# Presentation: 740952

## Investing In India :The Cummins Success Story

- Rajiv Batra
- November 29, 2006

## Scope

-  **About**** Cummins**
** ****Our approach**** – A journey in excellence**
** ****Investment Climate**** in India & Cummins experience**
** ****Potholes**** & Speed-beakers **
** ****Concl****usion **

##  About Cummins

## Cummins – a global power leader

-  Headquartered in Columbus, Indiana, (USA)
-  Corporation of complementary business units which
- design, manufacture, distribute and service engines
- provide related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems.
-  Serves customers in more than 160 countries through its network of 550 Company-owned and independent distributor facilities and more than 5,000 dealer locations.
-  Reported net income of $550 million on sales of $9.9 billion in 2005

## Cummins In India....A Case In Point

**Evolution – History & Geography**
**Modest** Beginning ....Started Five Decades Ago...
**JV** With Kirloskar...Partnered In India’s Growth
- Robust Performance...Strong On **Values**.
- 90’s Responded To Government’s Signals... **Set up Shops** Across Businesses.
- This Decade Started With “**Services Bang**”... Cummins entered IT &
- Engineering Services.
- Leveraging **Competencies**....India is Major Hub for Component Procurement
- 	for Plants Across The World

**Every Single Business Of Cummins – Present & ****Vibrant**** In India.**

**Notes:**
1962: Plant incorporated in India as a JV with Cummins Inc. holding 50% and Kirloskar holding 25.5% and balance held by Public
 1967: Cummins acquires Diesel Sales and Services business
 1967: Exports started
 1983: Plant 2 started functioning
 1989: EPPC Top Exporter Award- Diesel Engines and Spares
 1997: Cummins Inc. obtains 51% stake in CIL
 1997: Production crosses 10,000 engines per year
 2002: Cummins Launches CASL & Suraksha Stop- part of Fleet Management Solutions

## Cummins In India....A Case In Point

-   Diverse Manufacturing Businesses Span **Across India**
-  Engine / Industrial 	: Pune		Filtration 	: Pune
-  Auto 		: Jamshedpur	Exhaust System 	: Daman
-  Power Generation 	: Daman		Lubrication 	: Delhi
-  Alternators 		: Ahmednagar	Turbochargers 	: Indore
-  Cummins has set up its **R & D** Centre in Pune – For Global Projects
-  Diversified into **Information Technology** thru KPIT J.V.
-  Every Single Business growing in **Double Digits** / and Catering     Significantly to Global Demands.
-  Group Targeting **$2 Billion** Plus Activity in India (2010).
-  6 Sigma, Kaizen, ACE, Leadership Excellence.....A **Way Of Life** to give Sustained Competitiveness.

**Outstanding Mix Of ****Global Vision**** & ****Local Execution****...Leveraging Synergies**

**Cummins In India....A Case In Point**

**Notes:**
Cummins In India Financial Progress ($Millions)
   		   2004      2005	 2006F     %Growth

Sales		   $701      $846	 1,050         22%	
PBIT		    76.8       100.9	    148 	39%
%PBIT	    11%        12%        14%

Figures are Unconsolidated including inter-company

## Our MAP in India...

**Our MAP in India...**

## Our approach – A journey in excellence

## A journey in excellence

-  Followed clear objectives, strategies & plans focused on local market and customer
-  Built a successful business overcoming issues and Regulatory constraints
-  Developed a high performance, multinational business culture with diverse mix of local managers and locally-capable expatriates
-  Made smart Investments and structured business to generate multiple sources of “Value”
-  Paid due respect to Government Authorities and followed high Ethics Value with providing real value to the customer

## A journey in excellence...

-  Established right environment by respecting & trusting business associates
-  Carefully selected partners and focused on building a strong and mutually beneficial relationship
-  Leveraged the importance that Indian staff place on education and development to promote the use of initiatives, tools and methods eg. Six Sigma, Kaizen, Sox Methodology, ACE etc.
-  Complied with all the laws of the land and leveraging Social Corporate Responsibilities
-  Established itself as a Low Cost Producer and utilized the economic guiding factors to harness growth

## Investment Climate in India & Cummins experience

## Investment Climate in India

-  **FDI regime** liberalized resulting direct investment in India either wholly by themselves or as a joint venture
-  **Industrial License** for manufacturing now limited to very few areas subject to locational restrictions
-  **No govt. approval** required for FDI in virtually all sectors/activities, except for a small negative list notified by Govt.
-  **Decision on all Foreign investment proposal** usually taken within 30 days for application

