C2FO Becomes an Integral Part of This Auto Manufacturer’s Growth-Focused Finance Strategy

Industry overview

The Indian auto component industry is gaining significant ground in the global market due to factors such as:

•  India has a cost-effective manufacturing base.  
• The country is the second-largest steel manufacturer in the world. 
• The Indian government is efficient with policymaking. 
• The cost of manufacturing auto components in India is 10%-25% lower than in Europe and Latin America. 

Reports suggest that auto component exports from India are expected to grow annually at 23.9% to reach US $80 billion by 2026.

Raja Gears is an original equipment manufacturer (OEM) in the organised sector of the Indian automobile component industry. While the unorganised sector encompasses low-valued products catering to after-market services, suppliers like Raja Gears are engaged in manufacturing high-value precision auto components such as transmission gears, and axle shafts for top automotive brands such as Escorts Kubota, Tata Motors and Volvo to name a few. 

Early opportunities

Initially, the intention of management was to build the company around forging operations. But, Sundeep Goyal, the founder of Raja Gears, anticipated a growing need for an efficient supplier base amidst the automotive industry experiencing constant technology upgrades and changing consumer preferences. As a result, Raja Gears soon shifted focus to precision manufacturing of axle shafts and transmission gears. With this newfound vision in place, Sundeep established Raja Gears on 5 May 2012 in Panchkula, Haryana. 

Geography played an important and beneficial role in finding new clients and building a skilled team for Raja Gears. Many reputed brands like Mahindra & Mahindra and Escorts were situated in the vicinity. Also, the cluster of gear manufacturing companies in the region induced a thriving ecosystem of talented engineers. Sundeep began by hiring five young engineers, and Raja Gears was on course to realising its vision. The company successfully retained them even after all these years, and they’re now managing more important roles and handling critical responsibilities in the company. 

Sundeep was quick to understand the pain points of his clients. With his keen attention to detail and a compelling pitch, he soon converted a few small regional clients.  The biggest breakthrough for Raja Gears, however, came in 2015,  when Mahindra & Mahindra entrusted the company with its business, and since then there has been no looking back. 

Riding strong on the collaboration with Mahindra & Mahindra, Raja Gears further roped in regional players in the tractor manufacturing industry, followed by its next big break in the form of Escorts Kubota.

In the nine years since its inception,  Raja Gears grew to revenue of  ₹60cr in 2021. The company has recently started working with TATA Motors on electric vehicle components and has also begun supplying automotive components to Volvo Worldwide.

Operations and expenses

The transmission gears, shafts and rear axle shafts sit at the heart of any automobile. They are high-precision components. The manufacturing of such components requires accuracy across multiple parameters, and therefore to adhere strictly to the industry standards and consistency in the quality of the final product, Raja Gears follows a painstaking manufacturing protocol, which is holistic and has a high involvement of infrastructure, skill, technology and materials.  

Virgin steel and alloy steel make up a significant chunk of Raja Gears’ raw material procurement. These complex automotive components demand particularly high manufacturing accuracy, which calls for process automation. But automation comes at a very high capital expenditure (CapEx), which leads to difficulty in covering the day-to-day operational expenses. Considering how competitive this industry is, the major cost advantage for Raja Gears comes from labour cost efficiency. 

This is where Sundeep has to make strategic financial decisions to maintain a balance between achieving the right level of automation in business while maintaining the labour cost advantage to stay competitive in the industry.

To maintain the quality of products, all operations, like hopping, shaving, grinding, heat treatment, and turning, are managed in-house. Raja Gears also has invested in testing equipment like a computer numerical control (CNC) lead and profile tester and other metallurgical testing equipment. This integrated setup is based in the Panchkula industrial area spread across 25,000 square feet.

C2FO as a strategic partner

Raja Gears has intense pressure on the working capital front due to nonnegotiable and time-bound operational expenses like power, fuel and labour costs. Additionally, there are some unavoidable and unexpected incidental expenses that need to be addressed. 

In spite of the industry being accommodating to a great extent, approaching repeatedly for price corrections, advances or payment term revisions is never a possibility. This is where C2FO came in as a strategic partner with features and benefits that helped Raja Gears prepare against a possible working capital crunch. 

Raja Gears was introduced to C2FO by Escorts Kubota in 2020. Since then, the company has been using the C2FO Early Payment platform on a regular basis. Apart from accelerating invoices, the C2FO Early Payment platform has also become an integral tool for tracking and measuring the company’s financial health. 

Sundeep is well aware of the complete early payment process and checks in at regular intervals to gauge the cash flow. Sundeep also appreciates the C2FO Supplier Relationship Manager (SRM) team that offers prompt assistance whenever needed.  

The path ahead

The vision for the future of the automobiles industry rests on the electric vehicle segment and Sundeep is closely working in this space to gain a solid ground for the future.  Raja Gears is coming up with an upgraded manufacturing setup in Dera Bassi, Punjab, shortly. This facility will be spread over 50,000 square feet with an objective to attain capacity enhancement of significant proportions. The expansion is estimated to increase Raja Gears’ workforce to more than 600 workers and give them a position of prominence in the industry. 

Sundeep’s uncompromising adherence to best practices in manufacturing and quality, complements this new phase of growth and expansion for Raja Gears. Hence the future is bound to bring about new business opportunities for the company. C2FO in the process, stands committed to solving the working capital challenges for Raja Gears, every step of their journey.