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Corporate Report

Published on: Dec. 11, 2022, 11:58 a.m.
The Wheels move steadily
  • Srivats Ram: insulating the company from cyclicality

By K.T. Jagannathan

Six decade-old Chennai-based Wheels India Ltd (WIL) is a Rs3,700-crore plus company today. From a predominantly steel wheel-making firm, it has now become a global industrial products manufacturer. The transition did not happen overnight, though. It has been in the making for a long time. Indeed, it has been a quiet journey.  Since 2008, Srivats Ram (54), the grandson of late T.S. Santhanam (one of the architects of the company), has been driving the company.  Much water has flowed under the bridge since Srivats Ram’s arrival on the scene.

With the four families that formed the larger TVS group deciding to go their separate ways after a legal split, Wheels India has now become a part of Trichur Sundaram Santhanam & Family Private Limited (TSSFPL). As on 31 December 2021, the TVS group has held 57.53 per cent stake in the company through TV Sundram Iyengar & Sons (20.41 per cent), Sundaram Finance Holdings (23.28 per cent), Southern Roadways (9.28 per cent) and India Motor Parts & Accessories (4.57 per cent). 

Following the completion of the restructuring exercise in the TVS group, the shares held by TVS Sons & Southern Roadways in WIL were transferred to TSSFPL. No doubt, WIL enjoyed operational freedom earlier too, under the TVS group. The significance of the changed context (of TVS families going their separate ways), nevertheless, is not lost on the long-time watchers of the company.

What is so unique about WIL? If it is not flamboyant, it isn’t an unexciting enterprise either. A sense of caution and a deep understanding of the business have marked its blinkered horse-like secular approach to growth and profitability.

Its maiden plant at Padi came up when the country encouraged local manufacture in the face of a foreign exchange crisis. T.S. Santhanam and his brother T.S. Srinivasan looked at setting up companies to make parts that had a good aftermarket, as TVS had experience in the auto aftermarket. The Padi plant was set up to make steel wheels. The company was incorporated on 13 June 1960 and commenced production in 1962. It initially had a technical tie-up with Dunlop Holdings of the UK (35.91 per cent equity stake).

The Padi plant now has a capacity of 4.8 million wheels per annum (from just over 300,000 in the 1960s).  Out of a total area of 11.67 hectares, green belt has been developed in 3.03 hectares. There are 958 trees on the campus. WIL, significantly enough, has included energy efficiency at the design stage itself.

The focus has always been on energy efficiency in whatever it uses, such as transformers, screw air-compressors, chillers, motors & pumps, LED lighting, BLDC fans, star-rated air-conditioners and variable speed drives. 

There is a continuous focus on pneumatic systems within plants to identify and eliminate leakage points, so as to reduce compressed air leakage and also to reduce compressed air consumption. The plant’s electrical energy requirement is partly met through renewable energy, which accounts for nearly 50 per cent.

A quiet change

When Srivats Ram, an MBA from Case Western Reserve University of the US, took over as the managing director, WIL some 15 years ago, the company was a predominantly steel wheel-making firm catering to a few large customers in the commercial vehicle, passenger vehicle and tractor segments. A soft-spoken and a no-nonsense person, Srivats Ram quietly worked his way around insulating the company from the cyclicality that the automobile business is known for.

  • Roll out of steel wheels from the Padi Plant in the 1960s (T.S. Santhanam, director, WIL in the centre)

A couple of things stand out in the process. For one, there has been a calibrated approach to diversification as part of an exercise to distribute – nay, insulate -- the risk arising out of the cyclical nature of the business. That largely explains the assorted diversifications of WIL. For another, there has also been a conscious endeavour to mitigate market risks. That defines the attempt of the company to break into newer geographical areas. Largely, it has meant looking at exports with far more seriousness. 

This twin-strategy appears to be the fulcrum around which Srivats Ram is now trying to structure the growth path of WIL. “The company has gone through a silent transformation,” says S. Krishnakumar, director, Lion Hill Capital. Today, it has gone beyond making wheels. From a largely automotive component maker, it has moved into areas of fabrication and engineering. Krishnakumar feels that the company may have to re-christen itself to reflect its current businesses as well.

