IPP the future growth area
By Though engaged in two business line | 24 Aug 2001
The Rs. 340 crore turnover company has already undergone two name changes in the last fifteen years - from Wartsila Diesel India Ltd to Wartsila NSD India Ltd and now to Wartsila India. It is now in the process of merging its 100 per cent subsidiary Wartsila NSD Operations & Maintenance India Ltd with itself. Wartsila India has also become
the engineering design base for its parent company, Wartsila OY.
It may be recalled Wartsila India floated the subsidiary in line with its 51 per cent Finnish parent Wartsila OY's business model. The company wanted to increase its after sales service income to 33 per cent of the turnover by offering operations and maintenance services (O&M) to clients.
Reasoning the current merger plan Mr. Pradeep Mallick, managing director, Wartsila India says, "It doesn't make any sense to keep it a separate company. As the subsidiary is profitable but tax has to paid without any dividend being declared." (see Pradeep Mallick: A multi linguist).
According to him the subsidiary is doing well with clients like Grasim Industries, Tata Electric and Gujarat Ambuja Cement with O&M contracts to the tune of 230 MW -nearly 10 per cent of Wartsila India's total installed base here.
The other areas where the company has tuned its strategy with its Finnish parent is towards promoting gas/dual fuel fired engines and higher capacity power generators.
"In three years time 40-50 per cent of our global sales will come from gas plants and we are geared to do the same here," Mr. Mallick predicts. Gas based power is far cheaper than power from heavy fuel fired engine as well as the grid power.
The company is trying to promote gas-fired plants in Godavari, Krishna and Cauvery basin where gas is available in sufficient quantities to run a power plant. "We are yet to sell a plant as the economy is progressing at a slow pace," he adds.
According to Mr. Mallick, the parent company is researching on introduction of clean heavy fuel engines. The group has already launched dual fuel (gas and oil) engines with a capacity of 50 MW. In India the company has bagged a 6 MW dual fuel plant order from Videocon for its Gujarat project.
Besides, Wartsila India's accent is now on pushing higher capacity engines. "A pilot plant is running in Finland with a single engine that can generate 40 MW power. By installing multiples of such engines one can go in for higher generation capacity similar to traditional power generation equipment," says Mr. Mallick.
Supplying low capacity engines, upto 6 MW from its plant at Khopoli, Maharashtra, Wartsila India imports higher capacity engines from Finland and earns a commission on such sales.
IPP the future growth area
Though engaged in two business lines – power generation and marine engines- it is the former that contributes over Rs. 200 crore of the company's turnover.
Within this segment Wartsila India's clients consists of captive power producers or industries (contributing75 per cent of the business), utilities and independent power producers (IPP).
Amongst its captive power producer clientele, cement industry accounts for 32 per cent share and is followed by other industries like textiles, chemicals & fertilisers, utilities, process engineering and steel & alloys etc.
The worrying aspect is the attitude of some State Electricity Boards (SEB) restricting captive power generation. And Mr. Mallick is incensed by that.
"There is a crying need to encourage captive power generation and a national policy on the issue should be soon framed," demands Mr. Mallick. The policy should also permit wheeling of power through SEB's and allow third party sale at prices mutually agreed between the buyer and the seller, he adds.
Enjoying a market share of 60 per cent in its segment Wartsila India has to contend with increasing competition. Caterpillar, USA entering the higher capacity segments besides Modi Mirreless-Blackstone, MAN B&W and SEMT Pielstik who are already present.
"None of our competitors have a full fledged manufacturing base here," argues Mr. Mallick. With new orders and an installed base of more than 2,000 MW, Wartsila India's revenues from spare sales will contribute handsomely to its bottom line, a luxury that competition lacks.
Meanwhile IPP sector is what Wartsila India is concentrating on though the economic slowdown has impacted the company's sales. Unlike the captive power producer segment, IPP orders are for high capacity and are of high value. Three major orders 106 MW from Balaji Power Corporation and Samalpatti Power (each worth Rs 300 crore) the Tata Electric project is for 81.3 MW is what is keeping the company busy.
The company is also likely to bag two 120 MW order from GVK and Shapooji Pallonji Power for their projects in Madhya Pradesh. Plans are afoot to take equity stakes in the project. Wartsila India has a small stake in Samalpatti Power.
According to Mr. Mallick, Wartsila India would close the year 2001 with a turnover and profit before tax that is similar to what was clocked the previous year. The company closed its half year ending 30.6.2001 with a sales of Rs. 158.8 crore and a net profit of Rs. 7.1 crore as against Rs. 127 crore and Rs. 4.7 crore respectively.
The period between April-June 2001 was better than last fiscal with a sales of Rs. 73.4 crore. The order book position for the half year ended stood at Rs. 68 crore but far lower than the last years level of Rs. 197 crore.
"When the oil prices went up corporates put their capex on the back burner. But after factoring the price hike in their plans they are now going ahead with their plans," he concludes.
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