The show on the heavy engineering platform is good only in small parts. Most of the scene is gloomy with order books shrinking and production falling. While the going was good till September, 1996, the fortunes have suddenly taken a U-turn since November, 1996.

According to the CSO data, the capital goods sector reported a 16.6 per cent growth during April-September 96. But since November 96, it went into reverse gear, recording negative growth rates resulting in only 10.3 per cent growth during April-January 1996 as against 18 per cent for the corresponding period last year.

The worst affected are indigenous manufacturers of oil sector equipment which can now be imported at zero customs duty as against 25 per cent last year. According to a report, domestic players would lose an estimated Rs 650 crore worth business due to cost disadvantage over foreign suppliers. Even when the domestic suppliers get deemed exporters' status, various local taxes and duties would still make imported plant and machinery cheeper.

Nevertheless, power equipment majors like BHEL and ABB remained unscathed since they had bulging order book positions last year. Observes SSKI Research in its report, ``most segments of the capital goods industry have been badly hit by the indifferent industrial environment in the last six months. Order books have mostly dwindled and working capital cycles have lengthened. Of the 18 stocks in our engineering index, only 4 have registered gains in the last 3 months.'' Further, ``while infrastructure-focused long tail project players will continue to appreciate, most other capital goods stocks will drift at least till their next interims which are likely to be weak.''

For engineering sector it projects lower sales growth rates at 21 per cent for 1996-97 and 18 per cent for 1997-98 as against 25 per cent reported during 1995-96. The earnings growth is projected to sharply decelerate from 86 per cent during 1995-96 to 38 per cent and 13 per cent over the next two years.

BEML

Set up by ministry of defence in 1964, Bharat Earth Movers Ltd (BEML) manufactures heavy earthmovers, rail coaches, military tanks, heavy-duty trucks, trailers for mining, construction, railways, defence etc and is the second largest manufacturer of earthmovers in Asia. It has technical tie-up with Komatsu of Japan for bulldozers and with Babco of US for dumpers.

This PSU disinvested 25 per cent since 1992 and came out with a Rs 117 crore public issue of PCDs of Rs 195 each to part-finance backward integration and expansion project. With this, the government holding came down to 60 per cent. Currently, 95 per cent of the sales is accounted by the government but now the company is looking beyond the public sector and targeting the private sector too. Though its order book position is full with railways and defence orders, most of them come from only two customers — Coal India and Indian Railways.

On one hand, BEML faces threat of competition from MNCs and on the other many companies like Volvo, Hyundai, Renault etc are seeking BEML's production facilities for equipments for their countries and for exports.

BEML is also considering 50:50 joint venture with GEC Alsthom for electrical multiple units (EMU) manufacturing. BEML exported around Rs 61 crore in 1996-97 and this JV would further boost its efforts to consolidate its presence in markets abroad as also help increase BEML's coaches capacity utilisation.

Besides, only few customers like railways, defence and Coal India, the company also faces enormous overdues from them (Rs 120 crore outstanding from Coal India). As a result, the company is turning out to be increasingly inefficient in working capital management and has a high ratio of working capital to capital employed at 80-82 per cent.

Moreover, the company had to cut prices for railway coaches to match those of Integrated Coach Factory — da railway unit which has lower cost. It also loses out in competition with MNCs which supply same product at around same price, thus winning away customers to a foreign brand like Caterpillar.

Korean equipment are available at same price and BEML has to cut margins to stay in competition. The higher cost is owing to sales tax, excise and entry tax while MNCs have financial muscle to hold the prices to establish market which amounts to dumping. Besides Japanese second-hand earthmoving equipment can be brought into the country and there is a problem of spurious parts.

Besides EMUs, BEML is building tractor-truck in technical tie-up with Tatra of Czechoslovakia for transporting army tanks and is also modifying transport for Prithvi missile. With abundant coal reserves and possibility of doubling coal production, BEML stands good prospects for supplying coal mines with bigger equipment for underground coal mining besides surface mining equipment. It is likely to get a turnkey maintenance contract for Mahanadi coal fields.

Thermax

Well known for its brand, especially in baby boilers with a 50 per cent market share, Thermax manufactures heating equipment, pollution control equipment and process chemicals. During the year 1996-97, the company received less order at Rs 250 crore as against Rs 300 crore during the previous year and as against an expected Rs 870 crore. As against an earlier expectation of a turnover of Rs 605 crore, the actual sales turned out to be lower at Rs 522 crore for the year ended March, 1997.

