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Interview

with Uma Shanker, Chairman and Managing Director, Advance Valves

11.05.2011 / Energyboardroom

Advance Valves was formed in 1986, and you are celebrating your 25th anniversary this year. You are a well-recognized Indian industrial champion, and a known global player. Can you give us an overview of the vision and the business model that has held the company together over the years?

Before I started the company 25 years ago, I worked for 10 years at Engineers India, and also at a national oil company in Abu Dhabi. Though my background is that of an EPC engineer, I decided to enter the flow control segment. My initial vision of Advance Valves was to create a business that was different and distinct. When we started in 1986, we started with a product that had not been introduced in India before: balancing valves, which are used in the air conditioning industry. We were the first to introduce that to India, and it is now an essential part of systems.

In 1990, we introduced another product—the Dual Plate Check Valve—that was, again, missing from the Indian market. In fact, there were few of these valves throughout the world, in general. It was a distinct technology, and it was used in very specific, critical applications. The check valve is a valve that does not allow back flow—if the pump has to shut down, it will not allow reverse run of pump. Before the adoption of this valve, various industries were suffering from problems of backflow, and sometimes pumps were destroyed, or worse.

People were not familiar with it—and so, it was sold as a high-end product. We wanted to generalize the application of this technology in the beginning of the 90s, as a common platform. The only issue was cost—whether the valve was cost-effective.

We were able to address that question by offering the technology to clients meeting the highest specs at a cost-effective price. That is why we got recognition globally. We are now approved by most of the EPC companies in Europe—name anybody. We were encouraged knowing that you could be successful while disclosing the details of your technology—even as an Indian company. Sometime in the 90s, the West started listening to Indian engineers. There was some resistance, but gradually they began to accept our capability.

In 1999, we were the first Indian company ever invited into a global Multi-Project Acquisition Agreement by Bechtel.

These developments kept us in a technology area that is not very common. Today, if we have an identity, it is that we are present only in those technology areas where there are few players, which today includes Dual Plate Check Valves and High Performance Triple Offset (metal-seated) Butterfly Valves. We have a business philosophy which says that we shall be technological frontrunners, and stay within our niche sectors. Generally, we do not work in any market where you will find more than four or five competitors.

Oil and gas has always been a major focus for us. If you look at our business, as I have mentioned, we started with balancing valves and air conditioning—but oil and gas now has the second-largest, or largest, share of our business.

One marker of the evolution of your business is the evolution of the awards that you have received. In 2004, you were named on of India’s “Top 3 Emerging Companies” by CNBC. Last year, you were awarded CNBC’s Business and Dreams award, based on a CRISIL evaluation of your financials. Clearly, Advance Valves is no longer emerging, but rather has arrived. What do you feel that the evolution of these awards says about the evolution of your business?

We have been growing cumulatively at a pretty rapid clip—we have grown 10 times over, in the last 10 years. Going forward, we are trying to maintain this same level of growth. We are in the top five companies globally in our product line—not in terms of volume, but in terms of capability and range. In terms of approvals for, say, check valves or triple offset valves, there are usually four or five players, which include us. Since we are behind in sales and volume, this is where we see opportunity! Our strength is yet to be fully tried, and there is clear scale to be had with our current products.

Of course, we can always bring in new products, as well. Last year, we introduced a first-in-the-world innovation in large size Balancing Valves, and are bringing it to market this year. Right now, we want to mainly focus on existing growth opportunities, but we will eventually look more intensively at ways to expand our portfolio, to sustain growth in years to come.

You are very much preparing for an expansion in volume and capacity. You have a three-phase expansion project underway right now at your various plants: you spent nearly $2Mn on the first two phases, and phase III is ongoing. Can you give us an overview of these plans?

Phase I of expansion was completed in 2008, and involved the construction of a brand-new plant in Noida—it consolidated two of our smaller plants, and increased capacity beyond their previous combined output. Since that plant went live, we have continued to fill it with more and more work.

Phase II was an expansion in our Himachal Pradesh plant, which was inaugurated three months ago. That is now our largest plant. It has already added to our capacity, and is only going to become further incremental as processes are streamlined, and things get done more and more quickly.

We are getting ready to start another phase of expansion in Noida, wherein our facility that was inaugurated in 2008 will be doubled in size and our facility in the Special Economic Zone will grow its plant by more than 50%. We have already procured the land for that, and so we have to do the construction and the plant machinery deployment. Those are our immediate plans for expansion, and will be completed within the next two years. I am sure that by the end of 2011, or 2012, we will be looking at what we have to do next. Looking at the possibilities of we can go, this Phase III is not going to be enough. It will carry us through a few more years, and then we will need something more, so we will be preparing for that.

When you enter into the valve market, people typically first try your products at a basic level, with most simple use and applications. In the case of Advance Valves, it happens the other way around: Our entry into most of the oil and gas industry started from the top. The top meaning the highest end requirements: large valves, high pressure ratings, complex media, complex metallurgy, etc. Where people are not able to find affordable solutions for these kinds of valves, we are able to provide competitive options. And usually, again, we get opportunities from the top—from the toughest requirements, rather than the easier ones. This is one of the things that is different about our capabilities.

Phase I, II, and III of this expansion are to build the capacity to go bottom-up. At the top line, you are talking about capability issues, rather than capacity issues. Once we are approved in terms of capability which we have made great strides in over the years, we participate, and are only left behind in capacity by companies that have been in the business for a longer period of time. We want to get an opportunity, with our new volume, to share in the rest of the market—the lower-line products.

