A fresh start

The Railways? bid to take over Burn Standard (BSCL) has come too late, but luckily for the company and its employees, the package on offer does seem attractive.

The Railways is going to absorb a company with an accumulated loss of Rs 1,628 crore as of March 2009 and a negative net worth of Rs 1,337 crore as of March 2008. BSCL?s current order book is of Rs 132 crore, which includes Salem refractory?s orders, but orders for wagon making are worth Rs 111 crore. The railway ministry, immediately after the announcement of takeover on June 10, has placed orders for 500 wagons but the order value has not been decided. Burn Standard has a capacity to make 2,500 wagons per year.

BSCL,which became a 100% subsidiary of Bharat Bhari Udyog Ltd (BBUL) in 1987 after the government took it over a decade earlier, was referred to the Board for Industrial and Financial Reconstruction (BIFR) in 1994. A viable revival package has been worked out only now, to take care of BSCL?s 1,418 employees.

According to Anutosh Bandyopadhyay, Burn Standard?s legal manager, a majority of BSCL employees will retire in 3 to 5 years. What benefit would these people get from the revival plan?

BSCL employees, Bandyopadhyay says, are paid as per the 1992 package. Although railway minister Mamata Banerjee said she would bring their pay at par with the railways? that would happen only after the final and formal takeover.

Of course, there are still some uncertainties. ?We are not sure when the final takeover would happen,? said Annada Kinkar Das, general manager. ?There are a lot of legal formalities that have to be done before finally transferring Burn Standard?s Howrah and Burnpur units to the Railways and it would take nothing less than six months to complete those formalities,? Bandyopadhyay said.

The heavy industries ministry has agreed to provide Rs 14.16 crore for clearing the statutory liabilities, including employee?s provident fund and gratuity arrears, but ?it is doubtful whether this sum will be enough to clear the entire statutory liability?, a member of the All-India Federation of Burn Standard Officers? Association (AIFBSOA) said.

But wages are just one part of the story. The Railways has agreed to take over BSCL only after it becomes a zero-liability company. For making it a zero-liability company, the Board for Restructuring Public Sector Enterprises (BRPSE) has, apart from asking the government to provide Rs 14.16 crore, announced a financial restructuring package, which includes converting Rs 31.70-crore plan loan, Rs 350.82-crore non-plan loan given by the government of India and zero-rate debentures of Rs 75.03 crore as on December 2009 to equity. The equity would be reduced by Rs 457.55 crore with a corresponding reduction in accumulated losses. The company?s accumulated loss as of March 2008 was Rs 1, 469.79 crore.

Further, another set of plan and non-plan loan of Rs 28.16 crore and zero-rate debentures of Rs 14.30 crore would be transferred to equity, which subsequently would be reduced by Rs 42.46 crore with a corresponding reduction in accumulated losses. BSCL?s normal and penal interest of government loan of

Rs 639.15 crore as of March 31 2009 would be waived and no further interest would be levied.

?The department of heavy industries could have done this financial restructuring much before, in 2002, when the debt burden was only Rs 291.71 crore but it was for the lack of political goodwill that the financial restructuring didn?t take off then,? Bandyopadhyay said.

In fact, the NDA government in 2003 agreed to waive all the government loans and make 100% disinvestment of the company. BSCL was up for sale and companies like Texmaco, Titagarh Wagons and even the Ruia Group completed their due diligence. But a court order has prevented that.

According to an official, the heavy industry ministry will wash its hands of BSCL by providing it just Rs 14.15 crore to clear the statutory liabilities. Now the Railways require to invest at least Rs 150-200 crore to turn around the company.

The wagon-making units of BSCL both in Howrah and Burnpur need extensive repairs. The plants need to be modernised.

Das said BSCL became sick as it lost out to the competition for inefficiencies in operation. As long as BSCL secured railway orders on a nomination basis it was making profits, though low. When the Railways started placing orders via the tender route, BSCL lost the plot.

BSCL, formed by the merger of two companies?Burn & Co Ltd and Indian Standard Wagon Co?was nationalised in 1976. Till 1987 it made profits but from 1988 onwards it became a loss- making company, partly because of the Railways? decision to place orders through tenders and partly because it could not create a strong footprint in other segments like refractories and set up coal and ash handling plants, in which it was present.

