Anant Hegde has sized up the power tools market, but he must think differently to become a world-class player.

By Papiya Pal

A 26-year-old post-graduate with just 2 years of work-experience decided to test out an age-old axiom in 1983. As Anant Hegde's Air India flight to Tokyo took off, the young man heading East could have hardly guessed that he was embarking on an entrepreneurial trail. Six months, and several meetings later, Hegde had signed an agreement to market the $380-million Hitachi Koki's (Hitachi) power tools in India.

That's how he powered his way to build Electrex, a Rs 75-crore business, in the next 15 years. The story of the heights that Hegde has managed to scale is not just about individual success, but is also a fable about global outsourcing, and the art of exploiting a niche. Most important, it is the tale of an entrepreneur who has exploited the fresh opportunities that have emerged because of India's march from a closed to an open economy.

When Hegde first ventured out on his own, being an importer was a sure-shot way to print profits given the high level of external controls and the stratospheric import duties. But that mindset was also giving way to import-substitution as the margins could be as high as any innings by Sachin Tendulkar. Which is what Hegde tried to emulate, business-wise, in 1988, when he set up his power tools unit.

However, by 1991, the winds of change left him with only the option of delivering world-class products at the lowest-possible price. Fortunately for Hegde, his score has, so far, been upto scratch: in the Rs 400-crore professional power tools market, Electrex is the country's largest manufacturer, and supplies both finished products as well as components to Hitachi. Beams Hegde: "My marketing experience taught me to do business the right way."

NURTURING A NICHE. Even when he worked as the Marketing Manager of Kulkarni Black & Decker (now Kulkarni Power Tools) between 1981 and 1983, Hegde realised that while the light cutting-tools segment was crowded, there were few suppliers of power tools like drills, grinders, and cutters. And when he decided to set up a manufacturing unit, he commissioned a market survey to pinpoint those that were in short supply. It revealed that of the 450 power tools manufactured worldwide, only 40 were available here. That convinced Hegde to take the plunge, and set up a Rs 2.69-lakh unit to produce 7,500 tools a year.

The cutting-edge was provided by Electrex's technical tie-up with Hitachi to access the latter's know-how, designs, drawings, and engineering and training support. An added advantage accrued in 1992 when the Japanese company decided to invest Rs 25 lakh to pick up a 20 per cent stake in Hegde's venture. Apart from being a brand, Hitachi is also a worldwide producer of metal-working power tools, accounting for 7 per cent of the $5.50-billion global market.

In India, Hitachi--along with Electrex and Hitachi Koki India, its 80:20 joint venture with Electrex--has a 5 per cent share of the market. Hitachi Koki India's President, Kazuhiko Kishi, 48, gives all the credit to Hegde: "We are doing reasonably well only because of Electrex." Backed by the Hitachi name, Hegde drilled further to explore new niches in the market. For instance, in 1988 itself, Electrex was the first to introduce marble-cutters in India and, with Hitachi, has a 90 per cent share of that market.

After successfully expanding into the spare-parts segment, Electrex is now developing 20 new tools, and diversifying into the manufacture of wood-cutting tools. Realising that vendors were making huge profits by selling spare parts, Electrex set up component-making facilities, and outsourced only the critical ones, like bearings. As a result, one-fifth of Electrex's turnover today comes from the sales of spare parts. "Since a Bosch component cannot fit in an Electrex tool, and vice versa, there exists a huge market for spare parts," explains Hegde.

CUTTING COSTS. When it started up, Electrex faced a critical problem. The market for power tools was a mere 50,000 units, and Kulkarni Power Tools was the leader, with an annual capacity of 35,000 units. Attaining economies of scale would have been difficult if Hegde had depended on normal growth. The only way out was to cut costs, and reduce the selling-price to boost demand. As a first step, Hegde located his factory in the Peenya Industrial Area (Bangalore), where costs were low and the labour-force relatively peaceful. In addition, quality vendors were situated nearby.

His master-stroke was Hegde's decision to integrate backward, and produce most components in-house. Over the past 9 years, Electrex has achieved a 90 per cent indigenisation-level, manufacturing 1,000-1,500 components itself. It has, thus, managed to drastically reduce the price of its products: from Rs 7,000 to Rs 2,500 in just a decade. Despite this, Electrex's operating margins are still as high as 30 per cent. Admits S.K. Chordiya, 37, Regional Manager (Marketing), Mico Bosch: "Margins are, generally, low in the power tools market. But Electrex has relatively higher margins because of the lack of competition in the marble-cutting tools segment."

Moreover, Electrex's marketing strategies have created additional demand for its products. While its competitors focus on appointing dealers, Electrex has established its own showrooms and service-centres in key markets: Lohar Chawl (Mumbai), Karol Bagh (Delhi), Linghy Chetty Street (Chennai), and N.R. Road (Bangalore). That helps: while the market for power tools grew from 50,000 in 1986 to 375,000 units in 1996, Electrex's annual capacity went up from 7,500 to 60,000 units during the same period. As volumes rose, Hegde invested Rs 47 crore over 2 years to hike Electrex's capacity to 150,000 units per annum, which will be augmented to 200,000 units by 1999.

In the process, the older players like Kulkarni Power Tools and Ralliwolf have lost marketshare: while Electrex commands a share of 32 per cent, Kulkarni Power Tools has 15 per cent, and Ralliwolf, 18 per cent. A decision to float a Rs 7.50-crore public issue in 1993 helped Hegde make the investments. "Earlier, we increased capacity gradually because we started as a small-scale unit. But now, resource-generation has become an easier task," he agrees.

GOING GLOBAL. Hegde's focus on both indigenisation and quality has been instrumental in making Electrex a global player. Since June, 1996, the company has been selling part of its production under the Hitachi name. While Hegde supplies components to quite a few Hitachi subsidiaries--including Hitachi Koki India-- he now plans to sell Electrex-branded tools in the Middle East and Far East Asia. Says Hitachi's Kishi: "We have faith in Electrex's manufacturing abilities. Quality has never been a problem."

Despite this, Hegde's decision to rely on Hitachi for technology may backfire unless Electrex can strengthen its own brand. Especially since its financial parameters have become skewed due to its expansions. While Electrex's gross block rose from Rs 35 crore in 1995-96 to Rs 85 crore in 1997-98, its Debt-To-Equity ratio is 2:1. Fears Dilip Bhat, 37, Vice-President, Sailesh Merchant Stock Brokers: "Given that the working capital requirements are high (at Rs 33 crore), its future performance depends on how the company manages its resources."

However, Hegde feels that having dual brands provides his company with the flexibility to target different segments of consumers, both in terms of price and quality. Not only is that true, riding piggy-back on Hitachi may enable Hegde to translate his dream of becoming a world-class vendor into reality. The only problem: cutting its way into the big league will require the company to introduce new management systems--and a qualitatively-different mindset too. And a strategy of cost-leadership alone could drill holes in Electrex's balance-sheet instead of powering its future.

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