Over the last decade, Srivats Ram has gone about strategically changing the product-mix to a well-diversified portfolio of segments that now includes construction & mining, aluminium wheels and air suspension. Indeed, this has, to a considerable extent, offset the earlier challenges relating to cyclicality in the CV and tractor segments. Simultaneously, he has also consciously expanded the company’s businesses into non-auto segments such as wind mill and rail segments.

Expanding footprint

In addition to the strategic diversification of segments, Srivats Ram has expanded the global footprint as well. From being a predominantly domestic player, WIL is now acknowledged as a leading global player, with a customer base spread across the US, Europe and Asia. He has now successfully expanded the customer base globally to over 100 clients.  “We have over the last decade de-risked the company in terms of wheel and non-wheel, auto and non-auto and domestic and export,” admits Srivats Ram.

A decade ago, when its joint venture partner Titan International sought to make an open offer to shareholders to pick up a majority stake in WII, Srivats Ram remained unfazed.  Interestingly, within 10 years, the JV partner/promoter exited the alliance by selling its entire stake in the company, paving the way for WIL to enter geographies and segments that were hitherto restricted because of the earlier agreement with the JV partner. Titan got into WIL sometime during 1998-99, by picking up the entire stake of Dunlop in the company.

The exports surge has been particularly commendable under the leadership of Srivats Ram. From about 16 per cent not so long ago, the exports contribution has risen to almost 30 per cent in 2022, with the company having registered close to two years of quarter-on-quarter exports growth. A look at the numbers will reveal the steady progress WIL has made under the stewardship of Srivats Ram. 

From Rs1,166 crore in 2008-09, the company’s revenue has risen to Rs3,701 crore in 2021-22. The net profit too has gone up Rs80 crore in 2021-22 from Rs21 crore in 2008-09. The export revenue grew from about Rs200 crore in 2008-09 to over Rs1,000 crore in 2021-22. S. Ram (son of T.S. Santhanam and the chairman of the company) told the shareholders at the annual general body meeting this year that the foundation had been built to grow the exports market, along with customers in the coming years.

  • WIL’s Padi Plant in the 1960s

In its January 2022 report, rating agency ICRA underscored the exceptional flexibility enjoyed by WIL, “by virtue of belonging to the T.S. Santhanam group (a faction of the larger TVS group), an established name in the domestic auto-ancillary industry), its established position as one of the largest steel wheel rim manufacturers in the country in the automotive segment (except two-wheeler) and globally in construction & earthmoving equipments (EME) segment and its diversified segmental and customer presence.”

Born out of the evolving compulsions, the China Plus One strategy that the global bigwigs are now adopting appears to have come as a blessing. Srivats Ram is convinced that there is a great opportunity for the Indian manufacturing sector to take advantage of the geographic de-risking play of US and European companies as they move away from China (especially following the outbreak of Covid-19).

Specifically in automobile and engineering, he sees plenty of growth opportunities for Indian companies. For companies that are already exporting, the opportunities have clearly increased in the recent past with some of these getting translated into business. “There is genuine interest to buy more from India,” acknowledges Srivats Ram. “The growth has got a boost from global supply chain de-risking and building strategic relationships with customers and partners”.

Growth opportunity

On the long-term strategic outlook for the company, he is convinced that WIL has an immediate opportunity to grow its construction and agricultural equipment wheel business globally, following the exit of Titan Europe as a shareholder. “There is an opportunity to grow the non-wheel business, be it components for the wind sector, construction equipment sector or air suspension by developing new products and process capabilities,” he elaborates.

The company has also made significant investment in aluminium wheels and would like to grow this business globally and within India. “These three areas offer opportunities to grow in the medium- to-long term,” he adds.

But the debt level remains a concern. On the one hand, input costs are rising. On the other, the logistics costs too are firming up. Being in a conversion business of sorts, the net cash flow position is critical. All these factors have combined to constrain the company.

Given the impeccable background of its promoters and also the high governance standard practised by the company, analysts are of the view that WIL will overcome the glitch.  According to analyst Krishnakumar, WIL may do well to increase the share capital.

It has been a steady ride for WIL thus far. But the dynamics of global trade have changed drastically due to reasons which may not strictly fall into the realm of pure business.  Challenges notwithstanding, Srivats Ram has a steely resolve to take WIL into a faster lane.

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