BSCL has eight units, including Burnpur and Howrah, of which five are refractories in Jabalpur, Niwar, Raniganj, Durgapur and Gulfarbari and one offshore fabrication unit at Jhelingham near Haldia. All the refractories and offshore fabrication units are closed. Although the BSCL management proposed that the Jhelingham offshore unit?s capacity be built to make offshore rigs, that didn?t get government support. Das said BSCL?s central project division had set up ash and coal handling plants for NTPC, DVC and other state power utilities. But that division too did not get enough assistance to gain the required competency in an open market environment.

In fact, after BSCL was referred to the BIFR in 1994, the BIFR in 1999 sanctioned a scheme proposing the government to infuse Rs 158.83 crore in the company along with other relief and concessions. But the scheme was declared as a failure in 2002.

Will dream of becoming a mini-navaratna be fulfilled?

Rohit Khanna

Wagon-maker Braithwaite turned sick in 1992, but had to wait 18 years till the government decided that the Railways would take it over, though it did receive a revival package in 2006. According to Sunil Kumar Rishi, managing director of Braithwaite, before the takeover announcement made by the ministry of railways it did not have much on its order book. ?But immediately after it was announced railway minister Mamata Banerjee gave us an order of 500 wagons. Just a few days back we had a team from the ministry of railways and they have indicated that more orders will flow. Our target this year is around 2,000 wagons and we will be able to meet the target. So far we had orders mainly from the Railways. Apart from that 5% of our orders are from PSUs like Nalco and Balco.

Inspired by the takeover proposal, the company is slowly realising that it cannot confine itself to being only a wagon manufacturer. ?That will make it difficult for us. So we are stepping up our activity in the structurals and project work verticals. We have a Rs 152 crore order from Ircon?, said Rishi. ?We have expertise in manufacturing cranes but for some reasons we stopped making cranes, for almost 25 years now. We are making a re-entry into that segment, too. We are tying up with a foreign partner to manufacture cranes.?

Braithwaite is in talks with the Mozambique government for a Rs 500-crore bridge project. ?Since we are making the Ganga bridge in Patna in Bihar, our credentials in the field are established. In fact, we are hopeful of getting some wagon refurbishing orders from Mozambique, too,? he added.

But there are challenges, not the least a severe working capital crunch. ?We need an immediate fund infusion if we have to increase production at Braithwaite,? said Rishi. At present, it?s using 60% of its capacity at three factories at Clive Works & Victoria Works in Kolkata and Angus Works in Hooghly. But it can step up productiion to 90% if it gets working capital.

A back of the envelope estimate for working capital requirement shows the company will require around Rs 40-50 crore to manufacture 2,000 wagons this year. ?On an average the cost of manufacturing a wagon is around Rs 10 lakh. We have talked at length with the ministry officials regarding this and they will be working out a plan to solve the working capital crunch,? said Rishi.

Braithwaite ran into losses from the early ?90s. The revival package from the government came in 2006. ?A working capital crunch problem was always there. But we could convince our employees that if we have to survive, we have to change the work culture. They responded to our call. They started working hard. We had a few members joining our board, which helped the top management to become stronger. We were able to increase the pay scale of the employees and give them promotions,? said Rishi.

Slowly, profitability of the company improved and it posted a net profit of Rs 1.5 crore during 2008-09 from a mere Rs 55 lakh the previous fiscal. ?With the hope of large orders from the Railways we are targeting a turnover of Rs 200 crore and net profit of Rs 2.08 crore during 2010-11,? said Rishi.

Braithwaite has been increasing its productivity for the last few years. In 2008-09, it had manufactured 631 wagons, which increased to 1,001 units in 2009-10.

For Rishi and the other top management, the biggest achievement has been the change in the mindset that Braithwaite is a sick unit. ?Now we will strive towards making it a mini-navaratna company,? he said.

That will be a long haul. Braithwaite began its journey in 1913 as the Indian subsidiary of Braithwaite & Co Engineers Ltd (UK) to take up fabrication of structural steel works. The Clive works factory in Kolkata started manufacturing wagons for Indian Railways from 1934. The company had set up Angus Works at Bhadreswar in Hooghly district in 1960 to manufacture cranes, foundry products, machinery components, etc. The project division at Kolkata was established in 1978 to execute turnkey projects for material handling plants.

Victoria Works was taken over in 1987 and the factory was equipped with facilities for manufacturing pressure vessels, railway wagons and heavy structurals for different engineering applications.