The Hindu Business Line : `We will look at opportunities, both in India and globally'

A few technologies are going to be critical. One is the concern over CO2 emissions. This is going to lead to accelerated development within the industry to see how we can come up with cleaner solutions.

DR V. SUMANTRAN, EXECUTIVE VICE-CHAIRMAN, HINDUJA AUTOMOTIVE LTD.

Almost three years after his separation from Tata Motors, Dr V. Sumantran is back in the spotlight with his appointment as Executive Vice-Chairman, Hinduja Automotive Ltd., a holding company of the Hinduja Group headquartered in the UK. Before this, he was a consultant to the Hinduja Group. Dr Sumantran, 49, is an engineer from IIT (Madras) and a Ph. D. in aerospace engineering from Virginia Tech University.

He spent the best part of his career with General Motors, as Director of Advanced Engineering with its group company, SAAB Automobile, in Sweden, before returning to India and taking up an assignment with Tata Motors as Executive Director (Passenger Car Business Unit and Engineering Research Centre).

In his new role, Dr Sumantran, along with Mr R. Seshasayee, Executive Vice-Chairman, Hinduja Automotive, and Mr Dheeraj Hinduja, Co-Chairman, will be responsible for planning and executing the Hinduja Group's global strategy in the automotive and manufacturing spaces. In an interview with Business Line last week, the mild-mannered Dr Sumantran, who is a member of the Science Advisory Council to the Prime Minister, spoke about his new assignment and the strategy of the Hinduja Group in the automotive business.

Excerpts from the interview:

Tell us more about Hinduja Automotive. What is the company all about, what are its objectives?

About a month before my appointment was announced, Sesh (Mr R. Seshasayee, Managing Director, Ashok Leyland) was nominated to Hinduja Automotive and he's also a vice-chairman. So, in a way, Sesh and I as vice-chairmen, together with Mr Dheeraj Hinduja, are trying to plan and execute the strategy of the Hinduja group in the automotive and manufacturing spaces.

In the sense that Hinduja Automotive is the holding company of companies such as Ashok Leyland, Hinduja Foundries and so on, it will play such a role, but through the group companies or through direct involvement, as is appropriate, we will look at how we go forward from here. There are opportunities and we will look at how to participate in them, not only in India but also globally.

When you say opportunities, does that include global alliances as well?

Well, all I would say is rather than talk about what we will do, we would much rather do something and demonstrate what we have done. What the future course might be can be understood if one looks at what the group companies have been doing, say, over the last 2-3 years. One, there will be, for any group like this, the need to consolidate the key businesses. In this case, in the commercial vehicle business, this means growing in capacity, making sure that you are able to participate in the growth in the Indian industry and fuel the aspirations of growing outside the country. You need to upgrade products, which isunderway. You need to fill gaps in the product line-up and, in this case, with the LCV joint venture with Nissan, the critical segment where the group lacked presence is being addressed.

Then if you say, "I'm growing and I want to participate not only in the growth that is happening in India but also outside", you need to start establishing beachheads outside the country. That has also begun in the case of Ashok Leyland with the acquisition of Avia in the Czech Republic. Outside of this, the group is also looking at critical adjacent sectors. Each group defines its own set of preferred adjacent sectors and we have defined critical components like castings and transmissions as core sectors in the components space where we are continuing to grow in the same pattern as I described earlier.

Besides this, we have also decided that a few key technologies are going to be critical. Today, globally, you hear two or three critical issues being raised. One is the concern over CO2 emissions. This is going to lead to accelerated development within the industry to see how we can come up with cleaner solutions. Now, this can take many forms. It can mean alternative fuels, reducing emissions within the existing architecture, and so on. We have made an investment in a technical company in Germany called Albonair that makes what are called SCR after-treatment emission systems. These are going to be necessary for Euro IV and particularly when you go to Euro V and VI. So we have decided that this is critical technology for us to be involved in. Then you look at technologies such as hybrids and electric and fuel-cell vehicles, and so on. We have started to look at our role in developing technologies that are aimed at environmentally clean solutions.

We have all seen an explosion in the quantum of electronics employed in vehicles. Modern European passenger cars being designed now will have 35-40 per cent of the value coming out of electronic systems. Here again, the group has forged joint ventures in critical automotive electronics - in this case, with Continental - for a range of electronic systems. If we, therefore, step back and take a look, the pattern is consolidating growth, upgrading the product range, expanding the geographical footprint and then focussing on critical adjacent sectors such as components and technologies. One thing I left out is also our commitment to growth in engineering services. We've formed an entity here - Ashley Design and Engineering Services - which already has around 150 people and is growing very rapidly.

They are doing engineering services for global OEMs, Tier I's and in a related move the group has acquired a testing and engineering company in Detroit called Defiance Testing and Engineering. So, this is a bit of the strategy that has unfolded already and one can expect that as we go forward, the fundamental foundations of this strategy will not alter significantly.

