Challenges in the form of liberalisation and global competition have steeled the units' resolve to surge ahead.RAVI SHARMA in Bangalore
JAWAHARLAL Nehru described them as the `temples of modern India' when they were established in the formative years of the nation after Independence. The public sector undertakings (PSUs) have come a long way since then and emerged as entities that have to compete with the best business houses in the world. But the past 15 years since the opening up of the economy have been the most challenging for them.
While some of the units have adapted themselves to the changed environment characterised by shrinking markets, increased competition and near absence of government protection, others have floundered and are hoping to receive relief from the government.
Says Captain S. Prabhala, a former chairman of Bharat Electronics Limited (BEL): "For a start there should not be unnecessary interference from the equity holder (government). What has affected the PSUs is excessive bureaucratic controls, grossly overstaffed factories, overly strong centralised labour unions, and inordinate delays in decision-making. When this is the case, how can you expect the PSUs to compete in today's open economy where business houses are efficient, lean and equipped with the latest technologies."
This may be an oversimplification but many present and former PSU executives believe that there can be only two ways to turn around sick PSUs: the government should either dilute its holdings, or acquire state-of-the-art technology and make the companies efficient, to take on the competition. A level-playing field is essential for the PSUs to survive competition. Otherwise they would buckle down. A case in point is the Indian Telephone Industries (ITI).
Another suggestion is for India to emulate France, which arguably has the best-run public sector enterprises in the world. The French government follows four "commandments": it appoints a chief executive officer, approves the company's budget, monitors the company's performance from time to time, and, most importantly, does nothing else.
Bangalore has been a hub of PSUs and leading the way is the 52-year-old BEL. Focus on research and development (R&D) is the cornerstone of its success. Says Y. Gopala Rao, BEL's Chairman and Managing Director (CMD): "Being an electronics company you need to constantly develop new products and update your technology. We spend almost 5 per cent of our annual revenues (Rs.4,200 crores in 2005-06) on in-house R&D. Between 70 per cent to 75 per cent of our annual revenues comes from products designed and developed indigenously (along with sister electronic laboratories under the Defence Research and Development Organisation). BEL's inhouse R&D itself accounts for almost 48 per cent of this. And, unlike in the past, we are closely associated with the products in the development stage itself, so that transferring from the design to production stage is easier."
Gopala Rao also demolishes a common misconception that BEL caters essentially to the defence sector and has a captive customer in the form of the country's defence services. "Roughly 20 per cent of our total business is geared towards the civil sector and it is also wrong to say that we have a captive customer in the defence forces. That may have been true prior to 1990. Post liberalisation, the defence forces tender for their requirements. Our competition is often the foreign bidder," he says.
Being a developer of high technologies for India's military and space establishments, BEL had to face the brunt of the sanctions imposed by the United States, after the Pokhran-II nuclear blasts, denying access to critical technologies. But the sanctions proved "a blessing in disguise". Gopala Rao says the company took it as a challenge, throwing out many sub-systems, cultivating new suppliers from countries such as France and Russia and developing alternative technologies, designs and services that were cheaper. Although BEL's has consistently endeavoured to make products cheaper without sacrificing quality, `cost reduction for survival' was the war cry and a committee was formed at the corporate level to monitor costs. This has provided the company with a lot of bottom line benefits.
BEL has a wide portfolio of products and services ranging from 40 paise transistors for radio receivers to Rs.40 crores radars for the defence forces. It produces radars and sonars, communication equipment, electro optics, tank electronics, electronic warfare material and telecom and electronic components, and offers total turnkey solutions. BEL strives to come out with innovations in every sphere.
Says Gopala Rao: "Our recent state-of-the-art short-range battlefield surveillance radar, which can be carried by three people, installed in five minutes and has a range of around four kilometres has been a great success. Having already delivered a thousand of these radars to the Army, we are demonstrating it successfully to friendly countries in South Asia and on the African continent. Indonesia has bought two and might increase this to 50. Trials of the bulk production phase models of our 3D long-range central acquisition radar are also under way. The government has already approved the sale of seven of these ground or vehicle-mounted radars to the Air Force and two to the Navy."
Being a pioneer in the manufacturing of electronic components in India, which accounts for 20 per cent of BEL's business even today, the company has moved from manufacturing vacuum tubes to silicon transistors and integrated chips for televisions, radios and telephones.
