The Hindu Business Line : Tiruchi fabricators reduce dependence on BHEL

FOR long, Bharat Heavy Electricals Ltd (BHEL) has been saying that the Tiruchi ancillaries must develop capabilities to stand on their own feet and reduce dependence on the PSU. Now, this "healthy disconnect" - as one member of the BHEL Small and Medium Industries Association put it - is happening.

Today, fabricators in the Tiruchi region do much less business with BHEL than ever before. Until recently, these small and medium scale units eked out a living by doing jobs for BHEL.

Only in 2003-04, of the Rs 80-crore combined turnover of these 150-odd units, Rs 70 crore came from jobs for BHEL. In the current year, these units expect a turnover of Rs 350 crore — BHEL business will not be more than Rs 120 crore.

Ironically, this disconnect is happening at a time when BHEL is not only on a major expansion programme, but has also avowed to grow through outsourcing. It intends to raise its capacity from 3.5 lakh tonnes to 7.5 lakh tonnes (of steel processing) but "shop capacity will increase only slightly."

According to Dr V. Gopalakrishnan, Executive Director, BHEL, Tiruchi, a higher reliance on outsourcing is inevitable to keep costs down.

On the one hand, the Tiruchi unit of BHEL has plans to look for ancillaries in the North for saving costs and production time. On the other, its traditional ancillaries are finding other, more lucrative, business opportunities.

`Windmill towers' is one example. Last year, about 700 — or half the windmill towers produced in the country — were made in Tiruchi. The number is expected to rise to 1,000 in the current year.

While the average rate paid by BHEL for fabrication jobs is around Rs 6,000 a tonne, windmill companies pay nearly thrice as much. Moreover, windmill producers sometimes even "support" the ancillaries with finance.

Therefore, a crop of a dozen ancillaries has sprung up for fabricating windmill towers. Units such as Anand Engineering have converted themselves almost exclusively to this business. These units are hungry for more business. Six of these units were in Hanover, Germany, to participate in a fair to showcase their capabilities.

Windmills apart, some of the Tiruchi fabricators are getting non-BHEL business from elsewhere too. An example is G.B. Engineering Enterprises, which has started getting orders from Ansaldo, the Italian power equipment manufacturer, for Ansaldo's global customers. The G.B. Engineering group expects revenues of Rs 150 crore in the current year and Rs 300 crore in the next, compared with Rs 80 crore last year.

The growing business has led G.B. Engineering to create its own set of ancillaries. Some other units in Tiruchi are finding work from other boiler producers such as Cethar Vessels and Thermax.

Yet, around 60 per cent of the fabricators in Tiruchi still depend on BHEL for business. BHELSIA, the association of BHEL's ancillaries, says that BHEL's rates have fallen 20 per cent over the last five years, but input costs — mainly, power, welding electrodes and wages — have almost doubled. Only initiatives such as energy saving and bulk procurement of raw materials, and increased volumes enabled these units to remain in business. These units expect BHEL to give them long-term commitments and do some "hand holding".

"If BHEL is prosperous today, it is because of us," said Mr Rajkumar Rajappa, President, BHELSIA.

Thus, the fabricators in Tiruchi have cleaved into the well-to-do units that do not depend upon BHEL for business and those otherwise. Those who still live by BHEL face another disturbing prospect — when the windmill tower market dries up, the units that are into that business today will come back to share BHEL orders. "They will kill us," the head of one ancillary unit said.

BHEL's response to these emerging realities is the `I have no option but to reduce costs' refrain.

Dr Gopalakrishnan admits that there is scope to simplify procedures and has set up a working group to look into it, but says the units will have to develop themselves. BHEL feels it is already doing enough by not paring down the number of ancillaries. It would like to have not more than a tenth of the current number of 150. Fewer ancillaries result in cost control, but also more business to those ancillaries.

But according to BHELSIA, all is not lost for the BHEL-dependent units.

With financial support from the Central Government's cluster development programme, BHELSIA will set up common infrastructure facilities. A project report for setting up common testing and calibration and facilities, design centre, common marketing and training facilities has just been submitted to the nodal agency, Small Industries Development Corporation. The common facilities should provide some cost-control help to the member units.

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