MICO's Hieronimus: Betting big on India and clean diesel technology

Adugodi is a mid-to-low-end suburb in India's tech capital, Bangalore. It isn't quite a place where one expects to find the country office of a multinational corporation. But that's precisely where it is. The interiors of the four-storey building are typically Old Economy-the big boss sits in a sprawling room the size of a large billiards room, with decor to match. It's quiet, it's plush and it reeks of German efficiency. But as you step out, the sound of lathe machines and other industrial equipment wafts in, from clean, almost antiseptic Teutonic workshops located on the campus just a few hundred metres away. Welcome to the world of MICO, a 60.55 per cent subsidiary of euro 40-billion (Rs 2,11,312-crore) German multinational Robert Bosch Gmbh.

MICO as in the spark plugs company? Well, yes and no! Yes, because it does make spark plugs. No, because they account for barely 3 per cent of its Rs 2,327.9-crore turnover. The bank of close-circuit television sets that track your movements at any of the country's major airports carry the MICO tag, as does the Blaupunkt multimedia system on your car's dashboard. Most of MICO's products are unsexy, but very profitable: diesel fuel injectors, starters and alternators for cars, electrical power tools, packaging machines and security systems aren't the most exciting products in the world, but given the company's operating margins of 24.2 per cent, neither the management, nor the shareholders are complaining. Profits, too, have jumped almost five-fold from Rs 81.2 crore in 2000 (the calendar year is also its financial year) to Rs 374.8 crore in 2004; in the first six months of its current financial year, it earned a net profit of Rs 194.05 crore. During this period, its topline grew at a compounded annual rate of 17 per cent. And in the last one year alone, its share price has jumped from Rs 1,700 levels to Rs 2,388 on September 30, 2005.

Driving these impressive figures is the boom in automobiles and auto components, sectors that account for 90 per cent of MICO's sales. Now, the company is increasing its exposure to India: it is investing Rs 1,000 crore on expanding capacity here. And it's betting big on diesel-it is spending Rs 850 crore, mainly at its Jaipur and Nashik plants, to set up production lines for various CRS (Common Rail Diesel System aka clean diesel technology) and allied products, which MICO MD Albert Hieronimus says, will make up 60 per cent of its turnover in five years. It's a proprietary Bosch technology that burns diesel more efficiently, reduces emission to below the level of petrol and gives 15 per cent more power per unit of fuel.

MICO's Viswanathan: Hopes Indians will take to diesel vehicles in a big way

Joint MD V.K. Viswanathan explains why the successful implementation of this project is crucial to MICO's long-term prospects. "In the past, our growth has mainly come from existing product lines. But here, we're attempting to change the technology platform itself," he says. But MICO doesn't merely import technology from its German parent and replicate it here. It customises the technology, as it did for Mahindra & Mahindra's Scorpio, for individual clients. "We spend 2.5 per cent of our turnover on research and development," says Viswanathan.

The confidence and the bullishness that seem to percolate through the ranks of the company today is a far cry from the situation in 1999-2001. That was when tardy market conditions and a bloated workforce had combined to drag the company into the slow lane. The top and bottom lines stagnated and simmering labour tensions caused demoralisation in the ranks. "We had to undertake painful strategic, structural and operational changes to pull ourselves out of that situation," says Hieronimus. MICO rightsized its workforce from 11,500 to 9,500, rejigged its portfolio of products and increased its focus on exports.

"We realise that the current tearaway growth rates may not be sustainable over the long term. That's why we've taken a conscious decision to also focus on exports," says Hieronimus. As a percentage of turnover, exports have risen from 10 per cent three years ago to around 17 per cent now. The goal is to take it to around 20-25 per cent, thus, reducing MICO's exposure to the vagaries of a single market (see Up And Away).

"We Had To Sweat Our Assets To Perform Well"

The 58-year-old managing director of MICO, Albert Hieronimus, speaks to BT's Venkatesha Babu on MICO's plans for and in the country. Excerpts: Since 2001, sales have doubled and net profit has grown almost five-fold. How did you achieve this? We had to really sweat our assets. The global thumb rule is that the auto industry grows at 1.5 times the rate of the whole economy. Overall, the Indian economy has been growing at 7-8 per cent, but we've achieved 17 per cent CAGR over the past four years. Strategic, structural and operational efficiencies have helped us to perform better. You are investing Rs 1,000 crore in India. Where will the money go? The money will come from internal accruals. We're investing Rs 850 crore on CRS (Common Rail Diesel System). The introduction of stringent emission norms will open up an enormous market for cleaner technologies and provide us an opportunity for growth. The balance will be used to beef up our existing operations. You have had three share buybacks in the last four years. Any more in the offing? No. We are investing heavily to secure our leadership position in the market and, therefore, see no immediate scope for a further buyback.

Globally, Bosch is more than just an auto components company. It has a very strong presence in industrial technology (think power tools, security technology and packaging machinery) as well as consumer durables (refrigerators, washing machines, microwave ovens, dish washers, lawn mowers and garden tools). MICO has big plans in several of these product categories. Its Rs 155-crore power tools division already commands a 25 per cent market share in the country and is growing at 30 per cent per annum. Says Navin Paul, who heads this unit: "The boom in the construction sector and massive expansion in the nascent do-it-yourself segment will enable us to sustain this growth rate." Security devices are another growth area. "Our aim is to emerge as a one-stop shop for all security technology requirements of our customers," says Dhiraj Wali, business Head of MICO's Rs 40-crore Security Systems Division. Then there's the Blaupunkt range of car multimedia systems, which has a market share of 21 per cent and revenues of Rs 45.2 crore in India. "This division has been growing at 15 per cent per annum for the last two years," says Ajay Sawhney, Deputy General Manager in charge of the brand in India.

"Our goal is to achieve the kind of product mix Bosch has: 60 per cent of its global revenues come from the auto sector, 12-15 per cent from industrial technologies and the rest from consumer durables," informs Hieronimus. He adds that there are no plans at present, however, to launch MICO-Bosch refrigerators, washing machines, microwave ovens and dishwashers in India. "But I'll never say never!"

If MICO, which is obsessively media shy, does launch these products, and maybe even before that, people will realise that MICO means a lot more than just spark plugs.