The Hindu Business Line : `Market buoyancy, operational savings helped us in turnaround'

ENNORE Foundries of the Hinduja group is very much in the news these days, what with the share prices soaring to all-time-high levels. Reason: the company has turned around though its books have a burden of accumulated losses.

Also, the group has decided that Ennore Foundries, rather than its parent company Ashok Leyland, will put up a green field foundry. A big project - 50,000 tonnes per annum - at a cost of Rs 150 crore, the idea no doubt having born out of the realisation that the Indian foundry industry will do very well in the global markets in the coming years.

In an interview to Business Line, the Ennore Foundries' Managing Director, Mr V. Mahadevan, speaks of the company's plans and prospects.

Excerpts:

Please tell me the Ennore Foundries turnaround story.

We used the market buoyancy to turn around. Ashok Leyland raised its production. We supply to Hyundai, Tafe and Mahindra and Mahindra. These are growing segments and we utilised the opportunity well.

But alongside, there were also operational savings, which helped us.

For example, you can see that the interest costs have come down. (This is evident in the first half of the current year, when finance costs amounted to Rs 1.91 crore compared with Rs 3.22 crore in the same period last year.) The Rs 25-crore capital infusion from Ashok Leyland helped a lot; we used the money to retire some high cost loans. We will end the current year with good savings in interest costs. We optimised power costs also, by raising productivity, which brought down the per-unit cost of power. We have been investing in windmills. We also invested in a company that runs a gas-based power plant in the Thanjavur district, called OPG Enterprises.

This year over 80 per cent of our power requirements (of about 5.5 million units) will come from these sources. We also changed over from `arc furnace' to `induction furnace' route, investing about Rs 2.5 crore. The process started in 2002-03 and the first phase was completed in 2003-04. The final phase was completed recently. That is also helping us reduce power consumption.

We also looked at internal efficiency, such as reducing wastage. While all this was happening, the prices (of foundry products) went up last year, by about 30-40 per cent.

The demand for foundry products is also on the rise. We have gone in for a third shift (from August) now, to push up production. Now, average production is about 155 tonnes per day (tpd) from 135 tpd before the third shift started.

How long will it take you to wipe off your accumulated losses?

Maybe next year.

Your expansion plans?

We are actually looking at two types of investments - a new foundry as well as a revamp of the existing foundry. Some work on the new project (50,000 tpa, Rs 150-crore) has begun and we expect to finish the project in two years. I will not be able to tell you the investments in the revamp project because it is still being worked out. Revamp could mean bringing in new equipment and overhaul of the existing plant.

Now we produce about 42,000 tonnes (expected this year). We expect a 15-per cent rise in capacity from the revamp project.

Funding for the expansion?

We are looking at all the three options - internal generation, equity and debt.

Lot of capacities are shifting from developed to developing countries. Are you looking at buying second-hand machines?

We have to have machines of current technology, because we are aiming at addressing the global market. Quality is paramount. In the foundry industry, the technology comes with the machines - it is in-built.

We do not want to end up buying something because it is cheap and find it not very appropriate.

Payback period of the project?

It is being worked out.

The reason given for Ennore Foundries putting up the new plant rather than Ashok Leyland doing so is that it is better that a foundry company manages a foundry. Then, is it possible that Ductron Castings (a unit of Ashok Leyland) would be merged with Ennore Foundries?

There has been no thought on that. Ductron is into SG iron castings, Ennore Foundries is into grey iron.

The products are different. There is no great benefit or synergy.

Our focus is on putting up the new foundry, we are not thinking of other things.

Impact of steel prices?

Not like last year. We have just started importing scrap. In future, say next year, we may import about 20,000 tonnes a year, or about 30-40 per cent of our requirements. The advantages are in terms of quality and availability.

Naturally, the appreciation of the rupee is helpful.

Export-focussed project when the rupee is rising?

The new foundry may be exporting about 40 per cent of its capacity. About 60 per cent will be consumed locally.

So we are not very greatly concerned about the rupee appreciation, since we are also importing scrap.

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