Auto Component Maker Rane Group Doesn't See EV Transition As A Threat
Rane Group is exploring opportunities and products, exclusively for the EV space.
The transition towards electric vehicles is not a big threat for the Rane Group because, except for engine valves, all its products are compatible with EVs, according to Chairman L Ganesh.
"There is probably enough time to adjust to this transition," he said.
One of the oldest industrial groups in Chennai, the Rane Group was founded in 1929. Like many other business conglomerates, the $820-million (approximately Rs 6,690 crore) Rane Group is a low profile industrial enterprise emphasising on quality. It has been the recipient of the prestigious Deming Prize several times. Its mission is to evolve as an institution that serves the best interest of stakeholders.
In the short-term, the group will focus on some export aftermarket and non-automotive applications, while for the medium-term, it is looking at adding some new products in the product manufacturing, forging, machining, and heat treatment space. The auto component manufacturer is also exploring opportunities and products exclusively for the EV space.
As the EV transition is happening in phases, the group will be guided by the direction that the industry takes, he said.
According to him, not all vehicle manufacturers were planning to transition fully to EV. Some were working on hydrogen-based trucks and buses, while Japanese companies like Toyota were going for hybrid technology, he said.
Edited Excerpts From The Interview:
Covid-19 turned the business world upside down. How has the Rane Group's journey been since then?
L Ganesh: After the pandemic, the Indian economy and the auto industry have really come up very well. FY23 was very good. We have seen close to 30% growth compared to the previous year. A part of this would have been due to inflation—commodity price increases—because of which, selling price rose. Most of it, however, was really volume growth. All the segments did well. Commercial vehicles have come back after a kind of cyclical slowdown for three-to-four years. Passenger cars have done well. Farm tractors, given their base, have done quite well except for one or two months. Two-wheelers saw some softening, especially in the entry-level bike segment. Rural economy seems to have had some dampening effect on two-wheeler sales.
For us, the steering business—the commercial vehicle steering—which we do in our joint venture, ZF Rane, had a good comeback. For the seat belt and airbag division, it has been an excellent year, especially with the mandating on the airbags. That has been a big boost for the industry. And, therefore, we have been expanding our capacity. On top of that, our joint venture partners have started buying a lot of semi-finished airbags. In terms of export, this has grown significantly for us. So, on the whole, the seat belt and airbag division has had an excellent year. We have also been selected under the PLI scheme and expanded.
The core of an airbag is the inflator. So, we set up a facility at Trichy in Tamil Nadu to make inflators. We have also started making webbing for seat belts, which have always been imported. We have set up a seat belt webbing plant near Chennai. Both these plants are under the PLI scheme.
The original seat belt and airbag plant is at Singaperumal Koil on the GST Road. The investment of around Rs 200 crore will happen over phases. The environmental and safety requirements of an inflator unit are quite different. So, we have built a separate new factory. The steering, and seat belt and airbag divisions did well. The electric power steering sales were somewhat muted during the year...
In Rane Madras, we make mechanical steering gear and steering joints. Again, it has been an excellent year. We continue to maintain our domestic leadership. And, in terms of commercial vehicles, we were ahead of the curve in developing the new generation BS6-type of tie rod ends and ball joints. We developed them very fast. And that gave us the initial advantage. So, commercial vehicle growth has helped us.
In passenger cars, we continue to be the market leaders in terms of maintaining our share. Rane Madras has done well on the export front. Both rack and pinion steering, and steering ball joints have done well. We got some excellent orders.
In fact, all the efforts that we put in the last three-four years in terms of developing our business, both in North America and Europe, have started giving us dividends. Partly, we see the China-plus-one strategy also helping Indian vendors like us. The inquiries and the request for quotes have started growing significantly in the last couple of years. Our efforts in business development have also helped us grow the business. So, Rane Madras had an excellent year.
In terms of engine valves, this business has had some problems in the last four or five years because of a combination of factors—our own internal issues, lack of growth, and legacy issues, as it is the first manufacturing activity of the Rane Group. We had some high cost locations. So, we had some competitive challenges. In the last two-three years, we have been working on that. And, I am happy we had a financial turnaround in 2022-23.
Brake lining has had a reasonably good year. The OEM market has been strong for us. The aftermarket segment has also been very good. Here, of course, exports—at less than 5% of sales—are not very significant. We are trying to double that in the next 3-4 years to 10% of sales.
