I’m currently looking into creating a report on
Bodycote’s shares and see that they have what they call a strategic outpost in
India. They announced their expansion into the country in 2006 near one of its
automotive hubs in the western region of India in Pune. I thought it could be
interesting to have a quick initial look at this large emerging market. I’ll be
getting a lot of information via internet searches from various internet
websites which I will try to mention throughout this post. I will not be
verifying this information at this stage so there could be large inaccuracies
contained in my rough initial overview. I hope over time that I can improve
this overview as it is an important growing market for the heat treating
industry.
ASM International’s Chennai Chapter provides an
estimate of the size of the Indian heat treating market on the website for “Heat
Treat & Surface Engineering Conference & Expo 2013.” This is at USD 1bn
+ with a growth rate of 12% per annum. Bodycote has estimated the size of the
global heat treating market at USD 35bn (of which around USD 20bn is in the US)
which would suggest that the Indian market is a significant one globally (so a
super rough estimate would be almost 3% of the global market if these figures are
correct). When DOWA raised its stake in Hightemp Furnaces in 2011, it also
estimated growth of the Indian heat treating industry to be at a rate of
approximately 12% per annum to 2015. I unfortunately don’t yet have an estimate
of captive vs. commercial for the Indian market although, in a 2012 interview
with The Monty Heat Treat News, Hightemp Furnaces indicated that the captive
market was larger than the commercial but that this scenario was changing
rapidly.
What’s the Key Driver?
The long term rise of India as a leading
emerging economy is a well known theme. As GDP continues to grow and investment
in infrastructure is made, the automobile industry has huge potential. The
growth of the Indian automotive industry is providing the demand for most heat
treating activities. There are four main hubs and a newer growing 2nd
hub in the west of the country. The industry has experienced a boom in recent
years with a 6yr CAGR of 13.1%
Figure
1: Historical Auto Production
* Compound Annual Growth Rate, year end is in March for these figures Source: SIAM
A large segment of this production is of 2- and
3-wheelers but the market share of 4 wheelers is expected to rise over time.
Forecasts from the Society of Indian Automobile Manufacturers (SIAM) show
tremendous growth in passenger vehicles over the next decade, with a CAGR to
March 2021 of 13%.
Figure 2: Passenger Vehicle Production and
Forecasts
Note: Year end is in March for these figures, F = Forecast Source:
SIAM
The growth in automobile manufacturing has also
driven impressive growth in the auto component industry as the following data
from The Automotive Component Manufacturers Association of India (ACMA) show.
Figure 3: Auto Component Industry Turnover and
Forecasts
F = forecast Source:
ACMA
Indian auto component exports are also
interesting to show as ACMA forecasts these to grow considerably with Europe
accounting for the largest export destination currently (36%).
Figure 4: Auto Component Exports and Forecasts
F = forecast Source: ACMA
Other sectors could also be expected to also
make an impact on the heat treating industry in the future but for the moment
the automobile industry is the dominant factor in India.
Who are the Key Players?
Hightemp Furnaces (DOWA) - http://www.hightemp-furnaces.com/
In 2011, DOWA Thermotech (the world’s 4th
largest heat treater and a unit of Japanese conglomerate DOWA Holdings)
expanded their stake in this company to 80% from 16.1%. Hightemp builds
furnaces as well as providing heat treatment services (as does DOWA elsewhere).
Their website states that they are the largest 3rd party commercial heat
treatment company in India with an approximate market share of 40% in
industrial heat treatment furnaces.
At the time of the transaction the Nikkei
estimated the deal value to be Rs 1.9bn and for 2011 net sales to have been Rs
950m. This would give a EV/Sales multiple of 2.0x (slightly higher than the
approximate 1.95x multiple Bodycote paid for CCHT in the US in 2012 although
this was a multiple paid for a company without furnace building operations).
With this transaction, DOWA targeted to grow
its Indian operations through not only its traditional Japanese client base but
also through local and foreign affiliated auto manufacturers (ie Hightemp
Furnaces client base). This could be a shrewd move as Figure 5 shows an ACMA
estimate of the presence of global manufacturers illustrating a more significant
US and European presence, although Japanese manufacturers remain highly active.