The company seems to be very product-centered. It brings products to market when it sees unmet needs, and it innovates. Of course, Advance Valves is interested in volume and turnover like any other company, but there is a definite R&D and product focus here. Do you feel that this focus gives you a competitive advantage over other valve companies?

One of the claims that we always make, and that is true and proven, is that we know what we are talking about. For the valves that we make, we know everything about them—as much as anybody can know.

We use the best and most up-to-date design tools to develop prototypes, and our internal testing procedures are top notch. We are in line with the best of companies—that is why we were able to attain the position we are in.

There are three valve companies in India that are operating globally, including us. The other two are larger in terms of numbers and volume, but we are up there because of our technology.

You work with both global giants like Shell, Aramco and ExxonMobil, and local Indian pillars such as IOCL, Reliance, Gail, BPCL, HPCL and OIL. How have you managed to build up such a prestigious client base, and how do you maintain these partnerships for the long term?

As I said, we tend to supply high-end requirements. So often, we are one of few companies that a client can approach in the first place. Among these, we usually are selected again and again, for successive projects with clients—and we are selected based on past performance, and their previous experience with us. We have many repeat customers.

In oil and gas, there are actually few new clients for us to find at this point—we are already working with many of the players in the business. Still, there are, for example, some new EPC companies that are coming up in India. During the last year, we took on four new EPC clients here. Often, for our product lines, there is no Indian alternative except for Advance Valves.

What are the advantages and challenges of working with local companies versus working with multinationals?

A few years ago, domestic customers were ‘easier’—in terms of quality requirements, or technical specifications—and global customers were tougher. Global buyers were more technical; local buyers more price-oriented. We, of course, were supplying global customers in those years as well, and so we met those more stringent requirements. We kept the standards the same for everybody, so local customers received high-standard products as well—we did not want our local and global customers to receive different products.

Now you do not see this division. Indian buyers are as technologically demanding as global customers. The differences are vanishing more and more. Particularly with the global market—the supplier base, and the vendor base, and the engineering consulting base, are becoming more and more global; and the scale of operation in India is ever growing.

So, while the global players were more challenging when we started working with them, they prepared us for the growing technical maturity and scale of local suppliers. And having established global credentials, we are able to offer the same as references to our local suppliers.

ZIn terms of your sales, where do you expect to focus most? Will it be the local market, or the global market?
We have a number of conversations going on at an international level, and we have key account relationships in India. The U.S., Middle East, and India are all key areas for us. We are in South East Asia, as well, and may increase operations in Europe.

Indian companies are internationalizing in a major way. For your part, Advance Valves is not only exporting, but has sites in the U.S. and the United Arab Emirates. Why do you think it took India so long to arrive on the world scene in this manner?

It is a question of our own people believing in India. Incidentally, I am the chairman of the Confederation of the Indian Industry Valves & Actuators division. We had a conference in December, and when we presented the perspective of the $1.2Bn Indian valve business, my theme was that India has changed because we started believing in ourselves.

The matter of fact is that today, there is a bi-directional flow. Technology is coming into India, and Indian companies are venturing outwards. We are open to everything. We have forgotten the word “foreigner” in our terminology; the globe is small, and we realize it.

Once you have the experience of working with a companies like Aramco, Shell & Exxonyou become confident. Shell and the other majors will put you through a vigorous test; that is why we are among the rare few who dare go for their approval. When we try to enter into agreements with companies like Shell, we are proving to ourselves that we are ready. Our belief is that if anybody can do it, we can do it.

You have personally been recognized for the work you’ve done in promoting Advance Valves: you have won the Udyog Patra award, given to entrepreneurial industrialists that have changed India’s industrial landscape. When you look back on what you have achieved with Advance Valves, what are you most proud of? What mark does Advance Valves leave on India?

I am only proud of the fact that we have built the platform from which we may now truly take off. That is it. We have only just arrived. Now we can dare to do what we wish to do, and the next generation will be the one to take it further.

I do not think that in my lifetime, I am looking to leave a mark of some kind. We definitely can say that we change the way you think about it—our punchline is “Changing the way you think about valves.” This maxim was introduced around 2001, and was a very aggresive statement; and we have, over time, justified and proven it successfully.

One other thing that I want to highlight is that valves and piping is a very small portion of a project. Since it is of small value, please do not compromise on it! Do not save pennies to buy a cheap valve and spoil your plant.

There are companies who are not very much concerned with quality, but we are not going to approach that market. We are going to sell our products to people who care about quality.

I try to stress quality at my post at the CII, and I tried to stress the same when I was recently invited as a chief guest at the first API meeting in India. We cannot tell other valve manufacturers what they should do, but hopefully we can give the industry—as a whole—some direction regarding quality, through these forums. And today, we are asked by some end-customers to help them define specifications, from the ground up, for their valves.

You mentioned the second generation. What legacy would you like to leave for them?

Do not mind being the first!

What is your final message on behalf of Advance Valves to the international readers of Oil & Gas Financial Journal!

We have been growing at a frenetic pace, and we have always been pushing our capacity to its limits. We have had growth pains, but when we have suffered, we have found ways to do better. We continue to work to expand our capabilities, and also to supplement ourselves in all dimensions: whether it be design, production, service, quality, community participation, corporate social responsibility, or what have you. We will continue to grow, and meet more and more of our customers’ needs, in better and better fashion, for many years to come. The time has come that the world gives due recognition to India and Indian manufacturing capabilities in technology areas.

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