As a group, our exports comprise around 24% of total revenue. Our medium-term plan is to take it to 30%.
What could be the focus of your capex programme?
L Ganesh: Based on the buoyancy of both the domestic market and our export programmes, our capital expenditure should be in the region of Rs 1,000 crore in the next three years. Our growth strategy basically is to maintain our domestic leadership wherever we are present in the domestic market and aggressively increase our export earnings. We continue to focus on the Indian aftermarket that is growing very well for us.
We have made some new initiatives in this area by consolidating the entire aftermarket under one management structure so that the efforts can be focused and the entire marketing initiative in terms of logistics et al, can be centralised.
We started this about a year ago, and that is giving us some good benefits. We expect the aftermarket space to grow at 12-15% in the next 2-3 years. In the past, our growth in aftermarket space has been about 7% to 8% a year.
In terms of the new technologies and the new standards that are coming in—whether it be BS6 or the airbags—each company in the group is gearing up to invest in R&D and engineering to upgrade the products and to introduce new products.
For example, in the steering company, we are now developing electric power steering for off-highway vehicles and some small commercial vehicles. The utilisation of power steering in tractors has been increasing. Currently, it has almost become 60% power steering in tractors. So, we are increasing our capacity for hydraulic power steering for tractors and also introducing new features to meet the new requirements of the industry in terms of engine valves.
There are a lot of new technologies that are coming up. Hollow valves are coming in with higher RPM engines to meet the fuel economy requirements. Valves are now coming with the new construction of what is called hollow stem valves. So, we have developed this.
We have set up a line in our Trichy plant. We have started supplies to some customers, and the valves are becoming more and more high precision, super finish, because of the new emission norms that are coming up. In terms of friction material, again with the new noise, vibration and harshness—what they call NVH—requirements, we are developing new formulations, which reduces the noise significantly. We are developing some of them with our Japanese partner.
In the last four or five years, we have also invested significantly in R&D and that is helping us develop new formulations. So, the development rate of new formulations has also increased in the last few years for us. So, these are some of the new technology areas that we are developing in terms of extending the existing products to the new generation vehicles. In terms of electric vehicles, fortunately for us, except engine valves, all our products are compatible with EVs. Some finetuning is required which we are already doing. We are already supplying rack and pinion steering, friction material, seat belts and airbags, to EV producers.
In all, the product lines—except engine valves—we are ready and already supplying to electric vehicles. In engine valves, there is probably enough time to adjust to this transition. In the short-term, our strategy is to focus on non-automotive applications where the changeover to EVs may not happen immediately. We are focusing on aftermarket, some export aftermarket, non-automotive applications et al, in the short-term.
For the medium-term, we are looking at adding some new products using the same facilities and kind of competence that we have in product manufacturing, forging, machining, heat treatment, etc. We are exploring what new products to add using these competencies and facilities. So, the EV transition by itself is not a big threat for us. There are new opportunities and new products, exclusively for the EV space. This is something that we have just started studying.
EV technology, as you know, is evolving ... whether it be battery technology or transmission... Everything is kind of evolving. New technologies are coming up. Different car companies and different regions are trying to work on different things. Some are working on hydrogen for trucks and buses, and some others are going pure EV. Some Japanese companies such as Toyota are going for hybrid technology. So, we are also watching closely as to what could be new opportunities and which areas we could also work on for future growth. So, this is something that we are working on.
In India, we expect the transition to happen in two-wheelers first. Some buses, especially the ones that operate within the city, may see the transition next. Passenger cars will follow. In passenger cars, it is a question of value-for-money. And, it will take a little more time, especially for the small cars, which are more popular in India. The viability of EV transition is a little more difficult in small cars than in the case of large cars. With 70% of the cars in India being small cars, the transition is going to take slightly longer than for Europe or even China for that matter. So, I believe we have some time for this to happen. But it is happening. There is no denying that the EV transition is happening in phases. So, this is where I mean Rane is kind of going in terms of direction.
Why do you say that small cars will find it difficult to make the transition?
L Ganesh: When it comes to small cars for city use and if you look at the range, the mileage, the usage, etc, the payback is not as attractive when compared to a large car that you drive for a long distance. Mandating is one thing. From a customer's point of view, it is not much value for money today.
