Corporate India building muscle

A fortnight back, Pune-based auto ancillary company Bharat Forge announced a Rs 350 crore (Rs 3.5 billion) fund raising plan to support its expansion.

Tuesday, RPG Enterprises group vice-chairman Sanjiv Goenka announced in Kolkata the group's Rs 2,000 crore (Rs 20 billion) expansion plan over the next two years.

Bharat Forge and the RPG group are members of a growing tribe of Indian industries which are ready to make fresh investments for acquisitions and expansion after a prolong slumber.

Power, bio-technology, steel, chemicals, engineering and automobile are some of the segments where companies are lining up new investments.

Oil sector, too, is witnessing huge investments. The mantra for most of these segments are de-bottlenecking and brown field expansions.

"Over the last six months, we have sanctioned Rs 12,000 crore (Rs 120 billion) worth of investment plans. I am sure the disbursements will start soon," said Oriental Bank of Commerce chairman and managing director B D Narang.

"We are asking for greater contribution from the promoters," he added.

ICICI Bank's managing director and chief executive officer KV Kamath also said fresh investments will start pouring in over the next 12 months.

As a pre-condition to this investment, ICICI wants a higher debt-equity ratio for all new projects. Bank of India chief M Venugopalan is also flooded with new investment proposals.

"There are proposals, particularly from the power and bio-tech sectors," he said.

A number of multinational companies such as PowerGen, Cogentrix, National Power exited the power sector in the last few years citing lack of clarity in government policy. The Electricity Act 2003 promises to change all that.

However, the exact investment pattern in the power sector is not known. Sources said the Tata Power Company and the Reliance-promoted BSES are expected to play a significant role by bidding for other distribution circles. The Essar group, too, has evinced interest in power trading.

Massive investments are planned in oil sector too. Almost all the existing public sector oil refineries are upgrading to meet the Mashelkar Committee recommendations of introducing Euro-III norms for vehicles, excluding the 2/3 wheelers, in the metros with effect from April 2005, and in other parts of the country by 2010.

"In the next few years, there will be an addition of at least 10 million tonne refining capacity through debottlenecking and upgradation of technology," say senior officials at Bharat Petroleum Corporation.

As of April 2003, the total installed refining capacity in the country stood at 114.6 million tonne per annum.

BPCL is investing Rs 1,800 crore (Rs 18 billion) to upgrade its refinery products to required environmental norms besides augmenting capacity at its Mumbai refinery to 12 million tonne.

Hindustan Petroleum Corporation is modernising its Mumbai as well as Vizag refinery with a capital outlay of Rs 1,152 crore (Rs 11.52 billion) and Rs 1,635 crore (Rs 16.35 billion), respectively.

This will not only upgrade the quality of auto fuels to specifications under Euro-III, but also envisages a crude throughput capacity enhancement for the Mumbai refinery from 5.5 million tpa to 7.9 million tpa and in Vizag refinery from 7.5 million tonne per annum to 8.33 million tonne per annum.

"The corporation is modernising and upgrading both its refineries to meet the product quality standards of the future," said MB Lal, chairman and managing director of HPCL.

Indian Oil Corporation has recently added one million tonne capacity at its Barauni refinery, thereby enhancing the refinery capacity to four million tonne per annum. It is also doubling the capacity of the Panipat refinery from six to 12 million tonne per annum.

Besides PSU oil companies, Reliance Industries has already debottlenecked its original nameplate design capacity of 27 million tonne per annum to 30 million tonne. It is further debottlenecking it to 33 million tonne per annum.

The steel industry -- with an installed capacity of about 33 million tonne -- is planning brownfield expansions to meet the increasing global and domestic demand.

Raman Madhok, chief executive officer, Jindal Iron & Steel Company, said: "We have planned to install a new line at our galvanising facility, and along with debottlenecking, the total galvanising capacity should reach 710,000 lakh tonne per annum. Given the global and domestic demand scenario, we are targetting a production of 1 million tonne per annum in the next 3-5 years."

Essar Steel has increased its hot-rolled coil capacity by 20 per cent through debottlenecking in the last year.

A senior Essar executive told Business Standard: "After debottlenecking, the installed capacity will increase to 2.4 million tonne by the end of this fiscal. We are looking at a production of around two million tonne which is a capacity utilisation of more than 82 per cent."

Essar produced 1.75 million tonne last year, when the installed capacity stood at two million tonne.

Ispat Industries has recently increased its capacity to 2.4 million tonne and is looking at a further expansion up to three million.

Senior company executives said Ispat is currently operating at about 95 per cent of the installed capacity and if the demand continues, it should be able to do better than that.

The cement sector too is focussing on debottlenecking and increasing the blending ratios of major cement players, which have been operating at around 82 per cent of the installed capacity.

D D Rathi, chief financial officer, Grasim Industries, said: "The existing demand supply scenario is not viable for any greenfield expansions for the next 18 months."

However, about 4-5 million tonne will be added per annum through increase in blending ratios for the next 4-5 years.

While Grasim has been operating at around 90 per cent of its installed capacity of 12.94 million tonne per annum, it hopes to better that in the next few months if demand continues to grow.

"We are expecting to raise our existing capacity by around six-eight lakh tonne per annum through debottlenecking and increasing our blending ratios," said Rathi.

The Associated Cement Companies, which has the highest blending ratio of over 80 per cent, has a total installed capacity of 16.67 million tonne per annum.

A senior executive at ACC said, "The average capacity utilisation in 2002-03 has been around 86 per cent."

However, in the first quarter of the current financial year, ACC had a capacity utilisation of about 91.9 per cent.

Gujarat Ambuja has a capacity utilisation rate of above 100 per cent, which yield an annual cement production of around 9.5 million tonne.

A senior Gujarat Ambuja executive said, "As there is a demand supply mismatch, we are not looking at adding any fresh capacities for sometime and the increase in capacity will be through higher blending ratios."

"Average capacity utilisation in consumer electronic sector stands at 60 per cent and Videocon's average capacity utilisation is more than 80 per cent," said V N Dhoot, chairman, Videocon.