Mr. Sunil Todi, Managing Director, Akar Tools Ltd joined the Company as a Financial Controller in 1994. A chartered accountant by profession, he is also a Company Secretary from the Institute of Company Secretaries of India. He has 22 years of experience in financial management and project execution and his forte is strong understanding of the business forecasting. Through his performance in the company coupled with his sheer clairvoyance, he was promoted to the post of Managing Director in 2006. He further diversified the company into commercial forgings in 2008. He has skillfully nurtured the company to establish it as one of the leading companies specialized in hand tools. Sunil Todi has been instrumental in merging Ajanta Auto Industries Pvt Ltd, a company manufacturing Laminated Spring Leaves in to the company in 2006.
Akar Tools Ltd., is part of the Rs. 700crs Aarel Group, is engaged in the manufacture and marketing of high quality precision engineered hand tools, auto leaf springs, parabolic springs and forgings catering to the Automobile sector. The Company manufactures and exports high quality precision engineered tools marketed in Europe, USA, Japan, Australia and other countries. Akar's key strengths are captive supply of raw material from group company Aarel Steels, a diverse product portfolio and marquee local and export auto sector clientele. Akar is well poised to capitalize on the enormous industry growth potential through strategic expansion plans and doubling production and through organic and inorganic means both in India and overseas.
Speaking with Jasmine Kohli of IIFL, Sunil Todi say’s “The deal size for U.S acquisition would be ~US$5-6mn and for India we plan Rs 150mn”
Tell us about your forgings foray?
Last year we forayed into the Forgings segment by acquiring a company in Pune. Thus, the value-added segment has been added to our portfolio.
We had forayed into the Auto Leaf Springs about five years ago.
Our products comprise Wrenches, Striking Tools, Carpenter Tools, Electronic Tools and Auto Leaf Springs.
Brief us about your acquisition plans in the US?
We have opened an office in the US and are keen on doing an acquisition there. With this acquisition we are looking for acquiring a market for Forgings and Leaf Springs. We are also looking at technological collaborations.
The approximate deal size would be about US$5-6mn. We would be acquiring the equity of the company targeted. It would be done by forming a subsidiary of Akar Tools.
What are your acquisition plans for India?
We have identified a plant in Western part of India and in the next 2-3 months we will complete the acquisition. The deal size for Indian acquisition would be ~Rs 150mn. In India, we are planning the acquisition only for our Forgings business.
What opportunities have you identified with this acquisition?
With this acquisition we will get into more products and more markets.
We want to scale up and to get into more products within the forgings segment. With this, we will add many customers to our portfolio.
How much turnover do you expect post acquisitions?
By 2012, we expect a turnover of ~Rs 1.3-1.4bn. This year, we are poised for a 30% growth. The current turnover for the Aarel Group is Rs 700 crores and we expect the Group turnover to go up to Rs 900 crores.
Brief us about your exports?
We are the largest exporters of hand tools from India. There are two segments of tools; one is being used by automobile and the other by the Do-It-Yourself (DIY) industry. The exports are mainly in the DIY space.
We export to the US; there we cater to Wal Mart, K-Mart, Stanley Tools, etc.
Out of the total turnover, ~26-27% exports come from the US; 10-12% of the exports come from the Middle East and the balance from the domestic market. We also have some business is in Europe.
We have an order booking for the next nine months. As of now the requirement for hand tools from India is increasing.
What is your market share?
In the US market, we have ~4-5% market share and in India we enjoy a 15% market share.
Brief us about the manufacturing units? Are you planning any capacity expansion?
We have five manufacturing units in Aurangabad; of which we have two in Waluj, one in Chitegaon and one in Chikalthana.
In FY09, we commissioned capacities for manufacturing Commercial Automotive Forgings and Parabolic Springs. This diversification was intended to widen our sectoral relevance among specialised automotive component manufacturers and the replacement automotive segment.
Funds for expansion of capacities were raised through internal accruals and debt.
Last fiscal was the full year of commercial production of expanded capacity and we will wait to reap the benefits in this year and the next year.
Also, with the acquisitions on the cards, we plan further expansion of capacities next year. We are looking at more acquisitions and expansion in Forgings. We expect a lot of growth to come from the Forgings business.
How do you plan to raise funds for capex?
We have chalked out a capital expenditure of Rs 1bn for the next two years. The route for fund raising is yet to be decided, though we are looking at various options.
Who are your clients?
We cater to a number of clients like Greaves Cotton, M&M, Piaggio Vehicles, Kirloskar Oil Engines, Bajaj Auto, Maruti Enterprise, Ashok Leyland, Tata Motors, etc.
How do you procure your raw material?
We have done backward integration into steel; we source alloys steel from our group company, Aarel Steels. With this, we have an edge over the others in terms of timely raw material procurement at lower cost and consistent high quality. So, it is value addition to the customers.
Are you able to pass on the increase in input costs to the customers?
Since we have backward integration into steel, we procure our raw material at a lower cost. When there is an increase in the raw material prices the pass-on to the customers gets delayed by about 1-1.5 months. This is because of the inventory levels maintained by us. That takes care of the price increase.
We maintain an inventory level of 15-20 days in the factory and another 15-20 days is kept in the pipeline. It is due to the inventory in pipeline that OEMs experience the rise in prices with a lag of a month or so.
Brief us about your financials?
At present we have EBITDA margin of 10%, for FY11 we will have 11% and for FY13 we expect to have an EBITDA margin of 14%. This growth which we are poised to register will come from the Forgings and Leaf Spring businesses.
The company’s networth is Rs 400mn and post acquisition it is expected to be Rs 550mn.
What is your debt equity ratio?
The debt equity ratio of the company is currently less than 1 and including working capital it would be 1.9. Earlier in FY10 we had a debt-equity ratio of 2.24, which has come down due to increased turnover registered by us.
What shift are you witnessing in terms of customers?
Akar Tools has been catering to B Category customers and now we are shifting our focus towards OEMs i.e the A category customers. Among the OEMs our registration with Tata Motors and Ashok Leyland for leaf Springs is in the pipeline and is expected to be completed this year.
What is your take on the threat from the un-organised sector?
Today, with the excise duty and proposed rollout of GST, not much competition is left. Companies are unable to compete, as this sector requires heavy investments. Also, margins are declining due to higher duties. So, gradually the competition is losing the sting.
What are your expectations from the Budget?
In my opinion, the Government will maintain a status quo. I don’t expect any relief nor any duty hikes from the Government in this Budget.