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Thursday, May 30, 2002

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US co set to pick up 26% in Rambal -- Bets on exports to boost turnover

N. Ramakrishnan


RAMBAL Ltd, part of the Chennai-based Shriram group, anticipates a substantial jump in export income in the next few years, mainly because of a strategic partnership it has entered into with Indimet Inc of the US.

Indimet is also picking up a 26 per cent stake in Rambal for a consideration of Rs 2.5 crore, for which it recently got the Foreign Investment Promotion Board (FIPB) approval.

Last year, export income from precision-turned parts accounted for 52 per cent of the Rs 14-crore turnover. The company expects export income to go up to 80 per cent of turnover in the next two to three years.

Three years ago, exports accounted for about 30-35 per cent of turnover, according to Mr T.A. Sridhar, Managing Director, Rambal Ltd.

Rambal makes precision-turned components for the automotive and electrical and electronics industries, textile spindles and shock absorbers and shock absorber components.

It has a plant at Perungudi, on the southern outskirts of Chennai, and another at Tiruporur, about 35 km from Chennai on the way to Mahabalipuram.

While the Perungudi plant is used to make precision-turned components, the textile spindles and shock absorbers are made at the Tiruporur facility.

Currently, the Shriram group owns 89 per cent of Rambal and the Tamil Nadu Industrial Development Corporation (TIDCO), a State Government undertaking, the balance. The Shriram group will be divesting a part of its stake to Indimet. Indimet has been purchasing components from Rambal and selling it in the US for some time now. Mr Shreyas Metha, President of Indimet, is an alumnus of the IIT, Madras. Indimet has offices in Chennai and Pune.

Mr Sridhar told Business Line that Indimet would market precision-turned components to "certain customers" in the US, while Rambal would continue to sell directly to the other customers it had been supplying to so far.

Some of the customers Rambal would supply through Indimet were Copeland, a large manufacturer of compressors for domestic and industrial applications, and Warren Rupp, which was part of the Emerson group.

This year itself, Rambal expects to do about Rs 3 crore of business through Indimet, and this is expected to go up to Rs 10-12 crore in the next two to three years.

Rambal also expects a quantum jump in business from TVS Motor Co, to which it will be supplying front fork assembly and rear damper for a new motorcycle TVS Motor plans to launch in September-October this year.

If this order takes off as expected, Rambal expects at least a Rs 6 crore increase in turnover for this financial year and about Rs 12 crore in a full financial year, according to Mr Sridhar.

Mr Sridhar said that Rambal had the capacity to make one million shock absorbers a year, while it was currently only eight to nine per cent of it.

If the order from TVS Motor Co was successful, the company anticipated that it would fully utilise its capacity.

For textile spindles, for which the company had a capacity of 30,000 spindles a month, Rambal was in discussions with a number of domestic textile companies and there were also enquiries from abroad, Mr Sridhar said. Currently, the capacity utilisation for spindles was about 10 per cent.

For 2002-03, the company hopes to achieve a turnover of Rs 18.8 crore, of which turned parts and textile spindles were expected to contribute Rs 14.8 crore and the balance from shock absorbers and shock absorber components.

However, if the order from TVS Motor took off, the income from the shock absorber division would go up substantially.

Last year, the company made a turnover of Rs 14 crore and "just broke even", and would have made a profit but for the interest outgo.

"We need a turnover of Rs 18-19 crore to make a profit," said Mr Sridhar.

Mr L.R. Subramanian, Vice President - Finance, said the interest outgo last year was Rs 1.7 crore and the company hoped to bring it down to Rs 1.5 crore this year.

It was in discussions with financial institutions to restructure the loans, which were contracted at 18.5 per cent interest a few years ago.

The company hoped to bring down the interest to around 14.5 per cent.

Likewise, it was also in talks with the IDBI, from which it had taken a foreign currency loan of $ 1.8 million at Libor plus 400 basis points, to renegotiate it to at least Libor plus 250 basis points.

Mr Sridhar said Rambal had engaged a Japanese consultant, Mr Takao Kasahara, who would help the company streamline the manufacturing process and cut costs, and help take it to an "international level".

Asked whether the focus on exports was because of sluggish domestic market conditions, Mr Sridhar said the company was focusing on exports also because of the capacities it had built up.

Besides, exports helped in improving efficiency. He said that the turnover last year would have been higher but for the September 11 attacks in the US.

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