With the end of the era of supplying products gradually, BEL's R&D has become more proactive in identifying customers' needs and offering total solutions to them. With this in mind, the company launched its strategic business unit known as the Systems Division. It might secure sub-systems, but will design the total system, providing total solutions.
Gopala Rao recounts BEL's success in installing AP Net, a satellite service in Andhra Pradesh through which the Chief Minister can communicate with members of every mandal in the State. The Rs.100-crore network to link the country's 11,300 police stations with their respective district and State headquarters and then to New Delhi; and, the Rs.500-crore contract to provide Mahanagar Telephone Nigam Limited's (MNTL) 3.5 million customers with convergent bills, are the other notable success stories of BEL.
For the Indian Army, BEL has also started manufacturing secure (not just scrambled) hand-held portable radio receivers and the Stars V Mark 2 transreceiver, which incorporates `frequency hopping' technology (the frequency changes 250 times a second, which helps encrypt both the message and the signal).
With wars increasingly being fought after sundown, BEL has stepped up its development and production of electro-optic products, especially those based on image intensifiers and infrared detection technologies. BEL's radar warning receivers have been fitted on the Indian Air Force's fighter aircraft.
Since world over there is an increasing demand for non-conventional sources of energy, BEL wants to expand its production of solar cells. It has installed solar-powered streetlights and provided solar lanterns to every household in a tribal village near Mysore.
The company is well on course to reach its targeted turnover of Rs.5,000 crores by 2007-08.
The just-concluded financial year (2005-06) has been a joyous one for Bharat Earth Movers Limited (BEML). For the first time in its 42-year history, all its divisions made profits. Until a few years ago just one of them had made any profit. The figures speak for themselves: its turnover had increased from Rs.1,424 crores in 2001-02 to Rs.2,201.5 crores; in the same period, profits have climbed from Rs.13 crores to Rs.280 crores, with the order book leaping from around Rs.600 crores to Rs.4,000 crores (including letters of agreement). It is well on course to touch a turnover of Rs.5,000 crores by 2013-14, its golden jubilee year. The company is to re-christen itself as BEML Limited shortly in order to remove the impression that it is just an earth-moving equipment company.
BEML's Chairman and Managing Director V.R.S. Natarajan must take much of the credit for what the company has achieved in the recent past. He has been instrumental in driving the 12,000-strong workforce to achieve targets that were once thought unattainable by a PSU. Says Natarajan: "We have demanded performance from the general labour to the directors. The message is `you have to deliver' and we have learnt the art of getting the best out of everybody.
"After I took over we employed a consultant to tell us what we should do to reach a target of Rs.5,000 crores. The answer was for us to restructure ourselves by diversifying and expanding. And that if we were to diversify and enter into joint ventures for technology tie-ups we could become a Rs.5,800-crore company, earning Rs.500 crores in profits by 2013-14."
Thus BEML has expanded its production (15 per cent in manufacturing, 25 per cent in assembly), stopped selling loss-making equipment and diversified its operations.
Explains Natarajan: "We have revised our business strategies and re-christened our business groups. Today there are product heads at the deputy general manager level, exclusive heads for each product at the general manager level, divisional heads at the chief general manager level and an executive director at the complex level. We have restructured our business into three - mining and construction equipment manufacture, rail and metro business, and manufacture of defence equipment. While earlier there were separate directors for each category of work like production, R&D, marketing, finance and HRD, since April we have decided to have one director for each business. They are totally in charge of their business and have to achieve targets."
While Natarajan feels that BEML's interests in mining and construction hold great promise and will continue to gallop during the next 10 years, the company is poised to enter into a joint venture with two companies (in Hyderabad and Malaysia) signalling its entry into contract mining.
Until a few years ago BEML's rail business was in the doldrums and employees were underutilised with a cloud of uncertainty hanging over the unit. Today the unit is executing orders worth Rs.500 crores, the delivery of which will take two years. The division has also gone in for a technology tie-up with ROTEM, Korea (paying $3 million net of taxes), for the production of ultra-modern, air-conditioned, stainless steel coaches for both broad and standard gauges.