Figure 5: Growing presence of Global OEMs –
Passenger Car
Source: ACMA (from
their illustrative list of auto manufacturers)
Hightemp Furnaces’ website states that it
offers heat treatment services aggregating over 1,500 tons per month for 300+
customers and has an installed infrastructure base that includes 40 furnaces (although
in a July 2012 interview with The Monty Heat Treat News the President of
Hightemp states that the company have 62 operational furnaces). The company has
5 plants, 4 of which offer heat treatment services, situated in the north, west
and south of the country.
While Hightemp Furnaces was easy to find, the
rest have been less so I expect to have made significant omissions. Here’s a list
of some of the more eyecatching companies offering heat treatment services that
I came across.
Metals India - http://www.metalsindia.com/
Metals India was established in 1979 and its
website states it can now process approximately 1,000 tonnes of materials per
month. Metals India’s activities support the Automotive, Tool & Die,
Exports, Railway, Aerospace, Defence, Surgical, Plastic and general Engineering
industries. The firm is located in Faridabad in the north of the country (close
to New Delhi). In a 2012 article, The Economic Times of India stated that there
were approximately 20 heat treatment units in Faridabad (mostly small players).
Looking at the company’s profile via the Indiamart website shows an annual
turnover of approximately USD 2 – 5m. From the Indiamart profile Metals India clients
include GM and Honda.
Heat Treaters and Engineers http://www.heattreatersindia.com/index.htm
This company was also established in 1979 and
now has a staff of 35 people. The company is located in the East of the country
with plants at Ahmedabad and Baroda. The company focuses on induction hardening
and tempering, toughing, stress relieving, annealing, normalizing, stabilising,
gas nitriding and gas carburising. A quick count shows 13 furnaces at Ahmedabad
and 5 furnaces as Baroda (so 18 in total). The company’s client list appears to
show mostly local customers.
Therelek Engineers http://www.therelek.com/
Builds and services furnaces as well as
providing heat treatment services. The company states that it is the first and only
commercial heat treater in the company with NADCAP accreditation (In my search
I have seen that Hightemp’s Peenya plant received NADCAP accreditation in
2012). It is the only company that I have seen so far whose heat treating
services is largely focussed on the aerospace sector. The website states that
customers include OEM suppliers to Whitney, Pratt, Mc Donald, Rolls Royce,
Airbus and Boeing.
There are many small players and their remains
limited information on websites to assess size and importance of companies in
the market. I will conduct another search of the Indian market later this year
to see if there are any significant omissions.
International Players in the Market (ex-DOWA)
Bodycote (UK)
In a 2006 press release, Bodycote announced the
launch of an initial investment in Pune stating that it would be the largest full
service commercial heat facility in India. The company also planned to open up
a further 5 facilities by 2011 to service the main manufacturing regions. The
Economic Times of India reported that Bodycote planned to have 10 facilities in
India in the next ten years (therefore by 2016). In 2007 Bodycote acquired the
heat treatment business of Ionbond in India. Presently, Bodycote’s website shows
one location in Pune. In its 2007 preliminary results presentation, Bodycote
showed that it had 3 heat treatment operating locations in India, possibly
suggesting that some operations were closed down in the restructuring program
that the company has implemented in recent years. In its Capital Markets Day
presentation in 2011, emerging markets were a key area of growth and focus for
the company but much of this future expansion was to be in China (and some
Eastern Europe). Plans for the Indian operations were to add high-value sales
and incremental capacity. This would give the impression that the company will
not make large inroads into the Indian market in the short term.
Aalberts Industries (NL)
Aalberts has a presence with its Industrial
Services division in the west of the country but I cannot see anything to
suggest they have heat treating operations there. It would seem that Hightemp
Furnaces shows TTI Group (a division of Aalberts) as a partner, which would
suggest that they are licensing surface treatment technology from TTI. In my
initial look at the Indian market I see no indications as yet that they would
expand into heat treating operations here, although with Aalberts insisting
cross-selling is a continuing focus it could mean that more Industrial Services
offerings (including heat treating) might be introduced in India in the long
term.
Nihon Parkerizing (JP)
Their Indian website includes a “President
Massage” in the company section so I am not too sure how serious they are in
expanding into India. From their regional headquarters page, it looks like the
company provides surface treatment services in the country but no heat
treatment services as it does in Indonesia for example.
That rounds up my quick look at the Indian heat
treating market. I hope to visit this topic again and in more detail later this
year. If you see any inaccuracies, please let me know – I am conducting all my
research using internet sources so there could be errors.