One significant product missing from the Hinduja group's automotive portfolio is passenger cars. With the pull-out of Mahindra & Mahindra from the three-way joint venture with Nissan and Renault for manufacturing passenger cars, is there a possibility of Ashok Leyland and Nissan collaborating with each other in passenger cars, in areas such as component sourcing or marketing?

The two companies are certainly co-operating in a number of areas, including sourcing. It makes more sense. We have certain strengths, they have certain strengths and it would be meaningless for us to jointly do business without leveraging those strengths.

While, on the one hand, nobody ever wants to say never, as far as passenger cars are concerned right now, we are like that mythological story where Drona is teaching archery and he asks Arjuna what he sees and Arjuna replies that he does not see anything but the bird.. We don't see the branches, we don't see the trees, we only see the target!

Your group had an understanding with Iveco till a couple of years back for the automotive business. Do you think the separation has impacted the group's global plans?

I don't know too much about the Iveco situation because my involvement has been post-Iveco separation. But today the group companies are very effectively able to leverage the latest technologies from anywhere in the world. If you want to develop engines you go to a handful of consultants around the world to whom we have access; if you want styling and body development, you go to 3 or 4 companies in Northern Italy, with whom we also work.

I think in terms of the technologies needed for us to, let's say, develop products that are contemporary, we will not have any difficulty. In fact, there are several programmes under way in group companies where that is already happening. So, in that respect I don't see any effect of the loss of an international partner. We don't seem to be hurt for want of technology. In places where we want scale and leverage, we are able to find it.

Talking about the domestic CV market now, do you think that what we are seeing is a cyclical demand recession or is it a case of a fundamental shift in dynamics with the market moving into higher tonnage vehicles due to which unit sales are coming down?

We've seen a bit of a blip, no doubt, and there are some issues that we have to be concerned about. Inflation is a little higher than what we would like it to be, monetary policy has been a little tight and therefore liquidity is tighter than it used to be. Having said that, I think the economic engine has enough momentum and there is enough demand being created by consumers that will help us rumble along with fairly significant rates of growth in the long term. The correlation between economic growth and freight movement or personal mobility is very high.

As the market evolves, we will, no doubt, see some sort of a sectoral migration. That is certainly one of the reasons that motivated the group to get into the light commercial vehicles business. I think we will see greater movement of freight over small distances and within cities. This is not something unexpected; we had anticipated it and been planning for it.

The domestic commercial vehicles industry is now in a state of flux with rearrangement of portfolios between existing players and newer multinationals coming in. Where do you see Ashok Leyland positioned in this scenario?

See, one thing that I think as a group holding company that we should do is stay away from the direct operations of each of the group companies which have very stable, mature leadership. So, it is not for the group to determine what Ashok Leyland should do but if you step back and ask, as a group, how we see the dynamics in this sector then it is different.

We will see a lot more participation of global players in the domestic market. However, if you take the example of other markets such as Brazil, you find that strong domestic players who are able to configure products that are very well suited to the customers actually have a very long profitable growth space. These markets have some unique conditions which are not readily seen to be in advantage for some of the global products. No doubt, all companies in this sector will be challenged to up their product development skills and the configuring of products. So I think, in this regard the group companies have been doing rather well. But of course, I would limit myself to a general comment on the industry and I don't want to get involved with what group companies do; they have their own management structure to do that.

Multinational OEMs are now focussing aggressively in the growing Asia Pacific market, including India. How do you see this impacting your own group's global automotive plans?

I think we are beginning to see two things happen. One, technology is accessible and to some extent, manufacturing systems and processes are also accessible. If you add the two together, frankly there is little to argue why we cannot do what is today manufactured or routinely developed in the West. The massive shift in demand to emerging economies and the very high cost differences, primarily labour, means that more and more of manufactured goods will inevitably start to migrate East. We are beginning to see that in various ways. For instance, in Europe we are seeing a migration of automotive capacity creation in Eastern rather than Western Europe. The former is already running at about 50-60 per cent of the latter's capacity which is staggering considering the low base that they started with a few years ago. The amount of growth of manufacturing in China and India is also stunning. In 2006, vehicle production globally increased by 2.7 million units, 2.6 million of which happened in the Asia-Pacific! There is effectively a production decrease in the Western world. Manufacturing operations, therefore, in countries such as China, India and to some extent even places like Turkey will see significant advantage. Now, it is for us to exploit this natural advantage.

As a long-term industry participant, what do you personally make of the Jaguar Land Rover deal of Tata Motors?

I never like to comment on what somebody else is doing. Everybody does whatever they do with the best of information, strategy and careful planning. So I'm sure what they are doing is well thought through. It has definitely rocketed India and Indian brands to the global scene. In the last year, the awareness of Indian industry has certainly increased dramatically. As in any large deal, there are obviously obstacles one would have to navigate through but I'm sure that they have thought through this.

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