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The Power Of I 2018

Young Gun
How a third-generation scion of a tea company ended up as a preferred component supplier to Boeing

Himanshu Kakkar

The Outsider: Low price point, quick delivery and superior finish has seen Rossell Techsys emerge as a preferred supplier to the likes of Boeing and Lockheed Martin 

Can a tea plantation company be a component supplier to aerospace and defence? As odd as it sounds, the unique distinction goes to Rossell India, whose subsidiary Rossell Techsys has emerged as a leading supplier of wire harnesses and panels to aerospace giants Boeing and Lockheed Martin. A third generation entrepreneur, Rishab Gupta, instead of settling down with the decade-old plantation business, chose to ride the opportunity arising from the offset clause introduced by the government for foreign players keen on bagging Indian defence contracts. Starting off with harnesses, Rossell Techsys is now offering electrical panels for military aircraft. It has also partnered with Boeing to offer the first ever industry-sponsored skilling post-diploma course. The company, which is in talks with marquee French and Israeli clients, now wants to expand its capabilities by targeting the domestic MRO space.

"It is unheard of that a company goes from being a start-up to a ‘supplier of the year’ in just two years,” mentions Phil Ament in a video shot by Boeing to felicitate its top supplier for 2015. The start-up that Ament, vice president, supplier management at the aerospace giant is referring to is Rossell Techsys. The Bengaluru-based component maker is actually a wholly-owned subsidiary of tea-producing company, Rossell India. Incorporated seven years ago, the company supplies harnesses and panels to Boeing and Lockheed Martin. Recalling the moment of crowning glory, Rishab Gupta, director, Rossell India, says, “We had to compete with 13,000 active suppliers of Boeing and we won. It was really special.” The aerospace and defence venture is the brainchild of the 31-year-old third generation entrepreneur of the Gupta family that owns Rossell India. 

At his opulent farmhouse in Delhi, there is a pyramidical structure with glass walls and ceiling. Gupta has a telescope pointing to the sky inside that room. It seems like his favourite place on this vast farmhouse. “I’m very passionate about aerospace and defence,” says Gupta, whose venture supplies parts for the best aircraft and helicopters in the world such as the F-18, Chinook, and Apache.

Taking off

While Gupta spotted an opportunity in the sky, it was all about plantations for his grandfather and father. With almost 65,000 employees, the family runs the largest tea estate in Assam under Rossell India, a listed entity with a market cap of 2.76 billion, spanning tea, aviation and defence (technology and engineering), product support services (aerospace) and hospitality (QSR chain Kebab Xpress in India and KFC franchise in Nigeria). 

After completing his MBA from Boston, Gupta returned to India in 2007 and joined the family business. It was around this time that the government had come out with an offset policy that mandated 30-50% local sourcing by global defence and aerospace companies bagging Indian defence contracts. “We primarily entered defense and aerospace because of the offset clause,” informs Gupta. The demand for aircraft, helicopters, fighter planes was only going to go up, and any company winning a contract would need local players to support them to comply with the clause. So Gupta decided to make the bet.

But neither he, nor the company, had any prior experience in aerospace manufacturing. In 2010, he scouted for talent and a leader to help build the business. That is when he met Prabhat Kumar Bhagvandas, the current CEO. An engineer with experience in design and development of embedded and electrical systems, Bhagvandas had also helped several start-ups scale up in the US and India. “I met him in 2010. We sat together and developed a 10-year vision for the business. It was a meeting of minds,” recalls Bhagvandas.

In 2011, Gupta bought a small defence equipment manufacturing unit in Bengaluru with 20 employees. Investment to the tune of 500 million was made over the initial three years. The duo zeroed in on wiring harnesses as an area to scale up after some contemplation. “Harness has application across platforms. It is used in aircraft, tanks, ships, and helicopters,” reasons Gupta. The company started building its competency by bagging small orders from public sector companies such as Hindustan Aeronautics (HAL) and Bharat Electronics (BEL). But soon, the duo felt that things weren’t going in the desired direction.

“For two years, we catered to HAL, BEL and others but realised this whole tendering system was not a viable advantage as it was focused on cost alone. It is fraught with situations where anybody can underquote and walk away with the business. The whole cost-based proposition wasn’t working well for us,” says Bhagvandas.

That is when the company shifted away from local players and looked at global players. As luck would have it, Boeing was looking to develop a local supplier base. “Boeing had sold Chinook, Apache and P8 to the government wherein they had offset obligations. If they wanted to execute and deliver those billion-dollar contracts, they had to have partners in India,” mentions Gupta.

Ashwani Bhargava, Director, enterprise supply chain management, Boeing IndiaRossell got its first contract in 2013 for Boeing’s F-18 fighter jet programme. While Boeing needed them, there were a few other things which worked in their favour. Ashwani Bhargava, director, enterprise supply chain management, Boeing India, says, “While choosing suppliers, we look at quality delivery plus some economic advantage. Rossell’s background was in the tea business, not defence. However, they came across as a very approachable company with positive attitude. We, thus, started with one or two parts, and then ramped up,” he says. Conventionally, global companies have looked at Indian suppliers with a bit of suspicion. “They tend to think that Indians culturally come up with jugaad. But our vision was different. We wanted to offer an experience of finish and finesse truly on par with the rest of the world,” adds Bhagvandas.

