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Technology | December 2013

The art of remaining small

Sunil Hi-Tech started modest but unlike many others, it waited and watched for opportunities to arise in the economic environment. The Electricity Act and the consequent opening up of power was a landmark event for the company. Today, though, the company wants to remain an ancillary to bigger EPC players. Shashidhar Nanjundaiah explains.

In the age of UMPPs and mega-projects, the stories of smaller infrastructure players haven´t exactly made the headlines. Yet their strategies and their inroads into the world of the biggies have often been emphatic, sure-footed and niche.

Like many of its contemporaries, Sunil Hi-Tech did not start out as a power or infrastructure contractor. Its founder was an agriculturist who happened to have plenty of land in the Vidarbha region of Maharashtra to set up a manufacturing unit. The 2003 Electricity Act turned out to be a game changer for the then-closely held company, as it decided to raise funds through a modest IPO, raising Rs 32 crore, which helped the company rev up a boiler components manufacturing unit. A Qualified Public Offering (QPO) was raised in 2009, bringing in an additional Rs 82 crore.

Nagpur-based Sunil Hi-Tech Engineering Ltd was at the right place at the right time, incorporated in 1998 and revamped in 2005. Today, the order book for Sunil Hi-Tech stands at Rs 2,000 crore. The company´s CMD Ratnakar Gutte and his son, JMD Sunil Gutte, put their heads together to understand where their niche could be in an era that promised the openness in the power industry similar to what the 1991 liberalisation offered telecom. But instead of taking the alluring engineering, procurement and construction (EPC) route, the company chose to play the second fiddle to other turnkey players like BHEL and L&T, who were obvious big brothers with deep pockets and capability for capex.

We won´t take up thepart. Engineering was never our forte, and we don´t have the strength or the capacity to be a complete EPC contractor, nor do I believe we would like to be comprehensive BTG players, says the junior Gutte. It is so much more up my alley to service the existing EPC players.

Gutte believes the cost and time overruns, along with the dreaded pillar-to-post peregrinations, are not only intimidating for a smaller player, but believes that much of this can be avoided with better design and planning. There is a mismatch between a developer´s expectations and an EPC player´s delivery, he says, and this stems from the fact that our engineering has not kept pace with modernity.

´Our country lacks good and consistent engineering capabilities, he says.´ ´The engineering giants in our country have not been nimble-footed enough to adapt to new technologies and innovations. Nobody will talk about it, but the uncertainty generated from that is a major reason for the overruns. Although Indian firms are learning through trial and error, this experimentation may cost them dear as international players with better efficiencies and effectiveness are also better prepared. Supercritical generation technology is an example of Gutte´s scepticism sometimes, the developer and the contractor are in learning stages of the technology game, leading to delays, cost ineffectiveness and confusion.

This kind of clarity resulted in clearing the earth around how Sunil Hi-Tech´s real capabilities in fabricating, erection, testing and commissioning of bunkers, ESPs, boilers, TG sets in the power plants and in item rate erection contracts. But what this experience has given them is comparably wide-ranging to what an EPC player would. Erecting the boiler, Sunil Gutte says, is no less challenging than building a skyscraper of 70 m. It has also exposed the company to the steel industry. Landscaping has built its capabilities in the related direction, including construction of roads and bridges, and laying pipelines. Additionally, because of the combination of manufacturing and contract, the company has had procurement experience to boast of. This will help the company smoothly transition into a bigger role in the near future, when it will sink its paws into the roads sector.

As Sunil Hi-Tech establishes itself as a power player, it now plans to broaden its scope of activities to infrastructure in general seems justified almost natural. Extrapolating its construction capabilities to other sectors may not only benefit the company, but can help the company apply successful innovation to a new sector.

But being headquartered in Nagpur presented limitations on mobility and acceptance. This seemed to be a good time and reason for Sunil Hi-tech to bring in C Venkataramana from Essel Infra and start operations in infrastructure from Mumbai´s hot spot, Bandra-Kurla Complex. With an established network and acumen for project bidding, the new MD of Sunil Hi-Tech India Infra Pvt Ltd, has garnered Rs 500 crore worth of orders.

´Bank loans to BOT projects are at a trickle, says Venkataramana. ´None of the states, with the possible exception of Madhya Pradesh, are taking too much initiative in awarding road projects. Rural roads are too small a sector for all-but-local players. It is difficult to deal with local governance.

The smallness of the company´s size affords it to shy away from risky projects such as water supply or BOT projects in roads. The financial planning of the company has afforded a gradual, natural expansion, bidding on capability, not financial muscle. It means upfront payments albeit with modest returns, rather than delayed and risky but lucrative returns.

Venkataramana says state BOT projects are even more challenging: for example, government concession agreements specify that the state will lease the land out for the project, but this is often not the case. In Madhya Pradesh, a road development project on BOT was tendered out for international bidding as far back as in 2009. Despite a contractual agreement the state has not leased out the land required for it.

That is why Sunil Hi-Tech wants to keep it simple: An ´L1 bidding means a no-hassle implementation for contractors who cannot afford the time to run around offices. Yet it may be time, the company realises, that it acquires a smallish (therefore lower-risk) BOT project to display a portfolio that may allow it to win other project awards.

The supercritical example is precisely the kind of scaling-up challenges Indian contractors face today: Without access to technologically superior workforce, they cannot hope to take on technologically superior projects; and without experience, they cannot hope to make a dent into the sector. The challenge for a smaller infrastructure player seems to grow and yet remain in its niche.

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