Larsen &Toubro commissioned its spanking new thermal power-equipment facility last week. It was created ground-up in less than 24 months, considered a record in India.
As many as 16,000 concrete piles were driven down the 500-acre facility on the backwaters of the Tapti river in Hazira, Gujarat, to build the superstructure.That speed, said Ravi Uppal, CEO and managing director of L&T Power, will afford the company first-mover advantage and help drive sales eightfold to $3 billion in four years from $400 million now.
“This is the country’s largest integrated power facility (with an annual capacity to make equipment that can produce 5,000 mw) and helps us bring down costs greatly,” Uppal said in an interview with DNA.
The company has already spent Rs3,000 crore on the plant and will be spending another Rs1,000 crore in the next 6-8 months on a steel castings unit.Uppal said the commissioning should help because “clients get confidence when they see the plant on the ground, up and running”.L&T currently has orders for 10,000 mw of equipment worth nearly Rs32,000 crore.
Arvind Mahajan, executive director at KPMG, the Big Four audit firm, concurs with Uppal’s view that a ready plant engenders confidence among equipment buyers.“Obviously, with most joint venture facilities (to make power equipment) not yet functional, private power producers have been placing orders with Chinese firms,” Mahajan said.
Capacity at BHEL, the only other domestic power equipment maker in the country, at 15,000 mw a year is far short of demand.
The state-owned giant intends to augment this by a third, but hasn’t given a timeline for it.As a result, since October last, Chinese majors have won $15 billion — or Rs70,000 crore — worth of power equipment contracts from Indian firms, setting off a wave of angst in the domestic industry.
“It is rather unfortunate that most companies are going to China for sourcing equipment,” said Uppal. Stuff manufactured in China are up to 25% cheaper than in India on account of various direct and indirect subsidies offered by Beijing, he said.
The Hazira plant helps L&T Power and partner Mitsubishi Heavy Industries of Japan take lead in a business valued at `60,000 crore annually, according to World Energy Outlook.
Global firms, including Japan’s Hitachi, US-listed companies SPX Corp and Babcock & Wilcox Power Generation Group, and France’s Alstom are partnering BGR Energy, Thermax and Bharat Forge, respectively.
“We hope to get orders in the coming year,” said M S Unnikrishnan, managing director of Thermax, adding the company’s boiler facility with Babcock would be ready by September 2012.
What drew in private and global players was the government’s announcement to add 100,000 mw during 2012-17 to its current installed capacity of 166,366 mw.
But a rival to L&T, apart from the choc-a-bloc BHEL, is a long time away because none of the joint ventures is anywhere near completion.BGR, the Chennai-based power sector company, has two ventures with Hitachi to make boilers and turbines.
BGR and Hitachi are investing Rs3,000 crore to make turbines.
The Japanese major has a 26% in the venture that’s called BGR Turbines.
They will invest another Rs1,400 crores to make boilers. Hitachi Power Europe GmbH has a 30% stake in this venture, called BGR Boilers.
B G Raghupathy, chairman and managing director of BGR Energy, said both plants will start production some time in 2012.
The company had an order book of Rs10,500 crore at the end of September last.Another joint venture between Bharat Forge and Alstom is investing Rs2,400 crore to set up a plant at Mundra in Gujarat; this will start only in 2013.Uppal believes L&T’s decision to set up the plant near the backwaters of Tapti also serves two important purposes.
First, manufacturing synergies are engendered as the company’s heavy engineering plant is just a stone’s throw away.
Secondly, close proximity to port helps L&T use sea lanes for transportation of goods and save on costs incurred on trucking over land.
There’s another marketing pitch Uppal makes: “If you buy a Mercedes from Germany (and if there are no service centres in the country) would you run to Stuttgart every time your car broke down?” he asks, alluding to some domestic power entrepreneurs placing contracts with Chinese companies.
One more factor going for L&T, he says, is that thermal power remains the best bet in India because of cost factors.
“I believe there will be a huge demand for power at tariffs comfortable for the masses — like mobile telephony rates,” he said, hinting thermal power can facilitate this.
L&T — and other equipment makers — are wagering serious bucks on the commoditisation cycle such demand would spawn.
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