Small Medium Enterprises In Manufacturing Sector

The national economy is touching 9% growth rate. Manufacturing is growing at about 12 percent. But it is small and medium-size manufacturers that are growing at about 15 percent and some small-company stars are going for the triple digits.

 Between 2001 and 2006, companies with net turnover of Rs 1 crore-50 crore saw a rise of 701 per cent in net profit, compared to 169 per cent for large companies with turnover of over Rs 1,000 crore.

 Companies with a turnover of Rs 50 crore-100 crore did even better, raking in profit growth of 961 per cent over the five years.

 Smaller companies have also outperformed larger ones in the growth of net sales and operating profits. Operating and net profit margins of smaller companies, too, have expanded more than those of the larger ones. (Although there is no agreement on what constitutes an SME, private and foreign banks define SMEs as companies with turnover between Rs 10 crore and Rs 700 crore.)

 As the Economic Survey points out, “During 2000-01 to 2004-05, the SSI sector registered continuous growth in the number of units, production, employment and even exports. The average annual growth in the number of units was around 4.1 per cent, while employment grew at 4.4 per cent. Further, the average annual growth in production, at current and constant prices, was 10.6 per cent and 7.6 per cent, respectively.” Remarkably, this growth was achieved over a period that has seen a steady dismantling of reservations for the sector.

 SMEs will invest up to $1.2 billion on their Internet infrastructure and solutions this year, about one-sixth of the total IT spend for all companies at $7.7 billion this year.

RSB Transmission of RK Bahera was declared sick in 1979. Behera was not able to repay the Rs 1.65 lakh loan taken from the Bihar State Financial Corporation, and he could not even pay back Rs 10,000 that he had borrowed from his father. However, the company turned around in 1982 when the company became the sole supplier of sheet metal components to Jamshedpur-based Telco (now Tata Motors). The company moved to Pune in 1995. The company grabbed the clientele of other OEMs. The company going for a turnover of Rs 600 crore next year and has also acquired Michigan-based Miller Brothers Manufacturing for $19 million recently. Behera has today eight plants across the country.

Consultants Dun & Bradstreet have identified auto components, textiles, food processing, pharma, engineering and chemicals as sectors in which Indian SMEs could become globally competitive.
According to Dun & Bradstreet, SMEs in the textile sector, for instance, expect an average growth rate of 32 per cent over the next two years.

Nitin Mandhana, managing director, Indus Fila, took his company from a turnover of Rs 14 crore in 2004 to Rs 247 crore in 2006. The company set up a centre of excellence in 2006 in Nelmangala on the outskirts of Bangalore for Rs 60 crore. Here, the best global brands – such as GAP – connected to Indus Fila would be given space to set up design studios and help his team manufacture the latest fashion trends for the US and Europe. “By teaming up with German apparel manufacturers such as Bornemann and Bick in 1992, our reach to foreign markets has been easy. This has tremendously leveraged the way Indus Fila is reaching foreign markets,” says Mandhana.

The auto-component companies studied by Dun & Bradstreet grew at an average 35 per cent over the past two years and expect the momentum to be maintained.

M. Radhakrishnan started his auto-ancillary business, Autolines, in 1996 with turnover of a mere Rs 11 lakh. Bankers wouldn’t even look at their business plan. Somehow, Radhakrishnan managed a working capital loan from a local co-operative bank and pumped in his own money to survive and expand. The company reached a turnover of Rs 50 crore and bankers started beating a path to their doors. Autolines today is an Rs 125-crore company, a tier-1 supplier of sheet metal to the Tatas.

Precision Camshafts is another success story, a company manufacturing at least 3 million camshafts a year today. The Rs 75-crore company has gone on to become the sole supplier of camshafts to firms such as Ford and GM in Europe.

The auto ancillary units in the industrial areas of Chikrapur, Bosri and Alandi around Pune are flourishing. Banks are assisting the entire supply chain, because of the link to the larger OEM. I had written about Involute Technologies, a Rs 70-crore company with many tier-3 suppliers of auto components connected to it. Banks are funding them because of the link to larger OEMs such as John Deere and Tata Motors.

Everest Kanto Cylinder Ltd. has taken less than a decade to become the world’s second largest maker of cylinders for high-pressure, compressed natural gas. Rico is planning to acquire a Thai and a Turkish auto-parts maker. Orient Craft bought a failing Levi’s plant in Spain for $15 million, dismantled it and reassembled it at its Gurgaon plant. Everest Kanto already has a cylinder plant in Dubai and is building a $50 million plant in China. Iran and Pakistan, two of its best customers, are pestering the company to build factories in their countries.

Are these stories that I collected from the various places in media not the great going-ons in Indian manufacturing?

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