Sedemac: engine controls for automobiles and generator
Developing breakthrough technology helps build a significant competitive advantage in an energy market.
Sedemac develops engine controls for two and three-wheeler vehicles and diesel generator sets. Its customers are Original Equipment Manufacturers (OEMs). Sedemac’s flagship product for two and three-wheeler vehicles is an ignition control system. The control decides on spark timing for every beat of the engine. In turn, this helps to ignite the fuel at exactly the right time so that the expanding gases can do the maximum amount of work. The unique thing about Sedemac’s product is that it reduces the need for sensors. It has several benefits for its OEM customers. it saves costs because it uses less sensors. It allows Sedemac’s OEM customers greater flexibility to manage fuel economy and performance. In the year 2017–18, India produced 23 million two wheelers and about a million three wheelers (statistics from Society of Indian Automobile Mobile Manufacturers). Sedemac’s market share is about 30% (7.2 million vehicles). In the six years since its launch, the product has been installed on 14 million vehicles. Sedemac offers generator control systems for OEMs of diesel generators. Its customers are Mahindra, Kirloskar, Cummins, Ashok Leyland. These control systems lead to better power delivery and more dependable operations. The company’s products are used in 50 to 60 thousand of the 120,000 generator sets manufactured every year in India. It is India’s market leader in the genset control business and is now trying to expand overseas.
The market for electronic controls for two and three-wheelers is expanding rapidly. The company is making significant bets in this area. The main bet is sensor-less Integrated Starter Generator Electronic Control Units (ISG) for two and three wheelers. The ISG units increases fuel efficiency by automating the start stop system. The engine is switched off when standing still at a traffic light and restarts very rapidly when the accelerator is pressed. Sedemac offers the ISG product sensor-less, allowing for cost saving end design flexibility. There are two trends in this market that Sedemac hopes to ride. Tighter emission control norms for two and three wheelers are expected to come into force from 2020. The engines of two and three wheelers will also become increasingly smart. At this point, the average investment in the Electronic Control Unit (ECU) of a two or three-wheeler is a measly USD 5 (Rs. 300 for a typical vehicle cost of Rs. 50,000). The company expects the investment in ECUs to increase 6 to 10 times. Sedemac already has the reputation of introducing innovative electronic control systems. It has done so ahead of international industry majors such as Bosch, Continental, Delphi, Denso.
Sedemac’s business has been doubling every year. Revenues are now greater than INR 1000 million (about Euro 13 million). It holds a dominant position in the market. It is the largest company in India by far in genset controls. In the two and three- wheeler market, its ignition products have effectively no competition. The sensor-less ignition control system is a Sedemac invention. So is the sensor-less ISG in ECUs. This is obviously a great position to be. But it has taken a lot effort in getting there. It all started with a leap of faith assumption that there is an opportunity in controls for small engines used in emerging countries. This was way back in 2008.
The company was founded by Prof. Shashikanth Suryanarayanan and his post graduate students at the IIT Bombay: Amit Dixit, Manish Sharma and Pushkaraj Panse. They are all middle-class Indians who had studied hard to get into India’s top technology education institution. Prof Suryanarayanan had received an undergraduate degree from IIT Madras in 1998 and a PhD from UC Berkeley in 2002. He made his way back to India as a faculty of IIT Bombay. The decision was prompted by the desire to achieve “a greater common good”, a philosophy in life influenced by family and friends. In IIT Bombay he searched for a research area relevant for India and the emerging world. This inquiry brought him to the two-wheeler market. The market for two-wheelers was in India, China, SE Asia. However, international majors in engine and emission controls were not giving it enough attention. Prof Suryanarayanan started probing the question on whether there was something unique about the powertrain (the components that deliver the power produced to the point it is consumed) of these smaller vehicles? He found that indeed they were. With the help of “energetic students” and funded research he put together a prototype for engine control systems. As the students were graduating, the question came up on whether they would continue to work together. They decided to set up a company. A decade later their leap of faith assumption had has been proved right. The team does not believe too much in titles. Prof Suryanarayanan, with his position in IIT Bombay, became the “money man”. He is in charge of customer and investor relationships.
There are important lessons from Sedemac. Sedemac has worked on identifying needs and delivering products in areas where “nothing has existed before”. They have not tried to make existing global products cheaper or better by manufacturing in India. This has allowed them to steer clear of competition in the two and three- wheeler markets. Keeping away from competition has been key. In the genset market, the company had introduced a variable speed solution for telecom applications. The genset power is used mainly to charge the battery, which requires direct current. Sedemac’s solution helps in optimization of the fuel consumption. The solution has still not gone beyond successful pilots. There is a a cacophony of solutions to reduce the diesel consumption for the telecom space. It has been difficult to make the Sedemac solution stand out. The other lesson is that of timing. The very initial product for the two and three-wheeler market was a fuel injection system. It helps the vehicles reach higher emission norms by controlling of the exhaust’s air-fuel ratio. The product was developed from the prototype developed at IIT Bombay by Prof Suryanarayanan and this (then) Masters and Ph.D students. The product never took off as the emission norms did not come into force (they were expected in 2010 but are now coming into force from 2020).
The lessons from Sedemac echo the key messages in Peter Thiel’s book Zero to One. Peter Thiel, the founder of PayPal, has expressed doubts about the science behind climate change theories. Yet, he does recognize that “without technological change the result”, of increasing energy production, “would be environmentally catastrophic”. Peter recommends that energy start-ups create breakthrough technology for specific energy problems. In his opinion, incremental improvements in solar photovoltaic cells is not a good enough solution. It was also important to address a specific problem and not a large energy market. This breakthrough technology would give the start up the ability to create a monopoly in a small niche. The profits from this monopolistic position allows a start up to move to adjacent and slightly broader markets. “Monopoly is the condition of every successful business.” The best way to develop a monopoly is to invent new technology. That is exactly what Sedemac has done.
Doing this in India, is the tough job. Developing technologies and products takes time. The company started in 2008 and it took five years for the company to make any revenues. Sedemac received an initial investment from Nexus Venture Partners, an US-India venture capitalist firm. At that time, they had only a product idea. That product idea (for the genset market) never too off and it was long period of striving before the company made its first breakthrough. During this period, it was very hard to raise any funding. The Indian VC industry was besotted by the rapid revenue growth of the Indian ecommerce industry. Sedemac did manage to raise a second round in 2011. The investors included India Innovation Fund, an early stage fund aimed at supporting product development from India. It also received a loan from SIDBI after customer revenues started kicking in. It then received a large investment from Nandan Nilekani, the founder of Infosys.
Prof. Suryanarayanan believes Sedemac was lucky in having emerged from this period. It is very hard to be an outlier in India. Very few businesses are trying to create something new. In that scenario, it is difficult for people who are trying to do something quite different to be able to convince investors. If more people were to learn from Sedemac they would end up helping each other.
The series of blogs is based on my experiences in working on the KfW SIDBI Innovation Finance Programme between 2013 to 2015. It was one of the most satisfying periods of my professional life. I worked with a wonderful team of Dr. Jürgen Bischoff, Mikael Henzler, Harsh Kaul, Rakesh Rewari, Rukmini Parthasarathy, Maike Lerch, Ravi Tyagi, Laxmi Narayana and Chinmay Dholakia. These series of blogs are my way of appreciating them and all the inspiring people I met. Sedemac took a subordinated debt from SIDBI. I thank Mr. Pushkar Mishra for introducing me to Sedemac.
