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New plant in Nigeria likely by 2020 as part of global strategy

Mention Africa to Vikram Mohan and his eyes light up. “I would not be surprised if I set up a facility in Nigeria even before 2020 to cater to the two-wheeler market,” says the Managing Director of Pricol.

It was less than a couple of months ago when Mohan made known the auto component maker’s new global roadmap that included setting up operations in Vietnam and Mexico as part of Vision 2020. “The next big growth driver for Pricol will be Africa since its two-wheeler market will see explosive growth,” says Mohan.
Changing roadmap

Bajaj Auto is already a prominent player in Nigeria with its Boxer heading the sales charts. Hero MotoCorp has also made known its Africa intent which will see setting up a mother plant in Nigeria. TVS Motor may well follow suit while Honda Motorcycle & Scooter India could explore shipments from its Gujarat plant.

Yamaha’s Chennai plant is scheduled to roll out the world’s most affordable two-wheeler which will be shipped out to Africa. Traditionally, the continent has been the bastion of Chinese companies but with big names from India making a beeline, Pricol does not want to miss out on growth opportunities.

The ?1,450-crore company is India’s lead player in 2-wheeler automotive pumps, telematics solutions for tractors as well as speed governors and cabin tilt mechanisms for commercial vehicles. It is also among the top global manufacturers of driver information systems for two-wheelers, instrument clusters (tractors and off-highway vehicles) and automotive sensors.
Growing on track

Mohan is keen on building other global beachheads to keep Pricol’s growth story ticking. The ASEAN region is a critical component of this plan and it was with this in mind that Pricol established operations in Indonesia two years ago for two-wheelers. Yet, with policies which seem distinctly “too socialistic and anti-industry”, things are not so hunky-dory anymore.

The minimum wages in Indonesia have gone up by 350 per cent and Pricol still has not been able to counter it despite a “great degree of automation”. In the process, it is now very difficult for the company to continue operations in Indonesia.

“Yet, ASEAN is a growing market and we needed to look at a base especially for commercial vehicles and two-wheelers. We zeroed in on Vietnam which is industry-friendly,” says Mohan. In addition, the country is one of the key partners in the Trans-Pacific Partnership which makes it a great base for exports to ASEAN.

Vietnam also has a stable workforce that is educated and engineering-oriented. The country is neither excessively pro-labour nor pro-industry with the only challenge being language. “This is the least of our problems since we believe in working with the local management wherever we go,” reasons Mohan.
New destinations

In a nutshell, Vietnam is more critical for Pricol’s ASEAN strategy since its manufacturing costs are significantly lower than Indonesia. Any growth from now will happen out of here as the company has decided not to grow further in Indonesia with its high labour costs. “Vietnam will be the growth driver for ASEAN and to de-risk the business, we will use it as an export base to Japan and the US,” adds Mohan. The next stopover for Pricol will be Mexico. “If we want to be in the top league, it is imperative to be in the five biggest global markets and Mexico is the logical choice,” explains its boss. Not only is it the backdoor for the US for auto components but is also tipped to become the fourth largest car market by 2020.

Mohan would still like to wait and watch world events over the next 18 months considering that Latin America and Russia are in bad shape. It is in this context that Pricol’s recent acquisition in Brazil could be seen as one of bad timing given the fragile state of the economy.

Yet, Mohan does not quite agree with this gloomy premise. “Did I make a mistake (in acquiring Melling do Brasil)? No, I think what we did was sensible simply because of global access to big names like Volkswagen, General Motors and Fiat,” he says. In the business of pumps, Brazil was at least 4-5 years ahead in technology that is now being brought to India.

“A technology agreement would have cost me a lot more than an acquisition though I would have been very happy if the market had not plunged into a crisis,” adds Mohan. Effectively, this means that instead of recovering investments in 2.5 years, this could now be twice as long but business has its “shades of grey where nothing is black and white”.

From Pricol’s point of view, the world is one market for tractors, CVs and two-wheelers which explains why acquisitions in Germany, the UK or US make sense. These countries have a large presence of CVs and tractors and to keep pace, Pricol will logically need to be in the business of making pumps. It is here that a strategic acquisition makes more sense than a greenfield investment.

If the company has to be dynamic and move from one location to another, an asset-less flexible model works best. “It will allow me to change course if need be and quickly correct rather than have fixed assets which would otherwise be a millstone around my neck,” says Mohan.

Posted on : 22 Nov,2024 | News Source : ABNews