The biggest challenge, though, has been ‘people’ and training them. “It involves changing of mindset. Aerospace parts and components impact lives. For us, the loss of even one person is not acceptable and therefore, workmanship and quality of the finished product is extremely important. Also, timely delivery is critical. If you don’t deliver on time, a $100-million machine is at stake,” mentions Gupta.

Since Boeing had promised the Indian government that it would train people in India, the entire process got institutionalised with Rossell’s participation. The company had to develop the training infrastructure at their facility. Now twice a year, 30 students are inducted for a six-month training programme in Bengaluru and are later absorbed into the company. The training curriculum is in accordance with Boeing’s requirements with Nettur Technical Training Foundation providing the certification to trainees.

Rishab Gupta, director, Rossell IndiaWorking with Boeing meant Gupta got a chance to visit several of their facilities and move up the learning curve. Gupta unabashedly says, “We have tried to mimic integrators such as Boeing with their active support. Whether it is the tools, processes, or infrastructure, it is a replica of what they do. Even the basic form board tables on which we build wires are replicas of what Boeing has at its facility.” It’s not just form, Rossell has delivered what it showcased.

Proving their mettle

Dynamatic, Tata and Rossell are the three suppliers to Boeing in India. While Tata has a JV with Boeing for making fuselage parts, Dynamatic helps with the aerostructure. “We have captured contracts in most of Boeing’s product lines over the past five years. Most of our orders have been won via global bidding,” reveals Gupta.

The offset compulsion apart, the components made by Rossell are 20-30% cheaper compared to what Boeing sources from the US. Gupta attributes the better pricing to labour costs in India that are a third of the developed markets.

The Indian government has thus far placed an order with Boeing for the following — P8, Apache, Chinook, and C-130. The deliveries of Apache and Chinook would begin in 2019. So, currently, Rossell is catering to Boeing’s global demand.

Over the past seven years, the parent has invested 1 billion in Rossell Techsys for scaling up and expanding its manufacturing capabilities from 4,000 sq ft in 2011 to 450,000 sq ft. That investment also follows a surge in topline over the past five years from 120 million in FY14 to 640 million in FY18. “As of today, our confirmed order book stands at 2.8 billion and we have an agreement worth 12 billion, which is to be fulfilled over next three to five years,” informs Gupta. Rossell Techsys’ revenue accounted for 32% of the parent company’s turnover of 2 billion in FY18. But with its current order book, the subsidiary has already overtaken the parent’s mainstay tea business that fetched 1.18 billion in FY18. Gupta expects Rossell Techsys to clock 950 million in the current fiscal. After having generated its first cash profit of 35 million in FY18, the company expects to generate 50 million-60 million cash profit in the current fiscal. 

Changing philosophy

Bhargava believes the company is on the right track. “Quality and delivery is always a given in our ecosystem, but what’s unique about Rossell Techsys is their ability to deliver parts on an urgent basis.”

Rossell is now looking at diversifying its client base. The company has signed up a contract with the world’s second largest defence manufacturer Lockheed Martin last year. “It’s a small ticket order,” says Gupta, without divulging any details. 

In its bid to move up the value chain, Rossell entered a new vertical last year — aircraft panels. There are hundreds of panels used in different parts of the aircraft. Boeing awarded Rossell its first panel contract for Apache last year. Panels (electrical and cockpit) now contribute 15% to Rossell’s business. Given that panels constitute 6% of the cost of an aircraft, in the case of Boeing, the business opportunity is worth $6 billion.

Prabhat Kumar Bhagvandas, CEO, Rossell TechsysElaborating on Rossell Techsys’ long-term vision, Bhagvandas says, “We want to build our own components, create alternate sources of raw material, with significant reduction in cost. Such growth opportunities could come through acquisitions globally.” Currently, the company imports most of its raw materials from approved suppliers across the world.

Even as it moves up the value chain, the company is building its capabilities. “We are working on a lot of programmes. F-18 is our oldest programme and today we have 1:1 efficiency compared with any global supplier. But other programs like the Apache are nearing the desired target levels,” says Gupta, “This learning also has a bearing upon margins and it could gradually inch up to match the best in the business.” Wiring harnesses currently account for 80% of Rossell’s topline.

Maintenance, repair, and overhauling (MRO) is another area which Gupta is seriously looking at. MRO services are required for defence and aerospace hardware. The domestic MRO market is estimated at $750 million and can be a high-margin business in the future, so Gupta is trying to forge partnerships with some American companies in this area. The company is also in talks with French companies Thales and Safran and Israeli company IAI, though Gupta mentions the talks are preliminary.

But with a lot of domestic players such as Reliance, Tata, Mahindra, and Bharat Forge having invested a lot of money in the defence sector, Gupta feels these are exciting times. “It is a lot like automotive sector in the ’80s in India. It is going to explode over next two decades,” says Gupta, who expects defence to be a $200-billion business in another five years.

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