‘Tariff shake-up perks demand for Made-in-India products’

Bengaluru: Though consumer products, including toys, constitute just 10% of its business, contract manufacturer, Aequs Ltd, is already feeling the pulse of the impact Trump’s tariff juggernaut wreaking. As predicted by analysts, the displaced demand is moving towards India, as evidenced by this Karnataka-based company’s direct experience.

“With tariffs, we are already seeing more demand generated from existing customers. There are also new customers knocking on the door, though we give less priority to the new customers than existing ones. We definitely see a big uptick in the consumer side,” Aravind Melligeri, Executive Chairman and CEO, Aequs, told DH, in an interaction.

Existing Aequs customers who have already shown increased demand include Hasbro, Spin Master, and Walmart, Melligeri informed. While the attention is most welcome, he also struck a note of caution.

“The new companies are mostly shifting from China and Vietnam. We can keep jumping up and down, but the reality is it will take 12-18 months to really transition. We also need to pick and choose customers who are coming for long-term reasons, not short-term, which is the process our team is currently going through,” he said.

“When Trump imposed high tariffs on China, some companies started exploring the possibility of manufacturing out of India without committing. Then the tariffs were brought down to 30% and are likely to come down to 10% for China. Companies are re-assessing and may be exploring possibilities of shifting their manufacturing base to import to the US from India, but will only take a final view after 8 July after things are clearer. But it is still early days. There are a few well-known foreign companies, who are willing to come to India, but that is because of its large domestic market and not tariffs,” observed Jayant Dasgupta, former ambassador to the World Trade Organisation (WTO).

“Companies are trying to de-risk their sourcing. Some, which may already be sourcing from India and have a vendor-base already, may want to take tactical advantage by increasing sourcing from India.  The real question is whether, going forward, can a company have a long-term, sustainable, big-ticket transition, and fully commit to 90-100% of sourcing from India - it is those announcements that would be the big ones. And the goal is not merely assembling,’ noted Ankur Bisen, senior partner and head - Consumer, Food and Retail, Technopak Advisors.

The tariff boost comes at a much-needed time. Aequs is hoping to recover from the downturn it saw in the year gone by. The company’s consumer business showed no growth in FY25, even as its aerospace business continued on a positive trajectory. The company reported a sales revenue of Rs 1,000 crore in FY25, as compared to over Rs 850 crore in FY24.

“Even a few years back, our consumer verticals were higher than what it is today, just because of what happened geopolitically and the US economy being slightly down in the last couple of years,” Melligeri stated.

The company is looking to have its toy and consumer durable segments make up a greater share of its business, which is presently 90% constituted by aerospace.

Melligeri shied away from confirming earlier reports of Apple looking at Aequs as a prospective supplier. “Two years back, we announced that we are entering consumer electronics. When we enter a vertical, just like aerospace, we want to work with top 3-4 customers,” was all that he let on.

Topping APAC in aerospace

India’s bustling aviation industry and skilled workforce is expected to help it capitalise on the burgeoning aerospace market in the Asia Pacific (APAC) region. “China was never a competition in aerospace. Not even Asia, I would say,” stated Rajeev Kaul, Managing Director, Aequs Limited, in a media interaction at the company’s Belgavi plant.

“Customers are concerned about their IPs (intellectual properties), something we are highly protective of. And China's aspirations were very well known early on. Globalisation of the defence side of civil aerospace manufacturing would not happen anyway. If you go back to 2005-2007, 90% of the supply chain was within France or the UK. The remaining 10% was Germany and the US. Today, it is quite different. Plus, they needed to go to a country which is cost competitive, uses the dollar as a basis, and India was one,” explained Melligeri.

India is also well-poised to leverage a shift in aerospace because of its strong engineering base, affirmed Kaul.

Melligeri described, “Fundamentally, India has a benefit. Our wages are one-third of China's, and we have abundant labour available. That's not going to go away. We can only automate to an extent in this industry, even if you go to China. Because the product itself keeps changing, we have to have skilled people to do it. Some of these products are 20% labour content.”

Barriers

India's own reliance on imports for raw materials in aerospace continues to very much be a hindrance. One challenge is producing materials, but a bigger challenge is to get certified, Melligeri pointed out.

“To fully indigenise, there are still a lot of gaps when it comes to manufacturing aerospace. The gap exists because the technology never came out of India. Western countries, on the other hand, have built it over a long period of time. And in fact, it is commercial aerospace which will drive this as it is better equipped to fill that gap. It brings volume, something defence does not do,” added Kaul.

Another barrier is the long gestation cycle in aerospace, from a capital perspective, which makes investments difficult in India.

IPO plans

On raising funds through equity, Melligeri said, “We just did a small rights issue recently and closed that, fully subscribed.”

He reiterated the company’s objective of going public in about 6-18 months from now, i.e. 24-36 months from the last round of investors who came in September 2023.