Medium-sized ancillaries have also been spending more on R&D over the past three years when compared to large component makers. “The engineering capability in our country is the reason behind such growth figures,” says Navin Mata, research analyst at Dolat Capital, a brokerage firm in the Indian derivatives market. “Importantly, foreign majors such as Toyota are noticing the rise in defect rate among their vendors. So they find Indian ancillaries a viable source.”
Clearly, design teams add a lot of value. For starters, they give the ancillary company freedom from the OEMs. RSB’s ‘i-Design’ team, for instance, is a separate entity working with OEMs on component quality, weight, design and pricing. Secondly, the ancillary’s value increases in the form of patents. Moreover, competent design teams give Indian component companies a level playing field alongside foreign ancillaries. Finally, and as a consequence, margins improve.
The pace is picking up on acquisitions. “Medium ancillaries will have to reap the rewards of the booming auto market in 2-3 years, before there is a slowdown,” says Ajay Sethia, research analyst with Enam Securities, a stock broking firm. “Very few will make it to the top. OEMs across the world are comfortable with a smaller set of vendors.”
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.