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Sanjay Chandrakant Kirloskar, chairman and managing director, KBL

15 May 2014

Kirloskar Brothers Limited (KBL) is a global fluid management solutions provider and the largest manufacturer and exporter of centrifugal pumps and valves from India. With the energy sector facing a slowdown over fuel supply issues, the company is focusing more on its pump distribution business and overseas market to continue its growth path. KBL’s chairman and managing director, Sanjay Chandrakant Kirloskar talks to Neeraj Dhankher on how the company is poised for growth in India and overseas. Excerpts.

Power sector in India has seen a slowdown in demand due to fuel supply issues. How has it impacted KBL’s business portfolio?

We operate in eight different sectors. We can’t expect every sector to go up. Fortunately, our product is such that it can be used across sectors. For example, the vertical turbine pump can be used in oil and gas, power, water supply and irrigation. So we have to make sure that the factory keeps running despite wherever we are on the economic side and reduce risks by ensuring that we operate across the world. For us, as a company, the business from India or domestic business is 65 per cent and 35 per cent is international. Somewhere or the other, things are not going to be very good all the time. The job of the management is to mitigate the risks of operating in one market, sector or country.

What are the recent initiatives taken by KBL to expand footprint in the global market?

We bought a factory last year in America, near Atlanta. We have been operating in the US before also but that was on leased premises. A year before last we noticed that the rent we were paying was quite high, even higher than what we would have paid for buying that property. So we went ahead and bought the facility which was twice the size of the earlier facility. There we assemble pump sets to FMUL, packaging for water supply etc. Before that, we opened a service facility in Egypt. We have around 3000 pump stations along the Nile, installed since late 1800s. For last 20-25 years, we have played a part in large pumping stations over there. We supply small pumps for agriculture and other sectors but the ministry of irrigation and its mechanical and electrical department have 10,000 large pumps. So we thought it would be a good opportunity to set up a service facility over there. We are also training lot of people from that department in our pumps. Other than that, we opened up a plant in Sanand in Gujarat, where 30 per cent employees are women.

What kind of export plans does the company have?

Our exports in this group started in 1936 when we were shipping out sugarcane crushers. It was more a risk mitigation strategy to ensure that we were not dependent on one market as every market has its ups and downs. Different countries will have different economy sizes. For that we have to ensure that we meet standards of that country and make products that are relevant to them. Now we are sufficiently all around the world to be able to address global needs. Earlier we used to supply the entire pump set out of India. Now whether it is Europe, South East Asia or Africa, we have the capability of supplying our core product attaching all the local accessories to make sure that customers are comfortable with the product and service available. Exports also depend to a great extent on the service facilities we have outside the country.

Do you feel price sensitivity is an issue with Indian customers?

Quite often we face this problem. We try to give the best possible option to the customer. It may not be the cheapest for him. If you look at the power sector, we have been supplying vertical turbine pumps for a long time. They are high capacity pumps and need lot of spare parts. About 20 years ago, BSES went ahead and tried a new pump which we call the concrete vertical turbine pump. This pump is made at site, no need to ship material across. It is an extremely simple but efficient pump. Its motor tends to be 2 mw to 5 mw. Last few years, we monitored the performance of both types of pumps and presented to our customers. The concrete volume pump doesn’t need a stand-by pump as it is very reliable. We have tried to convince customers to go for these kinds of pumps. Smarter customers have realized that the entire system is far cheaper. A 600 mw power station can save $25 million which is more than the cost of the system over a 20 year period. In Tata’s 4,000 mw Ultra Mega Power Project in coastal Gujarat, we have 10 of these pumps, which are of much bigger size. Similarly, Nuclear Power Corporation has also gone ahead and they evaluated it for the complete system.

What kind of growth has KBL seen over the last few years?

The growth graph is absolutely flat because we were doing a lot of business in the infrastructure area for power, irrigation and city water supply. But because of what is happening in our country in last few years, we have emphasized on sectors like building and construction to make sure that the company remains profitable. Our primary focus has been on construction, industry and oil and gas.

What is the company’s growth strategy? How much capex have you planned for 2014-15?

Capex is relative in terms of what you can get out of it rather than how much you invest. Most of the Indian industry will admit that they are not working at 100 per cent capex. In times like this, it is how you can get more out of what you have. We are looking more at efficiency.

Does KBL maintain a competitive edge with respect to the pump industry in India?

