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Shyam G. Menon

Mumbai , Feb. 4

IT may be a trifle behind schedule from original growth plans, but Tata AutoComp Systems Ltd (TACO) is gearing up for investments abroad, including likely acquisitions.

TACO acts as the holding company for the Tatas' foray into automotive components. Its organisational structure is composed of two halves, one a set of joint ventures, the other, businesses where its equity holding is much higher.

"We should cross Rs 1,500 crore in revenues this financial year. All our businesses are profitable,'' Mr D.S. Gupta, Managing Director, TACO, said. At present, 60 per cent of its income comes from OEMs other than Tata Motors, a figure it wants to raise to 80 per cent.

The turnover figure betrays a lag as TACO, founded in 1995-96, had originally targeted $1 billion turnover in 7-8 years time, including at least Rs 2,000-2,500 crore by 2003. Mr Gupta conceded the lag but attributed it to the slowdown in the domestic automotive industry during the period. The industry may be celebrating sale of a million passenger vehicles in FY04 but theoretically that was to have happened a few years ago.

Data from the Auto Component Manufacturers Association shows a range-bound production value of $3-3.9 billion for the sector between 1996-97 and 2000-01, which improved thereafter to an estimated $6.7 billion by 2003-04.

With the Indian component sector now resurgent and TACO not having bought out companies during the industry's trough years, will its current aspirations mean costly buys? According to Mr Gupta, while Indian players may yet be on a safe wicket, elsewhere in the world companies are getting jammed between high input costs and OEMs aggressively cutting costs. That churn will float up candidates for acquisition.

Given 14 companies under it producing a range of products, TACO is closer to a component conglomerate than the focused play associated with Indian component manufacturers (such as Bharat Forge) that have already made acquisitions abroad. So, what will TACO seek in its hunt abroad?

Mr Gupta said that targets would be aligned with the growth needs of closer held businesses, not joint ventures. For example, Tata Auto Plastic Systems, which will be merged into TACO shortly, opens up the possibility of chasing inorganic growth in auto plastics.

TACO has traditionally had five special business groups - manufacturing, engineering, supply-chain management, after market operations and international operations.

It is reshuffling things to stay with two verticals - engineering and supply chain. Of the remaining three, after market operation is yet to kick-off but the other two are seen as attributes required across operations.

Going ahead, Mr Gupta said, focus is reverting to own engineering expertise, wherein technology would be the differentiator between companies. . TACO hence, wants to build up its technology base.

Expectedly this foray will initially shadow known domains of strength for India such as IT and metallurgy. TACO will be the product delivering face while the inputs may be sourced from various Tata companies familiar with the auto industry.

From acquisitions to research & development, TACO cannot have it all without funds.

"As of today, the funds needed for the next three years are reasonably covered through internal accruals and support from the Tata group," Mr Gupta said.

He declined comment on whether there would be an IPO or private placement. Worldwide in the auto component business, technology intensive companies desist from listing due to the quarterly disclosures warranted.

But their ambitions are as big as that of the OEMs they serve. Rather there is no other way, for as Mr Gupta said, in the automotive business there is no comfort zone and the only law is - might is right.

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