In an exclusive interview with SME Times, Harish Sheth, Chairman and Managing Director, Setco Automotive Ltd said India needs to put considerable efforts in R&D activities in order to compete with the global players in the auto component industry.

Foreign car manufacturers are looking towards India as a major sourcing hub for components. How our auto component makers can tap this opportunity?
Harish Sheth: Once you have more manufacturing facilities in India and potential employment, it will be good for the economy. And, the GDP growth will be better. Also, when they are producing products under there own brand then the technology information will improve. The updating of the technology will be good as well. I think it is going to be a great achievement.

What challenges are you and the whole auto component sector expecting this year amid gloomy economic situation in Europe and the US?
Harish Sheth: They (the US and Europe) are big markets. Currently, there economy is not doing well. And, we are quite confident that USA has already started improving and also we are quite confident that in this market we will be able to capture some part. We are offering the same quality at a cheaper price. It is matter of people accepting that. The European market is also the same. I think the US is little better than the European market. We are comparing both the markets but right now if we look at them they are basically dull markets. But we expect it to improve. It may be in the year 2013. We will see a turnaround in the fiscal 2012-13 and 2013-14. A big up-sprung will happen as far as this sector is concerned. In India, we are going to have a boom in the year 2012-13, 2013-14 and 2014-15. India is a growth story.

In terms of exports, on which overseas markets you primarily depend? Are you looking for any new market?
Harish Sheth: First, we must have a good OEM market for the product to be popular in the after market. People must have a faith in that. Given that scenario, we meet almost 85 percent of India's clutch requirements for the original equipment in the Medium and Heavy Commercial vehicle. That is a very important market for us then naturally there will be the after market because the clutch life is about 200 thousands kilometers for 2 years or more. After that you can change that.

The third area that we are dealing into is the development of new clientele and the international players that are coming in. Some of these clutches we are looking for the export purpose. Over the period of time, our current business of exports may be at around 10 percent but we are looking to increase exports by 15 to 20 percent but this will happen when our sales get doubled from now. Our focus is going to be exports.

Our focus markets on which we depend on are Middle-east, Africa, to an extent America and Europe. We have a unit in the UK and another in the US. We will be using both the facilities to export our products.

What kind of products are you displaying in the Auto Expo 2012? What type of competition you are facing this time in this expo in terms of prices, technology, etc?
Harish Sheth: There are new products on display like 400 swing clutch. We are showing product improvement in the existing products like cushion ceramic clutch, which will make differences in gearboxes and plywood. We are planning to get into the Light Commercial Vehicle (LCV) market. We are working on various products and we hope it will be ready by year-end.

In fact, overseas companies like Delmar who is our client are coming into India. Foton from China is coming in, they are also our client. We have clients in Turkey as well.

Competition is definitely there without a doubt. But we still have 85 percent of the market. The OEM market we have met up 85 percent despite the competition. One must work out a strategy, which allows you to stay ahead of others. The strategies consists basically fundamental, products, design, delivery, cost competitiveness and the after market service. If all the areas are handled well then people will be very happy with you.

Could you comment on your financial and what kind of outlook you have kept for this new year in terms of business growth?
Harish Sheth: In the first half of this year compared to the first half of last year the top-line grew by 30 percent. Overall, we are looking at around 20 percent growth. The growth in the first six months of 2011 has been Rs. 154 cr compared to in the last year same period, which was at Rs. 115 crore. The growth has been around 33 percent.

We are looking to grow at a CAGR of 15-20 percent over the next five years. By the end of this current fiscal we are also looking at a 15-20 percent of growth. Despite all the doom and predictions, we are very confident that we will have 15 -20 percent for growth.

In the next fiscal, we are waiting to see how the Delhi government delivers because infrastructure projects are very important for the development of commercial vehicles. Despite all the issues, the commercial vehicles are expected to grow by 10 percent. A double digit growth is a very good growth.

Are you facing problems due to Chinese counterfeit products?
Harish Sheth: We have a big problem in India itself. Why to worry about China? In the after market, almost in all the commercial vehicle sectors, 40 percent of the sales is by the spurious products. The small Kashmir based fellows, they brand it in Tata's name and Ashok Leyland's name and then sell it in the market.

On the other hand, the Chinese come on their own. There products are not spurious. They put their own brand. They are cheaper than the Indian brand. Spurious is what made in India. In China, you do not get spurious products. From China, you get cheaper products. In fact, there are companies who are imitating our products as well in India.

China is better than India in the automotive industry. The growth in the Chinese automotive industry is phenomenal. Today, China is the largest manufacturer of cars. In America, a growth of 3 percent is very good. But in China there is nothing less than double digit. The GDP growth in China is higher than India.

The most important thing is that they do not have to worry about Intellectual Property Rights ( IPR). They can copy anything.

We do not face much challenge on product and design side with China. They do not have a superior product. Actually, the land in China is never charged and it always belongs to the government. The building also belongs to the government. The electricity charge is so low in China. In fact, the income taxes are very low. The salary structure is less in China. And engineers there earn less than those in India.

How much R&D effort Indian auto component manufacturers need to put in order to compete with global players?
Harish Sheth: India needs to put considerable effort. Our R&D efforts are very poor. The investment in R&D is relatively low. And, if you have to stay ahead of them (the global players) R&D is the key.

That is what we have picked up and we had a R&D collaboration in UK. Now, we are setting up a unit for R&D in Kalol's main factory. It will be operational in another two months time. We are investing almost about Rs. 15-20 crore in the R&D facility and we are planning to invest around 1 or 1.5 percent of our revenue in R&D in future.

(Namrata Kath Hazarika can be contacted at namratakh@tradeindia.com)