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Interview

with Haresh K, Chairman & Managing Director, Sippy, TEMA India Ltd

09.09.2011 / Energyboardroom

TEMA India commenced operations in 1987, and generated revenue of USD100,000 in its first year. What were the main foundations of a business that has grown significantly, to become one of the largest manufacturers of heat exchangers in the country?

The company I promoted as a young engineer in the 1970s was called Leo Engineering Works. Mr. Suman Doshi and Mr. Minoo Bulsara joined me after their retirement from the industry; their sons Mr. Chetan Doshi and Mr. Khushroo Bulsara also joined, and together we formed TEMA India Ltd. in 1987.

TEMA India was one of the first companies to bring heat exchangers to India. My uncle did it in the 1960’s for compressor manufacturing, albeit on a very small scale. I benefited from his work, and worked in the same area, but this time on a larger scale; for refineries with high‐end metallurgies.
The most critical equipment in a refinery is the reactor, very next to the reactor are the high pressure high temperature heat exchangers as the same fluid flows through them. The only difference being these heat exchangers with special proprietary design being manufactured by TEMA India is mechanically very complicated even when compared to a reactor from the design point of view. These high pressure exchangers with proprietary designs are called Screw‐Plug exchangers bring down the cost drastically in comparison to conventional types and are as such the most critical equipments. This technology is very intricate in design, but easy to maintain.
We specialize in such products, and are the best in the world today in this segment.

Tema India was also the first to computerize designs and drawings of shell & tube heat exchangers.

This is my passion. 20 years ago, when software was still in its nascent stages, I developed my own program, called Sigma ++, which deals with everything from process design to mechanical design and fabrication drawing including generation of bill of materials. It was later interlinked to Auto CAD.
We used that software for a long time, but today the industry prefers the use of standard softwares, and for the sake of uniformity, we had to switch to PVElite and Microprotol.
The product ‘screw plug’ heat exchanger is not available on standard softwares like PVElite. That is where our software becomes niche, as we are the only company in the world in a position to carry out complete design and drawings of screw plug exchangers—which are used for applications in very high pressure, high temperature, and highly corrosive environments.

What were the main challenges in developing the business when it first started over two decades ago?

We faced problems at every stage; we had to qualify at every level.
Before manufacturing heat exchangers, we started with tube sheets. The very first project we worked on was with HPCL in 1976, where we collaborated in their lube refinery expansion.
The real challenge we faced back then was that Tema India was the tiniest of all the companies that came to the fore, and was attempting to compete with giants in the industry—the likes of Larsen and Toubro (L&T) and Bharat Heavy Plates and Vessels (BHPV).
We had to do a few things that were not available back then, like the Monel lining. We developed our own procedure using the super Monel electrodes. It was not easy, but we were the first ones to do it. Later on, we worked with expanding titanium sheets in Bahrain: we developed 5 roller expanders for tube sheets and obtained very good results.

Despite these differences in size amongst Tema and some of its competitors, you have done very well in attracting new capital. For instance, Actis injected USD12 million in the company in 2005, and gave you access to its global network just after you started exporting your production overseas. What has been the impact of this new stakeholder?

We optimally utilized the new capital. We tend to design all the machines in our manufacturing shop. By doing so, we are able to do it at one third of the cost. Now, with USD 100 million, we have been able to have all the machines and capacity with which we have created the right infrastructure to scale great heights. Actis also opened up the banking sector for us.
Before Actis, our equity was very small. Even though our business requires a huge quantum of non‐funded limits, from a banker’s view, they still equate with equity size and top line. Our small equity size would not allow the potential of the company to be fully utilized.
Even though we were technically strong, we were still commercially weak. With Actis’ infusion of USD12 million, the equity base swelled up, and suddenly we had a series of bankers who were more than happy to help. The floodgates opened and lot of support started pouring in.

It is interesting to see how Tema India whizzed through the financial crisis, increasing its revenue from USD32 million to USD 35 million despite the contraction in the world economy. Last year, sales grew by 28.5%. What strategic factors explain this very strong performance over the last couple of years?

We were in fact planning for a much higher growth but could not due to the financial hurdles I mentioned earlier. We have not been able to significantly utilize our installed capacity, as we are currently operating at 40% or 45%.
During the contraction, the specialized design of Screw Plug high pressure heat exchangers were an added feature for a highly capital intensive product. This is the area where we concentrated during the last years, together with the helix changers and rod baffle exchangers.

When the next phase of slowdown happened over the last year and a half, we were already working on the design of high pressure feed water heaters, and an opportunity arose with a super‐critical design that China was bringing into the country. We have now moved into the power sector, wherein we have made the largest High Pressure Feed Water Heaters in India—for a super‐critical 6X660 MW power plants.
The high pressure feed water heaters are used in a power plant, for improving the heat rate and efficiency of the plant. We were able to bring forth an option which private developers in India did not have available before. For this type of equipment, not much maintenance is required: it is totally enclosed, it is made of carbon steel only, and it is not really corrosive.

