'Doing business in India has its own charm for all the wrong reasons' | SupportBiz

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'Doing business in India has its own charm for all the wrong reasons'

 
Hyderabad-based Whitworth Engineers, founded in March 2000, manufactures nails and staples for use in the packaging industry. Rising input costs (read steel) are squeezing margins in the domestic market. The company now plans to invest close to INR2 crore to build a new factory and buy machinery, to cater to the export markets.

Whitworth manufactures out of the Jeedimetla industrial zone, outside Hyderabad and employs 15 people.

“This has been my line of operation since my first job,” said founder and managing director Siva Sunder, who decided to go solo after a point.  

The new 40,000sqft factory will help the company better serve overseas markets, including the US, UK and Africa, he added.

Excerpts from the interview:

Why are you taking to exports?

I sell to the domestic market. Steel prices have been on the rise for the last seven to eight months. The 7mm wire rod (1008 grade) now costs INR46.05 per kilo. It was priced at INR38.30 in November, 2011.

My selling price cannot increase in proportion to the rising input costs and my margins are getting squeezed. We did a trial run with a client in the UK and our margins from exports were much better than the same from domestic sales.

And my return on investment fell 6.24 percentage points during the 2011-12 financial year. The return on working capital has fallen 5.29 percentage points during the same period.

When will you start exporting?

We expect to begin exports, to the US, in the 2013-14 financial year. The US is a USD5 billion market as far as my products are concerned. We will tap the UK and the African markets afterwards.

What other challenges do you face in your line of work?

The engineering sector is totally neglected. Imports through the havala route, preferential pricing to large buyers and routine power cuts pose a big problem for manufacturers.

Government-owned steel firms offer a preferential price to large buyers of raw material, firms who place orders for 2,000 tons at a time. They are cash rich and can stock large quantities of steel. We buy between 30 to 50 tons at a time because we do not have liquid cash, or the space to stock large quantities of raw material.

A larger buyer is offered a discount of INR3 to INR4 per kilo (of steel). The large firm can then price a finished product at a rate that is lower to my (raw material) purchasing price.

Secondly, some traders import nails at a written down value i.e. they declare the consignment as scrap to avoid customs and excise duties. They sell the same in the market at a price lower to our selling price, hampering business.

I have to pay employees full salaries.  What do you expect me to do here with a power holiday stretching to two-days-a-week and four-hour power cuts on the other five days that disrupt production.

Half the SMEs in the neighbouring Balanagar industrial zone have shut shop.

What advice would you give a budding entrepreneur looking to get into manufacturing in southern India?

It is a serious decision to get into manufacturing given the state of affairs, be it in getting the clearances, financial support from the banks or competition in the market.

I would surely congratulate an entrepreneur on his/her decision to start a manufacturing unit.

Welcome to the world of harsh reality wherein the comfort of your home, protective umbrella of your father, comforting shoulder of your mother is a thing of the past. Be prepared to face hostility at every stage with a smile, courage and self-confidence and a straight face. If an entrepreneur can succeed in getting a foothold in the industry, I am sure he/she would be able to do business anywhere in the world.

Nothing will come on a platter in India unlike in other countries. One needs to literally run from pillar to post till you can actually get things going. At the end of the day, doing business in India has its own charm for all the wrong reasons.