineers, and indirect employment to 5,000. Says Y.M. Deosthalee, CFO, L&T: “We wanted all our manufacturing expansions to come up in strategic locations. Coimbatore has a lot of entrepreneurs, skilled labour and components required for our operations. It suited us well.”

Coimbatore’s success in engineering and auto ancillaries now looks set to be bolstered by two new sectors: IT services and real estate. TCS has launched its first ‘engineering centre of excellence’ in the city. Says S. Ramadorai, CEO and managing director, TCS: “Coimbatore happened to be the ideal destination because of its manufacturing and engineering prowess.” Adds Ravi Gopinath, vice-president and head (engineering and industrial services), TCS: “We set up this centre to help SMEs technologically innovate and access global markets.”

Then, a host of real estate companies based in metros — such as Real Value Promoters and Jain Housing of Chennai — have announced plans to foray into Coimbatore. Even a Dubai-based realty major, the $500-million Pegasus Realty LLC, is talking to potential partners for a project in the city. Says Imtiaz Panjwani, chairman, Pegasus: “Coimbatore is the pick among non-metro cities. There are many export-driven units here, that’s why we are keen.”

A few major players in the auto industry are also actively scouting for space to set up units in the city. B. Vijayakumar, managing director, LGB, is philosophical about the transformation in Coimbatore’s fortunes: “The first hill is the most difficult, but by the time you get to the third hill it becomes easier and after that it becomes routine.”

Growth has also brought with it a new problem. According to Jayakumar Ramdass, chairman, CII (Coimbatore zone), there is a shortage of people trained to handle precision equipment like CNC machines. Of course, that’s also because 1,500 of the total 4,000 CNC machines in Coimbatore were installed in the last two years.

Net result: attrition. Praveen, for instance, is into his third job and his college mates are also fast switching jobs. Companies are vying with one another to lure talented workers with attractive compensation packages. But in the overall scheme of things, that is a small price to pay for success.

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