Super‐critical Power plants in sizes 600 MW and 800 MW are a new concept in India, and the first few plants are now being built & commissioned. With our successful foray into this segment, we find ourselves alongside L&T & BHEL in terms of strength, design, and fabrication capabilities.
As a company today, we are proud to say that we have designed and fabricated the first large High Pressure Feed Water Heater for 660MW in a single train. Several heaters have already been delivered.

To understand TEMA’s relative performance in the global context, what would you say is the break up of revenue between domestic and export operations?

The expansion that we started following Actis’ investment has been completed, and we can now showcase a facility that is truly international class. This is a new element that we are bringing to the market, to complement our focus on the client network and the global engineering network. Not only have we trebled our capacity, we have greatly enhanced our capabilities in drilling, machining, welding as also building separate bays for Stainless Steel fabrication and a new clean room facility for exotic materials fabrication.

Unfortunately, due to the global economic situation, people are holding back investment in O&G. In the power sector, we are in discussions with world leaders such as Toshiba, Alstom, GE, Siemens, amongst others. From Fertilizer, I could mention KBR UHDE. Today we are on the list of their propriety equipment fabricators, despite them having a very short vendor catalog.
We started export operations in 2000, with the shrinkage of dollar value we did considerable exports to the value of USD 40 million we are sill pursuing exports as there is much demand from the Middle East for our products. Currently, it would be safe to say that exports contribute to about 20% of our revenue.

As you are one of the few companies able to manufacture high quality, high pressure heat exchangers in the global context, what kind of ideas does this give you to further develop foreign operations?

Foreign operations are definitely a central focus, due to the oil sands in South America, Canada, and Russia. We are ready to compete with players overseas. We are concentrating on our Screw Plug heat exchangers in O&G, for which we have a patented design.
The idea is to increase our global market share to at least 40%.

The business model of combining specialist engineering skills with low cost manufacturing seems to be the best one for your sector of activity. How do you explain that other companies have not been able to replicate that model? What keeps you ahead of the competition?

There are several companies that work with heat exchangers, although it is true that very few of them have the design capabilities that we possess. We have been able to elevate the standards of our company to its current standing. Today, we can say that we are on par with L&T with respect to design capability and fabrication expertise in heat exchangers.
Apart from that, there are companies who have not been able to bring to the fore the combination of design and an intricate manufacturing process. They may be financially stronger and larger as an establishment, but technically, they have not been able to bring this kind of engineering excellence.
This is what keeps us ahead of the proverbial pack.

Is the company constantly looking for new investors?

I would welcome more investment, as Tema needs a waterfront, considering the high potential of this sector of activity. The company started with three promoters, but we are currently looking to position ourselves at a much higher level. With our engineering capabilities and design excellence, we would work well with new investors.

As a specialized company, highly recognized in the industry for a specific domain of expertise, do you consider diversification?

As we specialize, our strengths in engineering. I see no reason why we cannot engage in Engineering, Procurement and Construction (EPC)—for instance. The fact that we have moved within O&G, Power, and Fertilizers very effectively goes to show that we successfully employ diversification strategies.

Currently, are there any specific diversifications you are looking into?

We are in the process of diversifying into Solar, Heat Recovery Steam Generations (HRSG), and also small EPC, with investments of USD25 million to USD30 million. The path is difficult given our existing setup and the banking facilities available to us today, but we are positive and working in this direction.
There are other fields of business development that my son, Akhil Sippy, is handling. He is working with the nuclear segment in a big way: the French company Alstom has already approved us, and another Russian company wishes to work with us.

Would you say that you are still in line with the initial vision you had for TEMA India at the time of inception? What are the objectives of growth that are currently being envisioned for TEMA in India and abroad?

Reaching USD 100 million a year is a crucial goal for us and it will take approximately two years to get there. We have manufacturing facilities; it is the business development that we need to work on.
Our growth would initially come from Fertilizers, and then O&G would definitely follow, especially with BPCL planning a USD5 billion expansion. In a land that is probably the youngest country in the world today—with 750 million people under the age of 25—growth is always an important factor to look forward to.
This growth will drive anything and everything that can be consumed, from O&G to Petrochemicals and Fertilizers. We see a huge growth potential for the next few years of years—and in respect to the development of the heavy oils that is now taking place, specialist technologies will be required more and more.
This is where we see the USD 100 million coming from.

Do you have a final message for the readers of the O&G Financial Journal?

We can assure you of the fact that we place prime importance on the quality and standard of work that we do.
We are proud to note that not a single exchanger manufactured by us has ever failed, nor has a single one under‐performed to date—notwithstanding the fact that there are several thousand of them installed, the oldest with 25 years of service. We intend to uphold this tradition, and we take our task very seriously.

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