Off the Beaten Track

With India’s entire IT success story scripted by software services and now
by BPO, looking for a boom in hardware venture is like searching for the
proverbial needle in the haystack.

And if one adds that the entire manufacturing for the vendor is done only out
of India, and thereby it has eked out not only a viable, but even lucrative
business proposition, this might sound we are talking of a mirage in the
scorching desert sands.

However, if in this case the Indian hardware manufacturer club is the barren
desert, the oasis is no optical illusion; but a real brick and mortar Bangalore-based
company, that answers by the name of MRO-Tek Ltd. The Rs 84 crore player is now
widely acknowledged to be the country’s leading last mile access products and
network solutions provider.

"With the telecom and finance sectors growing rapidly, the domestic market offers tremendous opportunity" S Narayanan chairman & MD, MRO-Tek

Apart from MRO-Tek, there are few other players who belong to this exclusive
species of hardware manufacturers in India. While PCS at Rs 270 crore, Zenith at
Rs 248 crore and D-Link at Rs 205 crore apparently come out in better colors
than MRO-Tek, it should be prudent to keep in mind that while the first two are
exclusively PC vendors (a higher-value product) and primarily assemblers, D-Link
owes its success largely to its Taiwanese lineage.

The foreign connection seems to have worked fine for this 16-year old
Bangalore-based company. MRO-Tek has collaborations with RAD Data Communications
of Israel for a slew of WAN/LAN products. The RAD products being manufactured in
its Bangalore plant contributed 80% of MRO-Tek’s revenues this year. The rest
was taken care by the exclusive partnerships it had with Extreme Networks of the
US for Layer 3 Gigabit switches and Zyxel of Taiwan for dial-up modems, ISDN
products and wireless LAN accessories.

However, unlike RAD, the other two relations entail merely distribution in
India and not manufacturing. It also has non-exclusive distribution relations
with a few other overseas players. These include Israel’s Alvarion Ltd. for
Wireless Ethernet connectivity, Expand Networks for Enterprise Caching products,
Axerra Networks for Multi-service over IP Networks, besides US-based Quintum
Technologies for VoIP Solutions, Servgate Technologies for Security and VPN
Devices and TASMAN Networks for E1 Access Routers. Therefore, other than RAD/MRO-Tek,
49:51 JV which envisages closer collaboration between the two and hence helped
build MRO-Tek both global and national brand equity, the remaining alliances
primarily bolstered its bottomline.

Though MRO-Tek in its 16 year history owes its success largely to these
alliances, especially the RAD association, the last two years have not been
particularly fruitful for the company. From a revenue as high as Rs 120 crore in
2000-01, it crashed to Rs 71 crore in 2001-02, and though it again rose to Rs 84
crore in 2002-03, there was a 53% fall in its net profits that plummeted to Rs
2.7 crore from Rs 5.78 crore.

S Narayanan, chairman and managing director, MRO-Tek, tries to justify this
decline. "We hived off some of our inventory at salvage rates and absorbed
some of our R&D costs into the P&L accounts. Besides, though direct
sales fell, our agency operations grew 46% and reached Rs 33 crore." The
growth was also affected to an extent due to weakening of the global economy and
the catastrophic events like the global telecom slump and the 9/11 terror attack
in 2001. MRO-Tek’s tales of woes seem to continue even in the early part of
fiscal 2004. There was trouble with the Directorate of Revenue Intelligence (DRI)
over alleged evasion of customs duty and even Narayanan was briefly arrested in
this connection. In fact, this imbroglio is yet to be solved, and since the
dispute is currently in court, senior MRO-Tek officials are tight-lipped about
it.

Notwithstanding all these setbacks, both Narayanan and CS Ramakrishnan,
vice-president (Marketing), are pretty upbeat about MRO-Tek’s future. Their
optimism stems from the slew of 16 last mile access products the company plans
to release between now and next June.

It has substantially beefed up its R&D initiatives with an upfront
investment Rs 12 crore. The typical product lines, MRO-Tek is banking on, are
"first-of-its-kind" Metro Access products, which apart from India,
would also have considerable scope for market even in developed countries such
as US, Japan, Europe and Korea.

Confirms Narayanan, "With the telecom and finance sector growing
substantially, it offers tremendous opportunity for us to grow domestically. Our
strategy is to extend the existing market and at the same time be prepared to
serve the global markets."

In fact, after having carved out a niche for itself in the Indian market,
going global seems to be the new mantra for MRO-Tek. Accordingly, it has
invested Rs 6 crore in setting up the US operations in Santa Clara, California.
Besides, the developed markets, MRO-Tek also plans to strongly tap the
developing markets in the Gulf, ASEAN and even SAARC countries. It already has a
$1 million project in Iran, a $50,000 project in Malaysia (connecting Kuala
Lampur Airport through WAN) and a $50,000 project in Maldives. Quite
surprisingly, despite its 13 year-long association with an Israeli company, RAD,
MRO-Tek has been traditionally strong in the Gulf.

Says Ramakrishnan, "This is because we have always marketed even RAD
products in the Middle East under the MRO-Tek brand name."

In fact, MRO-Tek expects to bag some contracts during the reconstruction of
war-ravaged Iraq. In three to four years, MRO-Tek expects to end up with
business worth $20 million from its global operations. Optical access networks
and metro Ethernet are the two markets expected to drive this growth. And if one
considers that the former market is close to $20 billion and the latter $4
billion in size, the projections do not seem too far-fetched.

If MRO-Tek succeeds in meeting the targets, it could truly be scaling heights
no other Indian hardware company have even hitherto dared to dream of.

Closer home, MRO-Tek’s fortunes also seem to be on the upswing after two
depressing years. Narayanan predicts that the company would achieve a 25% growth
this year, which would incidentally see the company cross the three-figure mark
in 2003-04. He has even charted out a roadmap that could bring fruition to his
prediction.

MRO-Tek, which enjoys 60-64% market share in the leased line modem category
currently, hopes to have 100,000 lines next year. It has already implemented
last mile Ethernet solutions through fiber optic in 50 PoPs for Tata Power. Its
other domestic successes include a customized last mile access solution for 2500
branches of SBI, 800 branches of LIC, WAN broadband solution for ICICI Bank,
Metro Area Network and TDMA over IP for the Indian Army, Andhra Bank, Hyundai,
Cisco, Lucent and Nortel.

MRO-Tek’s story is also unique from other Indian hardware manufacturers in
another way. Most of these vendors set up their manufacturing (or assembly)
plants usually in Union Territories to avail of tax benefits. Therefore, one
sees Zenith and D-Link with their plants in Goa, PCS in Silvassa, Wipro, HCL and
TVSE in Pondicherry.

But MRO-Tek has dared to have its manufacturing unit in Bangalore and has
done viable business even after being in the tax dragnet. Narayanan pleads that
the government rationally reduce the tax structure, as that would significantly
give a boost to Indian hardware manufacturing. Adds Ramakrishnan, "Telecom
companies get zero duty on their capex for equipment, so it makes no sense for
them to buy from us in India." Anyway, MRO-Tek still fights on having also
set up an ESTP in Bangalore from where it did exports worth Rs.2.8 crore in
2002, while in 2003 the figure galloped to Rs7.5 crore. Irrespective of how the
hardware game shapes up in India, five years from now MRO-Tek is bound to be
remembered–either as the pioneer who became the industry benchmark, or as the
honest striver who fought hard till the bitter end.

Rajnesh De in Mumbai