August 2011 | Gayatri Kamath
Gearing up for growth
Tata AutoComp Systems (TACO) has come a long way since it was formed in 1995. After weathering the 2008 downturn and consolidating growth, TACO is now poised to scale even greater heights. RS Thakur, managing director of TACO, talks candidly about the strategic plans of the company
What were the achievements and challenges of the last few years?
The Tata AutoComp Systems (TACO) group comprises one holding-cum- operating company and a cluster of joint ventures (JV) and subsidiaries. For more than a decade after becoming operational (in 1997), TACO reported remarkable revenue growth at 35 per cent CAGR compared to the component industry's CAGR of 23 per cent. But in the effort to grow to critical mass, certain management aspects were overlooked and by 2008, 13 out of the 20 group companies were running at a loss. That was a wake-up call.
At that point, the TACO leadership decided to take action. Companies that were burning cash too fast and did not show viability were exited, and today there are only 12 businesses and all are profitable.
The next step was to synergise for better business performance. The biggest contributor to profitability was that we started working as one single group instead of each company operating totally independently. For instance, a central purchasing system led to savings in the very first year. HR processes were synchronised across companies to take care of people's
aspirations. An intense communications drive, with town hall, quarterly and monthly meetings, sent a clear message to all employees that things had to change, that the mind-set of 'business as usual' would mean no business at all. The cost-cutting drive even included measures like switching off air conditioning in the corporate office during the winter and monsoon seasons, keeping all the lifts working only during peak hours, etc.
We started a campaign called 'It's My Money'. At that time, the receivables from customers were at the rate of 160 days of sales. Within a year, this dropped to 53 days, and today is at 26 days. Inventories were as high as 150 days; this came down to 60 days in a year, and today is only 31 days. This cash flow increase gave us the liquidity to survive. The improved working capital resulted in improved asset turns for the companies and in turn for the group. Today, we operate at close to zero working capital.
We systemically worked with each company to analyse and improve man, machine and material productivity. Today, we've stopped bleeding and all 12 businesses are generating profit. And this has been through modest improvements, nothing dramatic. We have only plucked the low hanging fruits.
Our recruitment process has changed. We have significantly reduced lateral entries and are trying to build a TACO cadre. Last year, we recruited 900 fresh graduates (engineers, management, commerce, etc), who were then given intensive training. They are very charged up and committed. This year, we've taken in more than 500 trainees. In the next two years we want to ensure that a large percentage of our supervisors / managers are from our own cadre, with a greater commitment to and pride in TACO, which should reduce attrition.
The cyclical nature of the auto-component industry means the flexible workforce numbers are significant. This impacts adherence to process and hence, output quality. We are trying to address this through 'Earn and Learn' — a unique operator-level scheme that is run in partnership with a technical institute. It is our way of ensuring sustainable growth and our contribution to improve employability in the community we operate in.
We wanted uniformity and standardisation of business processes across our companies. To do this, we selected about 20 bright young officers to study processes in companies such as Toyota-Kirloskar, Bosch, Cummins, Bharat Forge, etc by visiting them and spending time with them. They have put together a process manual called TACO Operating Systems that is benchmarked to industry good practices and is being rolled out across the TACO group by the same group of 20 youngsters. This will make our companies more process-oriented, and less driven by individual beliefs and practices.
What are your views on TACO's performance in the financial year 2010-11? Have these been up to expectations?
In 2010-11, we ended with a decent performance; our aggregate turnover was around Rs4.5 billion, and EBITDA margins were about 11.6 per cent. In addition to the improved financial performance, we take great satisfaction in the fact that we have satisfied customers in all segments of the auto manufacturers such as commercial vehicles, passenger cars, utility vehicles, agricultural tractors and off road vehicles; as much as half of our turnover comes from non-Tata customers. Apart from the various customer awards we keep winning, we were voted as the Best Auto Component Maker of the year 2010 by CV magazine.
What were the critical factors that affected the company's growth and performance in the year gone by?
There were a few marked changes. We were able to negotiate a commodity price pass-through with our customers for key commodities such as lead, copper and aluminium, steel and polymer where prices are volatile; we get compensation from our customers and this has reduced our vulnerability due to commodity price fluctuations. We also substantially improved our material productivity by reducing rejections and losses. We have participated in several new product launches — Tata Nano, Aria and Ace, Toyota Etios and Liva, Ford Figo, Volkswagen Polo and Vento, GM Beat, etc.
Do you foresee any dramatic changes in the auto component business in the coming years?
Many of the changes are already here. For instance, auto-makers are no longer interested in sourcing a whole lot of components and assembling them in-house. So we have moved from supplying components such as instrument panels and radiators, to supplying entire assemblies and modules such as the cockpit or the front-end module.
The second big change is in managing inventory. Just-in-time inventory (a catch phrase that started with the auto industry) has now become just-in-sequence. This means that when the vehicle-maker is assembling a red car, we have to make sure that red bumpers are ready. Today, vehicle-makers communicate with the component-makers with a time horizon of 45 minutes or 110 minutes, depending on the process.
What challenges does TACO face in the days ahead? Which of these is the most critical?
The critical challenge is to make sure that our JV manufacturing operations are benchmarked for excellence. This will provide enormous satisfaction to our JV partners and their global customers who are in India and improve our competitive edge.
Another challenge is to stay at the cutting edge of technology. To do this, we need to establish R&D centres with all our JV partners. This will improve response time to customer requirements and reduce the customer's time-to-market. With two of our JVs, we have graduated from an engineering set-up to an R&D set-up. The plan is to do this for all.
How does TACO see itself evolving over the next five years? What are the company's plans and projections?
We've identified a four-fold strategy for growth: First, expanding our portfolio of products with our partners; second, adding complementary products; third, getting into the emissions and safety area; and, fourth, new areas where there is an India-specific cost advantage.
If the auto industry growth rate is 13-14 per cent, then we can easily achieve 20 per cent growth. Tata Motors accounts for 50 per cent of our sales; if the Ace family of vehicles and the Nano (in which we have a big presence) do well, we'll do well. We want to reach $2 billion in aggregate turnover by 2015 and $4 billion by 2020. This will mostly be domestic growth, as we have no aspirations to go to new geographies at this juncture. Right now, we are keen to harvest all the growth opportunities in India which in our opinion is going to be continually increasing.
About Tata AutoComp Systems
This interview is a part of the cover story of the August 2011 issue of Tata Review in which ten Tata CEOs talk about the past, present and prospects of the companies they head: