India is struggling to add power generation capacity at a required pace because of the prevailing shortage of equipment from domestic sources. To meet the shortfall, public sector equipment supplier Bhel is expanding its existing manufacturing capacity of boiler and turbines even as private players like Larsen & Toubro and JSW are setting up greenfield facilities. The upcoming capacity is expected to ease the shortage of large equipment for power projects. However, a big gap is still projected in domestic demand and supply of balance of plant (BoP) equipment.

Bharat Forge Energy Systems Ltd (BFNESL), a 51:49 joint venture between Bharat Forge Ltd (BFL) and NTPC, is looking to fill this gap. It is setting up facility in Solapur, Maharshtra, to manufacturer hi-tech BoP equipment. The plant is expected to become operational by early 2011.

The number of vendors in various BoP segments?such as pumping systems, piping system, fuel and ash handling systems, stacker reclaimer, wagon tippler, water systems and valves?is quite limited in India. Most of them are system integrators rather than manufacturers. They source components from certain set of sub-vendors, mostly small in size and with limited capacity and capability to expand on technology, engineering and manufacturing. That is the opportunity for the JV. However, the JV does not want to position itself as a supplier of cheap BoP equipment. Rather, it is looking to compete at the level of overall customer satisfaction.

?We are focusing on hi-tech equipment such as piping systems, fluid transfer systems, alloy steel formed components, etc. for high temperature and pressure applications. These products require high degree of metallurgy and state-of-the-art manufacturing,? says UN Khanna, vice president (commercial) in capital goods division of Bharat Forge who is heading the JV.

?These equipment significantly influence performance of power plants. Besides, timely availability and delivery of these equipment is the key to successful project implementation,? he added.

These equipment can be used in refineries and petrochemical plants as well. The JV plans to leverage expertise of its parent companies to develop a competitive edge.

NTPC is India?s largest consumer of power equipment. It has an installed capacity of 31,000 mw, which it expects to increase to 75,000 mw by March 2017. The central utility is a potential customer for the JV.

BFL, a global supplier of forged and machined components for automotive sector, is now focusing on non-automotive sectors like power to drive its next level of growth. For example, the automotive sector accounted for 83% of Bharat Forge?s revenues in the financial year 2006-07. But the company expects this share to come down to 25% by the fiscal 2014-15.

The company is betting big on the power sector. It has tied up with Alstom to set up facility in India for manufacturing supercritical turbines for coal-based plants and with Areva for manufacturing equipment for nuclear power plants. BFL expects to build upon its existing expertise to establish its presence in the power sector. The company also plans to foray into power generation. It has envisaged adding 10,000 mw capacity by 2022. The JV is expected to benefit from the growing interest of BFL in the power sector.

As a rule, the power sector in a country needs to grow at double the pace of its GDP growth to sustain the economic growth. However, the Indian power sector is growing at the same pace as the GDP. So, the country will have to expedite the pace of its capacity addition if it is to prevent energy shortage from shortcircuiting its economic growth.

Kalyani group, the promoter of Bharat Forge, is known for its export orientation. The company has forging facilities in about ten countries and earns a big chunk of its revenue from exports. In fact, the company is India?s largest exporter of automotive components.

The JV may initially focus on the domestic market, but in due course, it will try to tap the export market as well to propel its growth. That will also help the company to further improve its competitiveness by making better use of economies of scale of production. As a business strategy, the JV plans to rope in its technology providers as business partners.

BFL has leveraged India?s low labour cost advantage in engineering and design to become globally competitive in the forging business. The JV can replicate the same model in the BoP segment.