But having said that, the battery technology is advancing and prices are dropping. Maybe the transition will happen. But we feel it will take slightly longer in India. Subsidies are given for EV transition. How long can they give it? In a country like India, where we have so many other priorities, how much can we subsidise? We would like to wait and watch.
Supposing the country goes fully EV tomorrow, will that make you redundant?
L Ganesh: The engine valve business will become redundant ... Fortunately for us, today that forms only about 7% of our total sales. As a group, 93% of our products are powertrain-agnostic.
How many plants do you have?
L Ganesh: We have 26 plants—25 are in India and one in the U.S.
What is the head count of the Rane Group?
L Ganesh: I think about 12,000, all locations put together.
Ford has closed its plants in India. What kind of an impact did it have on Rane?
L Ganesh: Ford's closure had an impact on us, especially as we were supplying all their seat belts and airbags. We were supplying them from the JV. We lost the entire business. Of course, they did compensate us for some tooling and things which we had invested specifically for them. But the business is gone. Despite that, the JV had good growth. Ford's closure in India has, nevertheless, been a big loss for us.
Who are your big OEM clients?
L Ganesh: In terms of OEM, Tata Motors is probably number one for us. Maruti and Mahindra will be two and three. There are also commercial vehicle makers such as Ashok Leyland. Hyundai is globally becoming important for us. We not only supply engine valves for almost their entire requirement, we also supply seat belts and airbags to Hyundai in Korea now. We have just won some new businesses in India also. So, Hyundai and Kia will become important for the next 3-4 years. We supply entire engine valves for Kia. For Renault-Nissan, we supply steering gear, engine valves and the like. Like Indian OEMs, all the global companies are also important for us.
In terms of the high-end, what is the position?
L Ganesh: One of the largest customers for engine valves is BMW. We export engine valves to Germany. In terms of new geographies, North America and Europe will remain our main export markets. In Asia, we export to South Korea. We do some exports to Japan—very small, at that. We do some exports to Indonesia.
A SWOT analysis of the Rane Group. What is your take on this?
L Ganesh: Conservatism is a good example. We have been quite a conservative group. So, a few years ago, about four or five years ago, we did a kind of re-visioning and looked at our strategies. The outcome of that was that we may not shift from one extreme to the other. But we certainly realised that our growth rate has to accelerate. Some of the decisions we took at that time—like relooking at our international business, opening up ourselves, setting this 25% target—were the result of this exercise.
When we said going forward, we meant that we should go more aggressively than in the past. So, we made a shift. And that will continue. To that extent, you have to look at your management structure. We have made some changes. We continue to do some changes to equip ourselves to grow faster than in the past. The weakness, if at all you will say, is scale. To really invest in R&D and develop new technologies ... that is something of a weakness for all Indian-origin auto component companies, including us.
Here is where we are trying—how much we can do in partnership with JV partners and how much we can do ourselves. And within what we can do ourselves, we are trying to do some kind of visioning of the technology roadmap and the way forward in the next few years. Where we can play a meaningful role in terms of the technology roadmap, we have started increasing the spend on engineering and R&D capability. The R&D spend used to be sub-1%. Now, we have stepped it up to 1.5%.
We have a good customer base now—a mix of good Indian and global customers. We have developed a couple of business development offices overseas—one each in Europe and the U.S. We are slowly increasing our strength. We have two people in the U.S. and one in Germany now. We have addressed some of those weaknesses. Hopefully, the next 5-10 years of growth will be much faster.
What is your view on the Rane brand?
L Ganesh: I look at the Rane brand from two perspectives. One is from an employee perspective. Why do you come to Rane for a job? We did a survey. The top thing that came out in the survey is pride. And that is something we really value.
From an internal perspective, we would like to build on that strength, where an employee feels proud of working for a company like Rane. From a customer's perspective, our brand image is more about reliability. In our long manufacturing journey, we have built up a reputation of a reliable and trustworthy kind of partner who will be there in tough times as well as during rewarding times. That is something which we would like to continue and that is why we go out of the way to try and build long-term relationships. All our customer relationships are long-term.
In terms of fortifying, we think we are quite secure. In the long run however, things may change. One has to be watchful. You would like to make sure that stability and continuity are there. As long as the institution is adding value and the stakeholders are getting benefit out of it, that is fine with us. That is the way we look at it.