Sanmar Group is an expert in choosing joint ventures

SEC is strong in foundries

A foundry unit
A foundry unit | Source

Clear geographical divisions between the joint venture partners

Heavily banking on engineering for growth

The Sanmar group is banking heavily on engineering for its growth. Sanmar group is based in Chennai city in Tamil Nadu. Its chemicals company is not doing well. But the group is very confident and positive about its engineering business. Sanmar group has established many joint ventures with many multinational companies. It is also an expert in direct marketing. The engineering business comes out with many speciality products like rupture disks, sealing devices and valves. M N Radhakrishnan heads the Sanmar Engineering.

Clear geographical divisions between the joint venture partners

Basically the Sanmar group activities have been confined to the private domain and not many people know about the group very well. As a bank officer, I had handled the Sanmar group accounts like Chemplast many years back. Even after 35 years of establishment, the Sanmar group prefers to work in the background. The group had been growing at a CAGR of 20% for the last ten years. Sanmar will be Rs.1500 crore group by 2011-12. The secret of success of the Sanmar group is that the group chooses its joint venture partners only if they are number one or two in their spheres of activity globally. In most of the joint ventures, the Sanmar group holds the majority stake. There is also a clear cut agreement between the Sanmar group and its joint venture partners regarding geographical operation. While the Sanmar group does not sell its products abroad, its joint venture partners do not sell their products in India.

India is most competitive in the labour market

It is the technology, wage scales and efficiency of labour that determine the success of a joint venture and a product that comes out of it. Take for example, a manpower intensive product like steel casting. Labour in USA is very efficient, labour in Mexico is the second best and labour in India is the least efficient. In USA, for making a ten tonne steel casting out of steel scrap, it takes the labour 45 hours. In Mexico, it takes 85 hours while in India it takes around 200 hours. One will conclude that locating a steel casting factory is USA is most profitable. But if you analyse the labour rates, India is the most preferred destination. In USA, one has to pay $23 an hour. In Mexico, the same work can be got done by paying around $4 an hour. In India, it is enough if you pay $1 an hour. Now what should an efficient manufacturer do to take advantage of these figures? You can negotiate with the labour in USA and try to bring down their labour rate, but it is very difficult to achieve. On the other hand you can give a good training to Indian labour and bring down the manufacturing time from 200 hours to less than 100 hours and simultaneously raise the labour rates from $1 per hour to $3 per hour.

Sanmar group has a PVC pipes plant in Egypt

PVC pipes
PVC pipes | Source

Sanmar Group is an expert in choosing joint ventures

SEC has five joint ventures

Sanmar group has made investments to the tune of around Rs.4500 crore in the past five years. Sanmar Engineering Corporation (SEC) is a Rs.1200 crore company. The five joint ventures it has contributed close to Rs.500 crore and the remainder come from the foundry business. SEC has foundry business in USA, a factory in Mexico and another plant near Tiruchi in Tamil Nadu. The combined capacity of all these facilities is around 60000 tonnes per annum. The five joint ventures under SEC are BS&B, Flowserve, Tyco, Xomox and Pacific Valves. Out of Rs.1200 crore, business from India is around Rs.350 crore. At a time many of the foundries in USA have closed down or moved to India and China, Sanmar group acquired foundries in USA. This makes business sense for them as being near to the customers’ base is an added advantage.

Popular client list

The five joint ventures SEC has cater to many industries like gas & oil, petrochemicals, nuclear, pharma, power and metals. SEC has clients such as GE, Caterpillar, Bombardier, Siemens, Essar, Indian Oil, Punj Lloyds and ONGC. SEC senses big opportunities in the nuclear power area. Another Sanmar group company Sanmar Chemicals is very optimistic about Egypt and wants to start its operation in that country at its PVC plant soon. It acquired Trust Chemical Industries in Egypt in 2007 at an investment cost of $300 million. It was later renamed as TCI Sanmar Chemicals. The political unrest and the Arab Spring agitation against the Egyptian dictator Hosni Mubarak affected normal operations of the company and it had to shut down in last January. It was reopened in March. The capacity of the company’s PVC plant in Egypt is 200000 tonnes per annum. The company has debt problem but it is negotiating with its bankers for recasting the debt. So far the Sanmar group has not defaulted on any of its loans to any banks.

Sold out its Germany and India units

Sanmar group had sold out its auto-centric iron foundries in Germany and India to Dynamatic group of India which is a Bangalore-based group. The sale would have fetched the Sanmar group around $100 million. The two foundry plants had a work force of around 450 together. A few years back, the Sanmar group acquired Erla Foundry in Germany. But Sanmar group’s subsequent investments in USA and Egypt necessitated selling of the Germany and India foundry units to raise cash. Selling one’s stake in a profitable joint venture is not the hallmark of a reputed company. Sanmar group should have raised the funds required for its investments in Egypt and USA from other sources as it enjoys a reputation in the market and with the bankers.

Amicable separation after twenty years

Sanmar group also divested its around 51% stake in Fisher Sanmar to its joint venture partner Emerson. The joint venture was a profit making company. The joint venture had a market share of 25% in India. The separation was necessitated because of Emerson’s increased presence in India and its desire to go on its own. Here, there was nothing wrong on the part of Sanmar group as the separation was because of the desire of the joint venture partner Emerson to go it alone. The two joint venture partners separated amicably after twenty years of friendship.


No comments yet.

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.

    Click to Rate This Article