**Notes:**
Industrial license limited to 
-Industries covered for the public sector
-Alcohol, tobacco, aerospace, defense equipment, industrial explosives and hazardous chemicals
- Manufacture of items reserved for small-scale-sector
Negative list notified by Govt. for approval for FDI
-Proposal involving a foreign collaborator who has  an existing venture/tie-up  in India in the same field (except in IT and Mining sector) and Invt. Made by International Financial Institutions such as ADB, IFC, CDC, etc.
-Proposals falling outside notified sectoral Policy/caps

## Cummins experience: Investment Climate

-  **Use of Foreign Brand names / trademarks** for sale of goods in India permitted
- Remittance of Royalties and Technical know-how payments allowed to parent Cos. subject to limits
-  **Indian Capital Market** open for FIIs
- FII Invt. in India Increased from US$ 35.93B to US$45.11B during 05-06
- FII Shareholdings in CIL have increased to 15.98% in 2006
**Indian Companies permitted to** **raise funds** from International Capital Markets
- New avenues for Cummins- ECBs upto $500M with min. maturity period from 3-5 yrs. can be raised by Corporates under automatic route subject to compliance of ECB Policy.

**Notes:**
ECB- External Commercial Borrowings
-ECB can be availed by corporate registered under Companies Act of India  except for financial intermediaries and must be availed from an internationally recogonised source, export credit agencies, suppliers of equipment, foreign collaborators and foreign equity holders. 
-ECB proceeds cannot be used for on-lending, investment in capital market, working capital and real estate.
Min maturity period of the loan amount less than US$20 M		   - 3 yrs
							US$20M to US$500M- 5 yrs

## Cummins experience: Investment Climate

-  **Special investment / tax incentives** for exports and sectors such as power, electronics, software, etc.
- Consistent decline in import duty rates over 15 yrs. from peak 350% in 1991 to 15% in 2005-06
- Tariff favorable for companies –wanting to imports equipments for infrastructure projects
- Simplification of Direct Taxation with emphasis on the understanding that foreign enterprise and capital is essential ingredient for robust & progressive Indian economy
-  **Single window Clearance / Investor Escort Services** available in various states to simplify approval process for new ventures

**Notes:**
ECB- External Commercial Borrowings
-ECB can be availed by corporate registered under Companies Act of India  except for financial intermediaries and must be availed from an internationally recogonised source, export credit agencies, suppliers of equipment, foreign collaborators and foreign equity holders. 
-ECB proceeds cannot be used for on-lending, investment in capital market, working capital and real estate.
Min maturity period of the loan amount less than US$20 M		   - 3 yrs
							US$20M to US$500M- 5 yrs

## Potholes & Speed-beakers

## Caution Points - Potholes & Speed-beakers

-  Sky rocketing **diesel prices**
-  Key **Infrastructure** Still Struggling To Keep Pace...Ports, Roads, Power- effecting SCM
-  Aggressive **Price Reduction**
-  Highly **competitive Market **increasing competition from global players
-  **Energy** Dependence – Cost, Quality, Availability
-  **Slow **Labour Reforms Pace
**Attrition** / Dwindling Loyalty....
-  Fluctuating **metal cost**

## Conclusion 

## Some Learnings

-  Direction Is **Sustainable** – Truly Unleashing Potential
-  One Way Street – Debate Is Only On “**Speed**” & “**Acceleration**”
-  Our Economy / Industry Is Becoming “**Indifferent**” To Government
-    In Power...Most Healthy Change.
- 	**But We Need To ****Continually****........**
-  Be Sensitive To **Social Environment** – Nobody Exits In Isolation
-  Move From Responding To **Thinking & Acting** Globally
-  Be More **Inclusive**.....And Data Based.
-  Enhance Our Research / **Scientific** Rigour.
-  Be Aware That The **Journey** Has Just **Begun**....

**Information Technology Opened “****Windows****”...Manufacturing Will Be “****Gateway****” To The World.**

## Large Market
High Growth
Large Talent Pool
Significant Physical Assets
Low Cost Structure
Liberalizing Govt. Regulations
Developing Infrastructure

**Large Market**
**High Growth**
**Large Talent Pool**
**Significant Physical Assets**
**Low Cost Structure**
**Liberalizing Govt. Regulations**
**Developing Infrastructure**

**Conclusions**** **

**India....The Emerging Destination**

** **_**Need To Act Fast – Opportunities Don’t Wait!!**_

## THANK YOU