The Indian Electronics Manufacturing Services (EMS) market is showing significant growth. Though it is yet to reach the maturity and demand of its counterpart in China, it is showing good potential. The recent acquisition of Celetronix by Jabil is an indicator of things to come.
Bill Muir, Senior VP, Regional President, Asia, Jabil, in his recent visit to India said, “We are bullish about the Indian market, the investment we are making will drive the entire supply chain. We also have aggressive growth plans for India. We believe that in the next two years we would be producing a billion dollar revenue out of India from the base we are today.”
As previously disclosed in Jabil’s quarterly and annual filings with the Securities & Exchange Commission, the company loaned $25 million to Celetronix in fiscal 2005 in exchange for an option to purchase 100 percent of the shares of the company. The incremental purchase price for the acquisition is expected to be approximately $155 million plus the assumption of about $30 million of net debt.
Muir elaborated that the company would be catering to both the growing domestic Indian market and the rest of the world. He also believes that India has a strong opportunity in the global market with the available engineering skill sets.
Sunil Shenoy, Senior Manager (Risk and Business Solutions), Ernst & Young informed, “Since last year we find a definitive trend of the EMS market picking up. Though EMS is not new to India there are issues such as low demand and infrastructure that have hampered the growth of this sector.”
A key reason why companies are looking at India is they want an alternative to China. “Certainly whenever we decide to invest in any manufacturing preference it is closely tied to our customer preference,” said Muir. Of course Celetronix is not Jabil’s first entry into India. The company already has a green field operation at Ranjangaon, Pune. This unit started operations last summer to which they have already invested about $ 20 million between developing the infrastructure and the land.
Muir believes that with the acquisition of Celetronix they have been able to create a manufacturing community of a large scale compared to the market place. According to reports, the Indian EMS market is anything between $ 600-650 million to $900-950 million.
Shenoy felt that the Celetronix acquisition by Jabil seemed to be a strategic move, “Jabil had announced during the acquisition that Celetronix capabilities are complementary to its operation. Moreover, Celetronix has had export focus which works for Jabil.”
The acquisition gives Jabil, additional 5,750 employees and 270,000 square feet of manufacturing space at three locations: Mumbai, Chennai and Pondicherry. Jabil currently manufactures in 176,000 square feet of space at Ranjangaon, India. Celetronix provides design and manufacturing services to customers in the consumer, computing and storage markets.
Consistent growth
Jabil has been one of the few American companies that despite the slow growth of the US economy has shown a consistent growth. The company has been growing at 25 percent for over 10 years. “In terms of growth rate our top line revenue grew by 25 percent and this year we are expecting the growth rate to be 30 percent,” added Muir.
Jabil’s unit in India would be catering to the growing requirements of the consumer goods, white-goods products and medical products. Muir felt that the investments happening in the communications sector will be a big driver for its growth, especially for consumer products like mobile phones.
Jugi Tandon, CEO, Celetronix said, “Consumer products are the highest growth rate generators in revenues, but then mobile phones and set-top boxes are also showing growth. I feel that the PC market is yet to grow and have tremendous faith in it.”
Hurdles
Though India can be an ideal EMS destination, poor infrastructure can be a hindrance. Especially the manufacturing company’s infrastructure is crucial as it affects its supply chain.
“Infrastructure is a big issue for this segment. Since EMS companies typically work on high volume and thin margins, issues such as supply chain are key. While catering to the domestic market this might not be as big an issue, but when aiming at the global market this is important,” elaborated Shenoy.
Muir added, “Some of our products are customer-specific based on what their market needs are, thus the need for quick turn on the products. We have logistics experts in such countries, they understand the working in that particular country.”
Tandon also stressed on building infrastructure and supply chain. “We have to take care of the supply chain by vertical integration and we are focussed towards the same.”
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