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TACO looks overseas for growth - Views on News from Equitymaster
 
 
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  • Aug 12, 1999

    TACO looks overseas for growth

    Tata AutoComp Systems Ltd. (TACO), Tata group's auto ancillary unit, has been restructured into 5 strategic business units - manufacturing, engineering, supply chain management, after-market operations and international operations. TACO had initially planned equity tie-ups with domestic auto component companies. But now it plans a global presence and looking to acquire companies abroad.

    Over the past couple of years, the Indian auto ancillaries market has turned very competitive. Several foreign auto majors like Daewoo, have targeted India, as a major sourcing base for their global operations. Daewoo's car factory at Surajpur in Uttar Pradesh, also includes facilities, completed in 1997, to make 300,000 engines and transmissions each and press and aluminium die-casting shops. Half of the company's production is to be exported to Korea. Like Daewoo, Visteon, the components arm of Ford Motors, will also source components from India for its global operations. GM's recently hived-off Adelphi, (its components unit), will be supplying to GM among others.

    TACO may have a struggle on its hands if it wants to compete with MNC majors like Visteon and Adelphi. The latter with their financial strength and past affiliation with auto companies, are already a notch or two ahead of TACO. Besides Indian auto ancillary companies (with the exception of a few like Sundram Fasteners) have a poor reputation among overseas companies, as far as quality is concerned. Rejection rate for Indian auto components is 2,900 parts per million (ppm), which is more than 10 times the world level of 240 ppm thus reflecting on the poor quality.

    Having realised the need for additional investments, TACO is looking at investments at Rs 24 bn by 2003. It plans to invest Rs 3 bn by FY2000. The investment will go up to Rs 6 bn by 2001, while another Rs 6 bn will be invested over the next 2 years.

    One area where TACO can look to score over its rivals is in its distribution network. TACO can piggybank on TELCO's extensive distribution network. Its MNC rivals have still to develop some kind of critical mass as far as the distribution is concerned.

     

     

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