Dongfang looks to buy Trichy-based power co

Cethar clocked in sales of around Rs 2,430 cr. The valuation of this company comes to around Rs 500-600 cr

Chinese manufacturing major Dongfang is known to be in talks to takeover a Trichy-based power manufacturer called Cethar. The acquisition could help the Chinese manufacturer have a domestic presence which will not just help control its costs but also comply with the increased localisation needs that is being pushed for by the government.

Cethar, which was earlier known as Cethar Vessels, can manufacture both sub-critical and super-critical boilers, used in power plants. Apart from that, it can also design and construct thermal power plants up to a capacity of 800 megawatts. In the year 2010-11, it clocked in sales of around Rs 2,430 crore. “The valuation of this company comes to around Rs 500-600 crore. They are currently in talks and the acquisition would help Dongfang have an entry into Indian manufacturing,” said a person directly involved with the deal. Neither Cethar nor Dongfang responded to the queries e-mailed to them.

Cethar was founded by K Subburaj, who started it in Trichy as a sub-contractor to Bharat Heavy Electicals (BHEL). He had also worked for Indian Space Research Organisation (ISRO) before he started on his own. The company expanded into power manufacturing and then into a construction company for power plants.

Analysts say that Indian facilities can help foreign companies as they have been asked to set-up service centers in India to help power plants under construction using the equipment. “This move will help because power companies will definitely prefer companies that have domestic presence,” said Piyush Nimgaonkar, manager at CARE Research.  

Dongfang, along with Shanghai Electric and Harbin had already garnered a major market share amongst private power generators. Around 24,437 megawatts power capacity is installed in India. Added to that, more than 40,000 megawatts of power capacity based on Chinese equipment, is under construction. This created a huge furore amongst Indian manufactures like state-owned Bharat Heavy Electricals (BHEL) as well as private engineering company, Larsen & Toubro.

After multiple representation by industry bodies as well companies to the government, it had made it mandatory for Chinese companies to have service centers in India. In transmission and distribution sector, state-owned companies are preferring companies which  have domestic manufacturing facilities. In a bulk tender which was called for the country's largest power generator NTPC, it had barred foreign companies which did not have an Indian joint venture partners.  

Ever since, many foreign power equipment makers like Japanese company Toshiba formed a joint venture with JSW Energy. And Indian company Thermax also formed a joint venture with American company Backcock & Wilcox to manufacture very large boilers. The power equipment manufacturing industry however is currently going through a bad phase as many power generators decided to either postpone or cancel their plans to set-up more capacity. This is due to various uncertainties like lack of coal supply and lack of clearances. Private power generators have stalled their plans as they are the worst affected due to this lack of clarity.

“There has not been any ordering in the last one-and-a-half to two years. Capital goods sector has been going through a bad phase and ordering itself is not happening. This can continue for another year,” said Nimgaonkar .