The tommy wrench is slipping for machine-tool makers

N N Sachitanand

Capacity constraints and surge in demand are hurting domestic players

The Indian machine tool industry may be small in terms of annual production at just Rs 2,100 crore (fiscal 2007) but has a very high leverage in the manufacturing sector since it makes the mother machines that make other engineering goods.

The industry is at present on a good wicket with a bulging order book in line with a booming economy hitting 9% GDP growth rate.

What is of concern, however, is that the Indian manufacturers’ share of the domestic market has slipped from over 90% in the 1990s to below 30% today. According to a recent Frost & Sullivan survey conducted on behalf of the Indian Machine Tool Manufacturers’ Association (IMTMA), while the total Indian machine tool market has risen from Rs 2,213 crore in 2004-05 to Rs 4,383 crore in 2006-07, imports in the same period have shot up from Rs 993 crore to Rs 2,429 crore. 

One obvious explanation is the inability of domestic producers to meet the sudden surge in demand due to limited capacity.

Shrinivas Shirgurkar, managing director of Bangalore-based Ace Designers, a manufacturer of turning centres with over 40 % Indian market share, says while Indian manufacturers are constrained to quote delivery periods of a few months, foreign  companies with already existing huge capacities are able to supply machines off the rack.

The level of imports has been more in categories of machine tools where Indian capacities have been low, like horizontal machining centres, presses, grinders, milling machines and gear shapers.

Also, high-end machines not yet made in the country make up a large part of the total value of imported new machines.

The import of second-hand machines is another matter and has always been a sore point for Indian machine tool companies. N K Dhand, chief executive of Ghaziabad -based Micromatic Grinding Technologies Ltd, which makes  a wide range of cylindrical grinders, says these second-hand machines are available dirt cheap in the international market and can be refurbished at low cost in India.

They are brought in by auto ancillaries in order to reduce their capital outlay and final product costs, even if the performance may not be as good as new Indian machines. Dhand, who is the president of IMTMA, says China doesn’t permit import of run-of-the-mill second-hand machine tools.

The other factor favouring imports, says R Srinivasan, former managing director of Widia India, is that the big foreign companies have deep pockets and are offering very easy finance terms to Indian customers, such as long-term deferred payment and lollipops like  extended warranty terms. Indian manufacturers do not have the financial muscle for such deals nor do their lenders encourage such tactics.

The good news is that most of the major machine tool companies have started investing in expansion of capacity. Ace Designers, for example, has already doubled the production of turning centres to 200 machines per month in its existing Bangalore factory and is on the way to establish a new factory which will enable raising output to 500 machines a month by the year 2010, thereby placing it among the top-three turning centre manufacturers in the world.

Dhand says in a couple of years the import of high-end machines will come down since they are needed in very small numbers, while domestic manufacturers will be able to meet a greater portion of the demand for the mid-level machine tools.  Overall, the import percentage should level off at around 50 % of consumption.

The Frost & Sullivan survey also found that among several selection criteria used by machine tool customers to favour imported machines, the most cited was quality and technology.

Indigenous manufacturers have pulled up their socks quite a bit in the past couple of years, in areas like reliability, accuracy, maintainability and productivity. But there still remains a big technology gap in terms of  feeds,  speeds, thermal stability, vibration , precision and other such factors between what is made in India and what is on offer from the advanced countries.

Beginning a couple of years ago, IMTMA has embarked on a series of initiatives to help the industry close the technology gap. A technology division has been created at the IMTMA Secretariat. Technology missions have been organised to German companies and arrangements are being made with prominent R&D institutions abroad like the Fraunhofer Institute in Germany to take up some research projects on behalf of the Indian machine tool industry.

Leading academic institutions in India are being approached to take up research projects in crucial areas like new materials, vibration dampening, etc which are relevant to the machine tool industry.

One of the reasons why machine tool makers in advanced countries are so far ahead in technology is the generous support to R&D given by their governments. In contrast, the Indian government limits itself to providing matching funds to whatever the industry puts in. This leads to sub-critical spending on R&D in the country since the machine tool industry, because of its modest revenues, just cannot afford to allocate substantial funds for research. 

An encouraging development is that bolder Indian companies have taken the battle to the rival territory. They are acquiring smaller companies abroad which have a strong brand in niche products, in order to gain access to advanced technology and   footprints in the developed markets.

For example, in 2007, the Rajkot-based Jyoti CNC Automation Ltd acquired Huron Graffenstaden of Strasbourg, which specialises in multi-axis machines for the aerospace industry while the Batliboi Group bought up Quickmill Inc, a Canadian maker of large area CNC Gantry and Bridge Milling and Drilling machines.

It may be an interesting tug-of-war in the coming years.

Micromatic Grinding Technologies Ltd, of which Dhand is the CEO,  has established sales outlets in China and Switzerland  while Bharat Fritz Werner, a maker of machining centres, set up a tech centre in Germany last year as part of its European marketing effort.