Background about Bharat Pumps & Compressors Limited

Bharat Pumps & Compressors Limited (BPCL) was set up in 1970 at Naini—an industrially backward area near Allahabad—as an import substitution unit for the manufacture of sophisticated process pumps and compressors for core sector industries, which until then were being imported. The Gas Cylinder Plant was added subsequently. Technologies for various products were arranged from reputed manufacturers abroad, and commercial production started in 1974.

Over 36 years of its existence, BPC continuously incurred losses, except for marginal profits of Rs. 0.65 crores in 1982–83, Rs. 1.26 crores in 1983–84, and Rs. 0.48 crores in 1997–98 (after implementation of the BIFR rehabilitation package). During the subsequent seven years, the company incurred losses ranging from Rs. 6 crores to Rs. 26 crores—that is, –12% to –49% of sale value. Low levels of production, delays in meeting delivery commitments, a fluctuating order book, and high overheads (including a disproportionate manpower cost) were the prime reasons for these losses.

The manpower of the company had always been disproportionate to the level of operations. It gradually peaked at 2,013 employees during 1984–85, after which it began to come down. Salary and wages amounted to as much as 41% of sales—against an industry norm of 13 to 15%. Most of the machine tools (over 75%) and facilities were now over 25 years old and mostly conventional. Very little investment had been made in reconditioning and replacement.

Reference to BIFR and the ICICI Revival Package

Consequent upon amendment in the SICA Act, BPC was referred to and registered with BIFR in July 1992. The rehabilitation package prepared by the Operating Agency (OA), M/s ICICI, was approved in September 1995, with retrospective effect from April 1994. The cost of the revival package was Rs. 42 crores, including:

• Cash infusion of Rs. 15.75 crores for capital investments
• Rs. 4.61 crores for a Voluntary Retirement Scheme (VRS)
• Conversions, write-offs, and waivers covering the balance

After implementation of the package, the company made only a nominal profit of Rs. 0.48 crores in 1997–98, and thereafter again started incurring losses, due to a combination of delayed cash infusion, lack of orders, and delay in supplies.

The CRISIL Diagnostic Study, 1999

During 1999, M/s CRISIL conducted a diagnostic study for BPC and laid out three options:

1. Status Quo

This would have inevitably led to further deterioration in market position and a steep decline in financial standing, with rising liabilities. As CRISIL noted, this would have meant total dependence on the Government of India for cash assistance and budgetary support.

2. VRS with Financial Package

A structured VRS of 1,000 employees, reducing the workforce from 1,700 to 700. The package also envisaged waiver of Government of India loan and interest amounting to Rs. 46 crores, and fund infusion of Rs. 54 crores for VRS and employee liability.

3. Comprehensive Restructuring Package

Besides the manpower reduction of 1,000 employees and waiver/infusion of funds as in Option 2, this option recommended:

• Closure of the Gas Cylinder Division
• Improvement in the value-added chain—improving customer reorientation and establishing a reliable vendor base
• Systems to overcome delays in execution of orders

The Joint Venture and Disinvestment Attempts

Simultaneously, the Government of India decided to form a joint venture company in respect of BPC. SBI Caps was appointed to facilitate the formation of the JV, and an Inter-Ministerial Group constituted by the Department of Disinvestment (DoD) oversaw the exercise. The JV formation, however, did not materialize and was declared a failure in April 2001 by the DoD.

Owing to continued losses, BIFR declared the rehabilitation package of BPC a failure in June 2001, and the Government of India was advised to submit a fresh proposal. With no workable proposal before the Bench and no clear commitment of funds from the Government, BIFR—vide its order dated 15 November 2001—issued a show-cause notice for winding up of the company.

Subsequently, in August 2002, BIFR passed an order directing the Operating Agency (SBI) to look for a change in management of BPCL. Against the advertisement issued by the OA, a consortium of three parties led by Process Compressors of America (PSA), USA submitted its offer. BIFR issued an order in June 2003 allowing the party to carry out a due diligence exercise. The due diligence was conducted in early 2004 with great difficulty, in the face of stiff opposition from the workmen, and the proposal did not materialize. Accordingly, the Department of Heavy Industry wrote to BIFR in September 2004 for a rehabilitation package for BPCL—in line with the provisions of the National Common Minimum Programme of the then Government.

The BRPSE Process and the Business Plan

BPCL prepared a detailed Business Plan in accordance with the direction of the Board for Reconstruction of Public Sector Enterprises (BRPSE) at its 7th meeting on 3 March 2005. The plan was prepared in consultation with M/s S. B. Billimoria & Co. At the 10th meeting of BRPSE held on 18 April 2005, the salient features of the financial restructuring of BPCL—as prepared by the consultant—were presented.

BRPSE further directed on 16 May 2005 that the Department of Heavy Industry (DHI) should ascertain from ONGC and BHEL whether they would be interested in the Management Contract of BPCL. The BHEL team visited BPCL Allahabad on 13 and 14 June 2005 to carry out the study, and submitted its report on 13 July 2005. DHI submitted the proposal to BRPSE on 18 July 2005, which was discussed at the BRPSE meeting on 22 July 2005. The turnover and profitability projections for 2005–06 to 2009–10, as given in the BRPSE minutes of 31 August 2005, are reproduced below.

The Turnaround Begins, 2005–06

In the meantime—while the above proposal was under the consideration of BRPSE, DHI, and the Committee of Secretaries (CoS)—the present incumbent was selected by PESB and joined as

Managing Director at the end of December 2005.

The company turned around in 2005–06, with the highest-ever turnover of Rs. 94.42 crores and a profit of Rs. 1.84 crores—as against the projected loss of Rs. 2.83 crores—by taking up a series of measures and efforts to expedite deliveries to customers.

of 2005—06 was Rs. 57 crores–compared to Rs. 37 crores achieved in the previous nine months of the same year.

The performance improved further from the beginning of financial year 2006–07. The company achieved a turnover of Rs. 143.73 crores and a profit before tax of Rs. 19.11 crores—significantly higher than the projections given to BRPSE, and two years earlier than projected.

The proposal for the Strengthening and Financial Restructuring of BPCL was approved by the Government in December 2006. The approved package included measures for long-term sustainable performance:

• Management support from BHEL
• Financial support from ONGC
• Technology support from Engineers India Limited (EIL)
• Government waiver of loan and loan interest

Manpower of BPCL was brought down to 1,079 from a peak of 2,013—a reduction of 46%. With this chronological background in place, the chapters that follow describe the initiatives, the steps, and the process of implementation of the Abhay Model of Excellence.