According to SSKI, ``Thermax's key strength is its ability to provide complete energy and environment management solutions to its customers. The company's forte lies in providing product packages built around its boilers.

Thermax has built up a strong brand equity for its range of baby boilers and has a strong service support network.''

The Rs 300-crore small boiler market is shared by Thermax, Nestle Boilers, Cethar Vessels etc. This segment is growing at 20 per cent and Thermax would continue its dominance. The company made foray into captive power business and bagged first contract worth Rs 200 crore from Arvind Mills. It depends on process industries like paper, sugar, fertilisers, pharma, cement etc.

SSKI observes that weak commodity cycles and flagging demand are likely to impact capacity growth in many of these industries which is likely to impact Thermax's future prospects.

Thermax has embarked upon a business process re-engineering programme to strengthen its position in areas of energy and environmental engineering.

The company plans to realign its activities, streamline internal processes and have more focussed view on exports and expansion of its core areas of competency through global alliances. The company is targeting $100 million exports within the next 3-4 years. It also needs to address the labour problem which erupted for the first time in 30 years of its operations.

Thermax is also contemplating entering screw compressors and ammonia based chillers for setting up cold storage chains in India and is talking to Sabro of Denmark and Frigos Scandia of Sweden for technology. Thermax got into a 50:50 joint venture with UK's Cullighan International forming a company Thermax Cullighan Water Technology Pvt Ltd for drinking water business with products for households, commercial and industrial use. The company would launch products like water dispensing machines, water filtration units attached to soda fountains and 5 gallons and above polycarbonate containers of pure drinking water for commercial complexes in urban centres. Besides these, the company is planning new concepts in drinking water business.

Under a joint development programme, Thermax alongwith Combustion Power Company (CPC) of US launched eco-friendly, energy efficient and cost effective fines circulating (FICIR) fluidised bed boilers which will be sourced by CPC to export to South Eas Asia, South America and USA.

In yet another 50:50 JV with Energy Performance Services (EPS) Inc USA, Thermax has formed Energy Services Company (ESCO) and Thermax EPS which will plan and implement energy saving measures guaranteed by ESCO. If savings are not achieved, the loss will be made good by the company while savings above assured figure will be shared by the company and the client.

Nearly 5000 mw of power and 6 million tonnes of petro-products are estimated to be conserved by the eighth five-year plan. At an estimated 15 per cent saving through ESCO, Rs 450 crore would accrue, of which Thermax EPS expects to capture Rs 150 crore by the fifth year.

Alfa-Laval

The 51 per cent subsidiary of Alfa Laval of Sweden, Alfa Laval (India) slipped into red for the first time with a whopping Rs 30 crore loss for 1996-97 because of gross mismanagement at the higher level over a long period culminating in the obvious result only recently. The company is left with order backlog of about Rs 100 crore.

Though the company has taken up a restructuring programme including cost reduction and streamlining its marketing and sales activities etc, it is unlikely to get back into black at least for the next two years. Its turnover is down to Rs 144 crore as against Rs 250 crore of the proceeding year. Under the process of rationalisation of senior level management, about 150 opted to leave the company.

The company manufactures plant & machinery for industries like dairy, beverages, processed food, chemicals and pharmaceuticals etc and a range of centrifugal spectators, plate heat exchangers, spray dryers, refrigeration compressors and custom built equipment.

Earlier, Alfa-Laval management planned to hive off the division manufacturing liquid food processing plants into a 100 per cent subsidiary called Tetra Pak Process Engineering. But after a scathing criticism by FIIs, the company reversed its decision. Now it is dividing business in different units like bio engineering, breweries, carbonated drinks, fats and oils, dryers and evaporators and tetra pak processing and managers of these units would be held responsible for its performance.

Walchandnagar

Walchandnagar Industries Ltd (WIL) was promoted by Walchand group in 1960 and manufactures sugar machinery and engineering products like gear boxes, heat exchangers etc. Major clients are Triveni Engineering, Oswal Foods, Indian Navy etc and exports to Nigeria, Africa, Mauritius etc. It is diversifying into horticulture, financial services, construction etc. The company has got into a tie-up with a Japanese company Onada Engineering Ltd for cement clinker manufacturing.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.