BEML has already supplied 180 coaches for Delhi Metro and with orders for another 321 (worth Rs.1,400 crores) in the offing, the division has become a "true engine for growth". Says Natarajan: "A number of cities are going in for their own metro rails, and with BEML the only technology provider for metro in India be it broad, standard or light rail, we are ideally placed to touch profits of Rs.100 crores in three to four years."
With this in mind BEML will produce only stainless steel metro coaches in the Bangalore Rail Complex. Production of rail coaches and military wagons will be shifted from Bangalore to Kolar Gold Fields (KGF) where BEML has acquired two workshops from Bharat Gold Mines Limited. The first rail coach manufactured at KGF is expected to roll out next March.
In a bid to broaden its defence-related business (mainly ground support equipment) BEML has in recent years entered into technology tie-ups and increased its product portfolio. It has already sold 5,000 of its Tatra vehicle, which can accommodate trucks from the smallest (4x4s) to the largest (12x12s), and is being manufactured in collaboration with Tatra (Czech Republic) and Tatra (Slovakia).
BEML has opened a technical division for e-engineering; a trading division for marketing non-BEML products; and development centres in Mysore, Bangalore and KGF to offer its engineering expertise to its customers as an end-to-end solutions company. Increased profits have also facilitated investment in capital expenditure for plant machinery replacement and plant modernisation, and new projects.
`Time-keepers to the nation' was a slogan of HMT Limited that caught the imagination of a nation. But the Bangalore-based company, which was set up in 1953, is much more than a manufacturer of watches. In fact, today hardly 10 per cent of its revenue comes from watches. Alarmingly the watch division is causing the company to waste its ample resources to compete in a largely changed segment, especially when compared to the situation in the 1960s when HMT started selling watches. Changing and nuanced tastes, a higher proportion of disposable incomes, tremendous competition from small and big domestic and foreign players have dented HMT's watch business.
HMT, which pioneered machine tool technology in India, had a major impact on the industrial development of key sectors such as automobiles, railways, defence, agriculture, power, consumer durables and general engineering and strategic sectors. It has grown into an engineering conglomerate that has produced more than 100,000 machine tools, over 100 million watches and over 500,000 tractors. Today tractors ranging from 25 HP to 75 HP and machine tools account for around 40 per cent each of HMT's sales.
According to M.S. Zahed, HMT's Chairman and Managing Director, the company has gone through a number of business and socio-economic cycles. "When we were set up there was nothing like a capital goods sector in the private sector. So the government decided to create centres of self-reliance, disperse development to different parts of the country [when HMT gave back one factory to the nation every year], create schools of technicians, save foreign exchange... . This is how it was until the 1970s. In 1980, HMT decided to be more global, and with many countries wanting intermediate and appropriate technologies the focus was on turnkey projects. In the early 1990s, thanks to globalisation, India opened its doors and became a market for the world's products. HMT's employees had to absorb all these changes, and change in a large organisation is difficult," Zahed says.
With India not being an industrialised society, unlike the developed world "where even today not much importance is given for productivity", it has been difficult to change the mindset of the workforce, he says. "In the post-liberalisation phase, the growth of the service sectorshas squeezed the manufacturing sector. But being the second most populous country in the world it is imperative that manufacturing once again comes to the fore. For this, we have to encourage consumerism and increase productivity. Today our per capita consumption is very low," he says.
In its early years HMT acquired whatever technology was required - for printing machines, dye-casting machines, equipment-related to defence and ship-building, special tools and so on. And it operated in a protected environment where, Zahed says, "the market was given to us". But since liberalisation and the advent of private players, the market for HMT has shrunk. He explains: "We are talking of a limited market which is not expanding and which we have to share with private and global companies. And like most PSUs we are not net exporters. Once consumption spreads to the entire country the manufacturing industry can grow exponentially. HMT has also decided to focus on high technology areas, since automation means more production. And unlike in the past when we produced everything, including pins ourselves, we are now outsourcing a number of items from the hundreds of small-scale industries for whose growth HMT has contributed."
To meet the new challenges HMT has been reorganised into subsidiaries that concentrate on tractors, machine tools, bearings, watches and international operations. Each subsidiary has to benchmark itself against its respective counterpart in the private sector and financially "look after itself". The idea is to change the way both the workforce and the management think, to absorb technology and manpower training and meet the unique needs of that particular industry. It has also decided that 30 per cent of its production should be exported.
