The Hindu Business Line : Cloud clears for Autokast

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Kochi Feb 27 The public-sector Autokast Ltd at Chertalai, which was in the process of being closed down, is now in the resurrection mode following the announcement by the Railway Minister, Mr Lalu Prasad, in the Railway Budget to set up a joint venture involving the company for the manufacture of wagons.

The State Finance Minister, Dr Thomas Isaac, is a jubilant person as his efforts to revive the company with a viable proposal prepared by SPATO has yielded positive results now.

"It is one of the most dynamic units," he told Business Line on Tuesday. It has an asset worth Rs 75 crore and with modernisation it can meet the future requirements of the Railways, he said.

As freight traffic is on the rise and the Indian Railways is scouting for lightweight wagons made of cast steel frame, Autokast has been identified as a suitable partner in its manufacture and supply. RITES has already completed the asset valuation and a due diligence team is expected soon, he said. Details of the investment needed and other modalities will be worked out after completing the studies, he said.

In fact in September 2004 the Board for Industrial and Financial Reconstruction (BIFR) had ordered closure of Autokast Ltd following the expiry of the two months' time given to the promoters to submit a detailed revival scheme.

The State Enterprises Reforms Commission (ERC) had also stated that the company could not operate profitably despite continued financial support from the State Government to the tune of Rs 55 crore.

The Commission recommended privatisation with management control given to strategic investors.

Revival strategy

It was at this juncture that SPATO, an organisation of the officers of public sector units and autonomous bodies in the State, mooted a proposal to revive the sick unit.

The "viable project proposal", prepared by an expert committee constituted by SPATO, was submitted to the State Government in November 2004.

Dr Thomas Issac, who was instrumental in preparing the proposal, said that a SWOT analysis had identified marketing, infrastructure, energy consumption, raw material procurement and usage, human resources and finance as the areas of concern in the company.

Based on this, a three-pronged strategy was suggested to turn around the company into a profit-making unit. "The employees and officers of the company had pledged their active support for the implementation of the proposal," he said.

The unit has an installed capacity of 23,000 tonnes (grey iron 15,000 tonnes; spheroidal graphite iron 5,000 tonnes; steel 3,000 tonnes). The average capacity utilisation over the past five years is only 12 per cent. Considering the bottlenecks at different stages, a reasonable capacity of 18,000 tonnes could be achieved, he said.

Captive buyer

It is one of the best foundries in the country and with a captive buyer in the Railways it could be turned around as a major manufacturing unit after modernising it with the latest technology and machineries.

On successful implementation of the three-pronged approach, the company is expected to make a net profit of Rs 7.5 crore from a turnover of Rs 60 crore per annum, he said. Average cost of production of one tonne of casting works out to Rs 38,584 while the breakeven capacity is only around 41.8 per cent.

Thus, Autokast would have sustained profit of about Rs 10 crore every year, he said. Now with infusion of capital by the Railways, the capacity could be enhanced and that would increase its turnover and profits, he said.

The company, which was incorporated in 1984 with a paid-up capital of Rs 17.97 crore to supply automobile castings, has an accumulated loss of Rs 107 crore and a negative net worth of Rs 88.7 crore as on March 31, 2002.

In fact, two attempts were made in the past to revive the unit.

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