Financial Daily from THE HINDU group of publications
Wednesday, May 15, 2002
ECIL: From almost `sick' to healthy turnaround
Mr K.R.S. Sastry
HYDERABAD, May 14
ELECTRONICS Corporation of India Ltd (ECIL) has been one of the pioneers in the development of electronics, instrumentation and computer technologies in the country.
A public sector undertaking under the Department of Atomic energy (DAE), it is playing a critical role in developing indigenous support to technology development in the strategic areas of defence, nuclear and also civilian establishments, despite having to face sanctions.
The mid-1990s, especially the post-economic reforms period, proved to be a trying time for the corporation. Government policies, competition and several other factors led to many ups and downs. From being a profit- making company for nearly 3 decades, it plunged to Rs 60-crore loss in the financial year 1998-99.
Thereafter, in a dramatic turnaround, ECIL was virtually ``snatched from the jaws of BIFR'', by a combination of factors.
At the end of fiscal 2001-02, it has emerged as Rs 675- crore company, with a pre-tax profit of Rs 75 crore. It received a `P1+' rating from Crisil and has become a completely debt-free company. What led to this interesting turn of events? Can this trend be sustained?
To get the story first hand, Business Line spoke to the Director (Finance) of ECIL, Mr. K.R.S. Sastry.
With nearly three-and-half decades of experience in organisations such as BHEL, Bharat Pumps and Compressors and the Bharat Heavy Plates and Vessels (BHPV), Mr Sastry joined ECIL at perhaps its most turbulent period - May 1997.
A former International President of the South Asian Federation of Accountants (SAFA), Mr Sastry shared his views on the tough decisions taken, the big targets set and the journey which has seen the ECIL climb back to leadership in niche areas. Excerpts:
What are the key steps that have led to this turnaround in the fortunes of the ECIL?
The success of the financial turnaround of ECIL so far can be broadly attributed to three major decisions solid support from the DAE and the Centre; the two-phased restructuring programme and the series of management actions.
After its dismal showing in 1998-99, ECIL was being talked about as a fit candidate for the Board for Industrial and Financial Reconstruction.
At this juncture, the leadership of ECIL and DAE, particularly Dr R. Chidambaram, played an important role in bringing about a positive change. When proposals were placed before the then Cabinet Secretary, Mr Prabhat Kumar, he said: "ECIL is a national asset and we will not allow it to go to BIFR.'' He suggested restructuring.
In January 2000, the two-stage restructuring plan was approved by the Government. In Phase-I, the decision to close down the Mainframe Computer Unit (MCU) was okayed.
This decision meant a waiver of accumulated losses of Rs 100 crore, and on top of it, a rebate of Rs 15 crore for ECIL.
"The MCU was virtually thrust on us by the Department of Electronics. And against a projected sale of 800 units, we could do only 42 in a decade.''
The Phase-2 of restructuring involved the conversion of outstanding Government loans into equity, which amounted to Rs 45 crore on March 31, 2000, waiver of interest on loans during the period 1996-2000, which was Rs 16 crore and waiver of a number of penalties levied by the Ministry of Defence and Telecom in the form of liquidated damages, price reduction and interest on advances.
What were the significant managerial actions that had a positive impact?
In a nutshell, the tightening of measures pertaining to inventory control, debtors, liquidity and marketing strategies put us on the path of getting over problems and building confidence and of growth.
We made our major suppliers our strategic partners. We constituted a committee with the Director (Finance) as the Chairman unique to any PSU - - for formulating pricing strategy before bidding for tenders and other major marketing decisions.
As for old inventory, we brought it down to zero, while `customer-paid' inventory is of the order of Rs 24 crore now. There is no question of stockpiling, and instead, rapid movement is being maintained.
If a company says the Nuclear Power Corporation gives advance, the money is used exclusively for that purpose or deposited in banks to earn interest. Another significant decision has been to organise the company into 14 strategic business units (SBUs). Each of these SBUs should emerge as a profit centre. Classification has been done as profit, break even and loss-making at present.
A practice has been set in motion wherein heads of each SBU makes a presentation about the performance for the month every first Saturday and the expected performance for the next year on the second Saturday.
What is the impact of VRS on the company?
For implementing the VRS, the Centre gave us a grant of Rs 65 crore and we have an additional Rs 30 crore available. So far, 1,500 employees have opted for it and the strength of the PSU on March 31, 2001 was 6,073. The cumulative benefit by this exercise was Rs 13 crore.
Concurrently, a wage revision has been implemented, which has cost us Rs 30 crore.
Here, another unique feature in PSU history was a MoU with the Officers and Employees Association. Accordingly, for implementing the wage revision, a series of existing subsidies on canteen, transportation, the DAE school and uniform for employees were withdrawn, which cost the company around Rs 5 crore.
The VRS has had an interesting fall-out. With the company turning around, there are hardly any takers for it. Instead, the employees and officers have assumed greater participation and role in the company's development. From the earlier `competitive pampering', there is now `willing co-operation' from the employees.
What are the top earning sectors for the company?
The top three revenue earners for ECIL are defence, electronic voting machines (EVMs) and nuclear. In the Rs 675-crore turnover in 2001-02, the defence sector gave Rs 300 crore or nearly 50 per cent, EVMs about Rs 55 crore and nuclear around Rs 55 crore.
Has ECIL made a mark on the export front?
During 2001-02, we earned a small amount of Rs 5 crore through exports. But, in the near future, it is our thrust area. Each of our 14 SBUs has been given a target of 15 per cent increase in exports. A special export cell has also been created for giving a push.
How is the order-book situation of the company?
We have a comfortable order-book situation. This is a strong reason for the ambitious target we have set for fiscal 2002-03 of reaching a turnover figure of Rs 850 crore.
From the Election Commission alone, we have approximately about Rs 150-crore order in the next two years. Similarly, the Nuclear Power Corporation has committed Rs 300 crore work orders in the next two-and-half years for control and instrumentation systems, simulators and other critical equipment. ECIL has formed a dedicated group to meet these demands.
How is ECIL's joint venture with Rapiscan doing? Is the joint venture strategy working for the company?
Our joint venture with Rapiscan, through which we manufacture x-ray baggage inspection gadgets, has been satisfactory. But at present, our focus is on having a consortia approach, both for bidding and marketing; this is yielding results.
Are you confident of sustaining this turnaround? What are your long-term strategies?
We are reasonably sure that we will grow in a healthy manner. Our long-term strategy essentially will be shift more to defence and strategic sectors, get repeat orders, diversify from defence communication, which is our forte, to other areas, ensure financial discipline in each of the 14 SBUs, exploit the big potential in the field instrumentation in nuclear sector, where L&T is a major player now, and finally, cash in on the support from the atomic energy and defence sectors.
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