Saturday, August 21, 2010

Engineers India

The cash-rich public sector company, Engineers India, has been on fast track mode, whether in expanding profits or successfully completing a phase of divestment of shares in the market. Business Line caught up with Mr R.K.Grover, Director (Projects), Engineers India, to understand the company's prospects in India and abroad.


Excerpts from the interview:

Increased discovery of gas reserves, the national grid pipeline and private retailing being allowed all mean higher activity in the oil and gas sector. What do these convert into for Engineers India?

Once gas is discovered there is gas processing. A number of gas processing plants of ONGC and GAIL have all been put up by Engineers India. GSPC with gas-find in the east coast has also engaged EIL. So our experience is ensuring repeat orders.

After processing, gas has to be transported through pipelines. We have done most of the cross-country pipeline for GAIL; even currently, the Dabhol-Bangalore pipeline consultancy is being done by us. So expertise exists there as well.

After gas transportation comes city gas distribution. Only a couple of weeks ago, the Government announced seven or eight additional cities thrown open for city gas distribution. While we do not see much scope for consultancy services in city gas distribution, we will definitely look forward to joining hands with somebody or maybe going alone to bid for city gas distribution as an operator.

Next is our focus on gas-based fertiliser plants; where we are looking at a couple of options. Another use for gas is in gas-based power plants. Again these will be co-generation type of plants. All the captive power plants put up in hydro-carbon industry; whether it is refinery or petrochemical are also mostly co-generation. So we are trying to translate the know-how we have, to bigger power plants.

From revenues traditionally driven by consultancy, EIL has seen increasing contribution from lumpsum turnkey (LSTK) projects. Is there a conscious shift and would it not affect profit margins?

Our margin last year in consultancy was 40 per cent whereas it was 9-10 per cent in LSTK. When you talk of margins, you look at the percentage. One other way is to look at the actual value. Actual value is shooting up in LSTK. If I execute a Rs 1,000-crore project and make a 9-10 per cent margin then I have Rs 90-100 crore.

If the same project is given to me as a consultancy job then I will charge a fee may be in the range of 6-10 per cent. Even assuming a 10 per cent fee, I charge Rs 100 crore. Profit on that may be Rs 30-40 crore.

So in absolute terms, my profits are higher in LSTK. Whether I do a job on EPC management (EPCM) basis or LSTK basis, the technical man hours I spend is the same. If you look at the profit per man hour, it is higher under LSTK and lower under EPCM.

The most important factor in the business of companies such as EIL is that our manpower must remain engaged and they must book their man-hours on actual billable jobs. The moment this slows, overheads shoot up. So we cannot have manpower idle. We want to get back to fertilisers, balance of plant for nuclear power plants and so on, to keep our manpower engaged.

Has your overseas revenue declined as a result of slowdown in the Gulf?

The slowdown in overseas revenue did happen from 2008 but its impact was felt with a lag. But overseas hydrocarbon orders are picking up again. If you take Algeria, they are putting up some new refineries and we are talking to them. In Oman, we have made a good breakthrough in upgrading refineries. In Abu Dhabi, we have a small office exploring options. However, we do not restrict ourselves to one region or country. For instance, we were in Qatar for 3-4 years and then moved away. We have worked in Vietnam, Malaysia, Ghana and Kuwait. We move wherever opportunities arise.

Is there intense competition in the regions you mentioned?

The problem in the Middle-East is different altogether. Many of the companies in countries such as Saudi Arabia want our manpower, which we desist unless there is an assignment. But when it comes to awarding consultancy jobs, they go to European companies.

So does their (European companies) edge lie in pricing or technology?

It is not so much the technology nowadays. Many of the companies such as Shell for instance have some shareholding. So the preference is for these companies.

There have been a lot of Chinese and Korean companies coming to India in the power segment. How is the competition from these nations in your space?

For many of the grassroot projects, there is not much competition in the domestic arena as there are not too many players to take up such huge jobs and when someone comes from abroad they are not cost-effective. But when it comes to small projects like putting up a single processing unit, there is competition and we have to do some strategic pricing there. But again even in these small projects, when there is a revamp of existing units, most of the clients tend to come to us.

Refinery capacities are expected to be high and India is expected to be a net exporter. Does that mean lower opportunities for EIL?

Yes capacities that is being talked about is definitely high but I expect demand in India to keep growing, whether we look at our population or per capita income vis-à-vis other countries. Secondly, lot of coastal refineries will be focussing on export. As for the future market, I can tell you of the jobs I am aware of. HPCL has already announced a new refinery on the West Coast. That will be over 15 million tonnes and they have already asked us to start the preliminary work. HPCL Vizag is also thinking of expanding to 30 million tonnes and has asked us to go the configuration study. Cochin Refinery of BPCL is already out with tender for further expansion. We are also participating in that tender. CPCL is also talking of 10 million tonnes and we are in discussions. These are ones in which we are in talks. There are more existing refineries which will be expanding. For instance layers like Bina Refinery already have some infrastructure like a 1000 km pipeline. They only have to push more crude through that by adding more pumping stations. They even have land. So they will either move to petrochemicals or further expand refining capacities. Sitting in Central India with no refineries nearby gives them the option to expand. So I see no dearth of opportunities for us for the next 4-5 years.

Do you expect the proportion of private clients to increase?

It depends where the investment comes from. If you look at the history of Indian hydrocarbon industry, investment was only by PSUs. The private sector investment came only from MRPL, Essar and Reliance. We were there when the first two were put up. We have offered our services for Haldia Petrochemicals. As we diversify we may have more clients from the private sector.


Courtesy: http://www.thehindubusinessline.com/2010/08/08/stories/2010080852140300.htm

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