• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

M. Ramesh

CHENNAI, May 2

AFTER concentrating on exporting its entire production in the last six years of its existence, CG Igarashi Motors, the joint venture of Crompton Greaves and Igarashi Motors, now plans to enter the domestic market for micro motors and armatures.

CG Igarashi's Managing Director, Mr P. Mukund, told Business Line that the company would begin selling in the domestic market next year.

He said he expected the domestic sales to touch Rs 50 crore in three years.

In 1996-97, its first year of operations, CG Igarashi produced 0.9 million units. Last year, it did 12 million, which means that the production (and sales) grew 12 times in five years.

Now, the company believes that its operations are sufficiently ramped up for it to look at the domestic market, without losing sight of its main business of exports. Last year (2001-02), the company achieved a turnover of Rs 103.25 crore (Rs 92.77 crore in the previous year) and made a net profit of Rs 10.22 crore (Rs 8.28 crore). The board has recommended a dividend of Rs 2.7 per share (27 per cent). The results give the company a 39.86 per cent return on networth, 25.44 per cent return on capital employed and an 85.9 per cent return on equity (which means the EPS is Rs 8.59).

Mr Mukund noted that the company's turnover had been just Rs 6 crore in 1996-97.

The world market for the permanent magnet DC micro motors and armatures (which the company makes) is expected to go up from about 400 million units now, to one billion units in the next five years. "We are extremely price-competitive," Mr Mukund said.

Today, the company is selling its products in the international markets (mainly the US and Europe) at 75 per cent of the prices at which it sold in the initial years. Price reduction was not done at the sacrifice of profitability, but was possible because of cost compression, which in turn came about from scaling up as well as productivity increases. The figures demonstrate this: In 1996-97, the per employee productivity was 8,577 units. In 2001-02, this increased to 40,547 units. There has been no automation. Cost of value addition has come down from 38 per cent to 26 per cent. Production has been ramped up from 1,000 pieces per day in 1996-97 to 43,000 pieces per day now.

Though the production has gone up 43 times, the plants operate at 30 per cent lesser space.

This was possible because of continuous improvement and innovation. As many as four operations were eliminated, which freed up space.

Now, when the proposed expansion happens, CG Igarashi would not have to spend on land.

Mr Mukund pointed out that the company's policy is to be a contract manufacturer for OEMs. This policy would be followed when the company sells in the domestic market also; it would produce for the existing players such as Lucas TVS and Nippon Denso.

CG Igarashi's Japanese collaborator has increased its stake to 49 per cent, up from 20 per cent when the joint venture was established.

The increase in stake was effected through the `creeping acquisition' route. Crompton Greaves continues to hold 26 per cent, the rest is with the public.

Send this article to Friends by E-Mail

Stories in this Section
Parke-Davis suspends Hyderabad operations

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line