The Hindu Business Line : Keltec set to expand product range

Conceived as a unique venture for the development and manufacture of a range of critical hardware requirements of aerospace and defence industries under one roof, the company fell on bad days in early years of operation for a variety of reasons. However, the successful implementation of a revival package has turned the fortunes of Keltec and it is now looking ahead with a lot of optimism. The Managing Director of Keltec, Mr Johnson Peter, talked to Business Line at length on the problems and prospects of the company in an interview. Excerpts:

Could you give a brief account of the birth of Keltec?

The original idea was for starting a separate facility within the Vikram Sarabhai Space Centre for the manufacture of critical components used in rockets, which were being outsourced then. However, Prof. Satish Dhavan, who was the Chairman of Indian Space Research Organisation (ISRO), suggested the setting up of a separate company outside ISRO so that it could cater to the needs of other clients such as the Defence. Keltec was floated based on a memorandum of understanding among the ISRO, Defence Research and Development Organisation (DRDO) and the Kerala Government. The project was taken up for implementation in February 1990 and commercial production began on April 1, 1994. The unique feature of the company is that it integrated under one roof all the manufacturing facilities that are essential for a high technology work centre to ensure effective quality control and economy in production. But the company went into a spin immediately after inception and it was subsequently referred to the Board for Industrial and Financial Reconstruction (BIFR) in 1999.

What were the negative factors that upset the calculations at such an early stage?

The company was floated with an equity component of Rs 13 crore from the State Government and loans amounting to Rs 27.56 crore from IDBI, IFCI and a consortium of banks. Besides, the debt portion consisted of foreign loans to the extent of 75 per cent and the average interest rate was hovering around an unwieldy 26 per cent as against 12 per cent envisaged in the project proposal.

Another reason was the very nature of the operation of the company that is oriented towards research and development. The manufacturing process is totally new for every product, requiring a lot of research and analysis at the various stages. Also, the design parameters are altered by the customers in between, which hit the production flow against a fixed target.

The integrated manufacturing facility often led to production line imbalance due to the varying requirements of the products. This resulted in capacity utilisation of as low as 40 per cent.

There was a proposal some time ago from Pratt & Whitney of the US for taking over the management of Keltec. Why didn't it go through despite the fact that the company was finding the going tough?

Keltec is certified by Pratt & Whitney for the manufacture of various components required for its aircraft engines. The proposal came up in 1997 and it wanted controlling stake in Keltec. However, the State Government refused to part with the management and the proposal fell through.

How did the company manage to overcome the problems and where does it stand today?

Keltec was referred to the Board for Industrial and Financial Reconstruction (BIFR) in 1999 when the interest arrears on the loans shot up to Rs 51.50 crore and the total liabilities touched Rs 79 crore. A one-time settlement package submitted to BIFR was implemented subsequently. The package featured waiver of accumulated interest by the banks and financial institutions. For the settlement of the principal amount of Rs 27.56 crore, ISRO and DRDO agreed to extend interest-free advances of Rs 10 crore each against future supplies. The balance Rs 7.56 crore was given by the State Government as interest-free loan and this has now been converted into equity.

Following the implementation of OTS, the company became debt-free in 2002. Since then, there has been substantial improvement in the order book position especially with both ISRO and DRDO, which were involved in the OTS scheme, starting to place more orders with the company. Last year, Keltec made a cash profit of Rs 1.5 crore and in the current year it is expected to break even.

What are the products being manufactured by the company and those in the pipeline?

Keltec has proved its capability in successfully realising hardware such as propellant tanks, liquid engines, control system components, motor cases, nozzles and other critical components for the PSLV and GSLV projects of ISRO. We are also into the production of engine components for light combat aircraft, missile casings and major sub-systems for DRDO. Recently, we have supplied titanium gas bottles used in missiles and rockets and have also taken up manufacture of robots for Babha Atomic Research Centre.

Some of the new products in the pipeline are pressure transducers for ISRO and defence applications and injection valves for GSLV stage controls.

What are the future prospects of the company?

Keltec has entered into mass production of certain components and the present order position is worth around Rs 60 crore. The capacity, however, is limited to one-fourth of it and we have made a proposal to the State Government for expansion of the facilities.

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