The year was 2008. A norm, accepted across all quarters in the automobile original equipment manufacturers (OEM) space, was to install emission control systems from technologies originally developed on foreign soil. A slew of joint ventures, partnerships and technical agreements were forged for this purpose. India’s bellwether automobile manufacturer, Maruti Suzuki, operated (and still operates) out of Haryana. Sharda Motor Industries Ltd. (SMIL), an auto ancillary manufacturer, which had forayed into the business of exhaust systems a decade back, was headquartered in neighbouring Delhi. It is here that the company’s managing director and promoter, Ajay Relan, conceived and brooded over the minutiae of his idea.

He had the conviction to deploy capital in a research and development (R&D) centre to develop in-house emission control technology. It would eliminate reliance on foreign partners. His vision met with scepticism. “There were no underlying numbers or financials to support its viability,” says Aashim Relan, the CEO of the company, and Ajay’s son.

Today, the 60-year-old Ajay beams with pride while talking about the R&D centre. He emphasises that SMIL does not import the technology because of the R&D centre. “An endeavor, which began with a single individual, employs about 150 people,” adds Aashim.

SMIL currently occupies a market share of 30% in exhaust systems in the domestic passenger vehicles segment, and caters to all major OEMs in the country, including Mahindra & Mahindra (for which it is the preferred supplier of independent front suspension systems), various models of Hyundai Motor India (business from the two OEMs made 69% of SMIL’s total revenue in FY21, and 70% in FY20) and Tata Motors, among others. It also supplies exhaust systems to manufacturers of commercial vehicles and tractors, such as Ashok Leyland, Escorts, TAFE and Tata Motors. About 80% of the revenue generated by Sharda Motor comes from its exhaust systems vertical, which is equally divided between passenger and commercial vehicles.

The company, which ranked 33rd on Fortune India’s Next 500 list saw its income almost doubling to ₹1,765 crore in FY21. Net profit rose 27% year-on-year to ₹67 crore.

‘Humble Beginnings’

When the iconic Maruti 800 was first rolled out of the factory of Maruti Udyog Ltd. (now known as Maruti Suzuki) in December 1983, it transformed the Indian automobile industry. The proliferation of an affordable, high-speed, small and peppy vehicle in India’s closed automobile market also opened up an ecosystem to cater to these vehicles.

It was the spectacle of an automobile and this very ecosystem that beguiled Ajay. He wanted to do something different and approached his father, who not only approved his plans, but also supported his endeavour. Thus began the odyssey of Sharda Motor in a garage — stitching seat covers for Maruti, which were imported at that time.

Sharda Motor was incorporated in 1986, and within a year, it filed for an IPO — floating its shares on the now-defunct Delhi Stock Exchange. It initially collaborated with Maruti, and later with Mahindra. As vehicles became a lot more complex, technologically, it also increased the content per vehicle—incentivising SMIL to foray into different businesses. A breakthrough for the company came with a joint venture with Daewoo, when it forayed into the Indian market in the late 1990s via DCM. The venture was formed for supplying independent front suspensions and was based in Noida. “It was a huge project for us,” adds Ajay. However, the venture floundered in 2001 with the collapse of the Daewoo Group. “Eventually, we had to take 100% equity interest in the JV, but we had no market for that venture,” he says.

Meanwhile, in 1994, the company launched its first large-scale production plant and entered into the seat trim business. Four years later, using its Korean connections, Sharda Motor was able to ink an agreement with Hyundai Motor—which had hit Indian shores in 1996. It set up a facility in Chennai and forayed into exhaust systems. In 2002, it ventured into the suspension assembly business and established an R&D unit for exhaust systems.

It was at this juncture when Ajay Relan took his idea of an R&D centre for emission control systems to investors and members of the board. The company, at the time, had not generated a revenue stream and did not acquire any business from R&D. The board and shareholders deemed it to be unnecessary since it was a long-term project and required continuous deployment of capital. However, Ajay was determined and secured the approval. SMIL managed to hit the ground running with the R&D centre for emission control at the Mahindra World City in Chennai in 2010.

Initially it faced resistance from customers to buy untried products made by an indigenous R&D. “It is very easy to buy technology from abroad for a hefty price and use it. We started the R&D centre because it was getting too much for us. Fortunately, our team was able to get our customers on board with the idea,” adds Ajay. Today, the centre is a state-of-the-art facility to design, simulate, test and prototype exhaust systems for private and commercial vehicles, as well as non-automotive applications.

This was also the time when SMIL changed bourses, and got listed on the BSE in 2013, and on the NSE in 2015. In February 2019, it demerged its seating business units into a wholly owned subsidiary to focus on core business segments of automotive exhaust system and other automotive components, via a memorandum of family settlement (MoFS).

Covid And After

The pandemic brought all manufacturing to a standstill. Once restrictions were eased, the automobile industry struggled to persevere. However, a silver lining for Sharda Motor was that while the country was under lockdown, India switched to the stricter BS-VI emission norms for motorised two and four wheelers. “April 2020 was a time when we started to supply and sell BS-VI compliant systems, which increased the content per vehicle significantly. So, while auto sales numbers dwindled, our sale figures doubled in the past year since we were able to supply these products,” says Aashim. SMIL’s strong, debt-free balance sheet also helped to mitigate the fluctuations in production brought by pandemic-related restrictions.

Before the pandemic, the company signed a 50:50 joint venture with Germany based automotive supplier Eberspaecher to develop, produce and sell exhaust after-treatment systems for Indian commercial vehicle manufacturers in order to comply with the emission standards of BS-VI norms. In April 2021, SMIL shut down operations at its Surajpur plant in Greater Noida, which used to manufacture and supply canopies of Maruti Suzuki and Mahindra & Mahindra. The Maruti Suzuki business for its Gypsy model ceased because of the demerger, and the production and supply facility for M&M was moved to its Nashik operations. The unit had revenue from operations of around ₹1.66 crore in 2020-21.

SMIL made the conscious decision of not deploying capital in emission control systems for two wheelers, for it sensed that early-stage EV disruption will first happen in the two-wheeler segment. Concurrently, in June 2021, it signed a JV with Kinetic Green to develop battery packs with Battery Management Systems. It also inked a technical collaboration with IIT-Madras to provide technology for Li-ion battery energy storage for EVs. SMIL holds a majority in the JV, and is setting up a manufacturing unit in Pune, which according to Aashim, “barring any unforeseen circumstances, is on track to be operational by Q3 of FY22”. “We’re fully utilising this JV to get a foot in the door of the EV business, and eventually we will choose one product over the other.”

Sharda Motor is also insulated from the electrification of the market because its revenue from the emission control business is pivoting towards the commercial vehicles sector, something which is not the focus of the EV disruption in India. “As we project to 2023 and 2024, 85% of the revenue in our emission control and exhaust systems vertical will come from LCVs, trucks, tractors, and construction equipment sectors,” says Aashim.

The company’s current emission technology can satisfy the emission norms of Europe and America, paving the way for its foray into the international market. “We’re now looking at the possibility of international expansion. We find the small-engine and the smaller tractor market very lucrative to supply to, because it fits well with our existing technology and products,” adds Aashim.

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