Today everywhere we talk of sustainability or energy savings. Worldwide, in every pump, there is an efficiency reduction of 2-3 per cent every year. Today if you buy a pump having 80 per cent efficiency, after 10 years, its efficiency will be hardly 55 per cent. Now the question is how to sustain this 25 per cent efficiency. The challenge is to stop its deterioration. For this, we have come out with a technology where our pumps are designed in a way where this efficiency will not get deteriorated. That’s the lowest life cycle cost pump. If you use this pump, the efficiency of this pump is 85 per cent (normal pump is 80 per cent) and its deterioration in 10 years is hardly 3 per cent (25 per cent in case of normal pumps). So for 10 years the efficiency has been sustained. In addition, there are substantial savings in energy consumption. One 250 kilowatt of capital and the bottom line. In times like this, lot of companies make mistakes and take orders at any price and on any terms. In the last three years we have shifted more towards the product business, which inherently has lower order book. We are shipping these pumps in six weeks so we could have a project order board of `100 crore which we have to do in three years or we could have a product order board of `10 crore but every month we are earning `10 crore through the pump distribution business. That is our biggest business in terms of size. So numbers make no sense. of pump consumes more than `1 crore of energy in 10 years. So if you are able to sustain the efficiency, there are substantial savings. The challenge in the future is that we have to come up with a sustainable product. Similarly, when you talk of solar, in HVAC industry everybody is using energy. We are running the same pump on solar so you are again saving energy. So the thought is how to bring a real concept and understanding of sustainability. So what you need is higher efficiency, lower energy consumption but for longer period of time. This concept is sinking among customers in power, oil and gas, fertilizer, process industries.

How do KBL’s pump use solar energy for operating?

This, in a sense, is new. What happens is that whatever energy is provided by solar panel, it comes in DC form (which can be stored in batteries). But this solar controller is a unique design, which is patented in the US. In case of this pump, if you turn the knobs, it automatically converts DC into AC, so there is no need to store energy into battery. The pump will run directly. So this is something no one has in the market as of today. And you can run anything on it, it is not just a pump, it can run like AHUs and provides electricity as you want.

What are the key applications for KBL’s pumps?

In power industry, we are supplying circulating water pumps. In few of the cases, sea water is an intake. For that you need a pump to sustain corrosion. For that we have concrete volume pumps. It improves efficiency as well. In fact we have pumps working in the industry for last 20 years and no spare parts are required. In construction industry, they want to save space. To meet the challenge we have come out with a multiple outlet and single inlet design. It means that a single pump can now supply water up to 60 storey buildings. Then, this pump is vertically placed, which saves space.

How does KBL operate in a price sensitive market like India?

One way of buying is through direct pricing to cater to short term requirement. Another way is to look at the life cycle approach, where you talk of the total requirement or pay pack period which is hardly 12-14 months, then buying is very simple. In fact we challenge the customers that whatever the difference they are giving to us, they should share the profit out of payback from energy saving. So it is not product, it is a life cycle which makes the difference.

What kind of market share does KBL have in the pump segment across sectors?

It is different in different segments. In power, our market share is between 65-70 per cent (all kinds of pumps), in industry it is between 25-30 per cent, in construction it is around 25 per cent and in the water segment it is close to 65 per cent. There is scope for improvement in every sector when you talk about a technology for the future. It is up to you how fast you bring that technology in the market. We designed the ICP (Innovative Chemical Process) pump. It is a zero leakage pump to cater to alumina, steel, process industries.

How do you plan to increase your market share?

We have segmented ourselves with respect to the customers. We are in eight segments. The idea is to reach to the customers, understand them and give them new products. So market share in future we want to grow in all these markets. We are growing exponentially in the export market. In 2003, we bought SPP Pumps Ltd of the UK. It’s been 10 years, and since then it has grown manifold in the UK and the US. We have now opened manufacturing and assembly units in Amsterdam, we are in the UK, the US, South Africa and Dubai. We are also keen to reach out in the global market and strengthen ourselves and understand their requirements.

What kind of inorganic growth are you looking at in near future?

We are still focusing on what we have acquired so far. Some more are on the cards and this may not be the right moment to disclose. But yes, we are looking to really move into a market globally. The pump industry and demand are very dynamic. We believe that we can increase our market share (both India and globally) by 25-30 per cent in CAGR every year. In terms of regions, we are mainly looking at USA, Europe, South East Asia and korea.

How many manufacturing unit does KBL have in India?

We have seven manufacturing units in India. Mother plant is 250 km from Pune, where we manufacture engineered pumps and industrial pumps. In Dewas, we manufacture all household pumps, in Sanand we manufacture fabricated pumps (submersible). The unit at Coimbatore — which is 100 per cent driven by women -- manufactures mini, small household pumps.

Do you have plans to ramp up capacity of your manufacturing units?

We have enough capacity at the moment and I am sure any movement of time, that is not a constraint. In Coimbatore, we are manufacturing one pump every 20 seconds; our target is to reduce it to 6 seconds.