Says Zahed: "We are taking on a reincarnation to suit today's business world. This will yield results." Zahed admits that the Rs.1,300-crore debt burden is worrying. "We are hoping that the government will convert at least part of this into equity thus lowering our debt burden. We need support. HMT is paying Rs.120 crores a year as interest just to service this debt."
HMT International has set up turnkey projects overseas, exporting indigenous technology and establishing India as a dependable country for technology upgradation. The company has established a training centre for small- and medium- scale industries in Zimbabwe, entered into a joint venture in Nigeria for the manufacture of machine tools and has invested in a foundry in Dubai.
With the power, steel, cement, transportation and infrastructure sectors on the upswing, the Electronics Division (EDN) of Bharat Heavy Electricals Limited (BHEL), was formed in 1976 to establish a strong base for the company in the areas of power and control electronics. It was to supplement BHEL's pioneering efforts in power generation and transmission equipment manufacturing. The EDN is now poised for sustained growth on its own steam. By creating products ranging from simple control systems, single push-button automation for controlling steam/water turbines, boilers and generators using state-of-the-art distributed digital control systems concepts, the EDN has become one of BHEL's fastest growing divisions. According to V. Viswanathan, Executive Director (EDN and Industrial Systems Group), it has already earned the distinction of making the highest profit among all major units of BHEL.
From Rs.3 crores in its first year, the unit's turnover reached Rs.450 crores in 2000. According to Viswanathan, its turnover is expected to cross Rs.1,000 crores with Rs.300 crores profit in the coming year. Viswanathan projects a turnover of Rs.2,500 crores by 2012.
BHEL is currently in the process of developing a strategic plan and road map for 2007-2012, a period in which it hopes its turnover will cross Rs.40,000 crores. The EDN, which competes with global giants such as ABB, Siemens, General Electric, Hitachi and Mitsubishi, enjoys a healthy 65 per cent market share.
According to Viswanathan, the EDN has already started improvising technology, introducing a high level of automation, eliminating any manual interface right from the design to the stage of loading on shop floor, establishing sound engineering practices, using the latest machine tools, standardising processes, expanding shop floor, conducting periodic vendor assessment and insisting on rate contracts and bulk buying (to improve quality).
This, the division hopes, will shorten both manufacture cycle time and product engineering time. This will certainly ensure that the EDN stays within the demanding industry standards where the delivery cycle time for a 500 megawatt (MW) power project has been cut down from 62 months to 36 months or even 33 months; and that for a 210 MW power plant from 26 to 28 months.
The transportation sector could propel EDN's growth. Its traction equipment business has jumped from around Rs.30 crores hardly five years ago to Rs.100 crores. The EDN is considering a tie-up to acquire Insulated Gate Bipolar Transistor traction drive technology, which will help scale up its operations to over Rs.300 crores in five years.
Realising the tremendous potential of solar power as a non-conventional source of energy BHEL-EDN has been manufacturing solar photovoltaic (SPV) cells and modules besides developing complete SPV systems. The system is designed specifically keeping in mind the need for unattended operation and easy maintenance. Among the major systems in operation are large-size SPV power plants, solar-diesel hybrid systems, solar power systems for rural radio phones, telecommunications and railway signalling.
The EDN's modules and SPVs are also used in space applications. Solar batteries and cells are being assembled and provided to the Indian Space Research Organisation (ISRO) using the raw material provided by the later. Although at the moment the volume is small - three to four batteries a year - this is expected to rise to 12 in a very short time, with EDN even manufacturing cells for ISRO.
The EDN has also supplied control equipment worth over Rs.2,500 crores to India's nuclear power plants. Although the EDN has gained much from its joint venture with the American firm Metso Automation Inc., for the manufacture and supply of new generation distributed control systems `maxDNA' for modern power plant and industrial applications, there is a constant endeavour to indigenise production.
Bangalore is also home to BHEL's Industrial Systems Group (ISG). A project consultancy group, which was basically catering to the steel industry, the ISG was languishing hardly making a business of Rs.40 to Rs.50 crores. But the decision in 2000 to expand the ISG's operations to handle coal and ash has improved revenues, which are expected to move from last years Rs.250 crores to Rs.1,000 crores during the next three years.