The public sector power equipment major Bharat Heavy Electricals Limited (BHEL)’s Tiruchi unit, which manufactures boilers, is exploring possibilities to set up a greenfield facility in western India. A senior official of the company said its inability to acquire land in Tamil Nadu for expansion and the local suppliers’ capacity constraints were the reasons for a possible expansion outside Tamil Nadu.
Spread over 3,000 hectares in Tiruchi, BHEL is one of the first industrial townships in the state. The Tiruchi unit, whose foundation stone was laid in 1963, currently employs around 10,500 people.
Speaking to Business Standard on the sidelines of Boilers 2010, organised by the Tamil Nadu Boilers Association, A V Krishnan, executive director, BHEL Tiruchi said that a Rs 1,300-crore expansion plan was currently being executed, and would go on till 2012. The proposed investments include a Rs 390-crore greenfield facility at Tirumayam near Tiruchi, which is expected to commence production in November 2011. By March 2012, the unit is expected to reach 650,000-tonne physical capacity and a turnover of Rs 15,000 crore.
“Beyond that, we are not in a position to expand our capacity in Tiruchi, for which land acquisition and raw material are the two biggest challenges,” said Krishnan.
BHEL had asked for an additional 45 acres in the 6-8 km radius of its existing unit, but the state administration is yet to identify the land. “We must first address the challenge of sourcing raw materials, before thinking about new products,” said Krishnan. “The possible moves include setting up a manufacturing unit in Maharashtra or Madhya Pradesh.”
The unit has started segregating its products by setting up satellite manufacturing facilities. For instance, the Tirumayam manufacturing facility is to manufacture pipes, while another facility is to be set up for manufacturing boiler headers. “Currently the proposal is at the discussions stage, but the project could involve an investment of around Rs 200 crore,” said Krishnan.
On the capacity constraints on the supply side, he said that there were around 500 vendors in and around Tiruchi with a total capacity of 2.5 lakh tonnes catering to the unit. “This is not enough for us, we want 30 per cent of our suppliers to have 500-tonne-plus capacity, which only three contractors have currently while the rest have 60-70 tonne capacity”.
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Recently, BHEL-Tiruchi added 52 vendors in Madhya Pradesh, Uttar Pradesh, Punjab and Andhra Pradesh who are supplying 150,000 tonnes. “It is better to be close to the vendor base, which would cut the logistics cost,” he said. The other possible greenfield facility is for tubes and pipes.
Currently BHEL-Tiruchi’s requirement is around 225,000 tonne of tubes and pipes every year, of which 70 per cent are being imported. This is expected to increase by three times by the end of the 13th Five Year Plan.
“We are not able to get suppliers in the global markets due to heavy competition. We are now thinking of joining hands with manufacturers to set up a greenfield facility for tubes and pipes,” he said. But BHEL-Tiruchi wants to explore all options including brownfield, greenfield, acquisition and joint venture to enhance its capacity, said Krishnan.