Open sesame

Small units in Coimbatore are now more open to equity tie-ups

Entrepreneurs in Coimbatore, a traditional town of closely-held family managed companies, popularly known as the Manchester of south India, are now more open to the idea of entering into equity collaboration with domestic and international partners.

One recent example is Penguin Engineers, a packaging equipment company, which has joined hands with an Italian company. Similarly, a Spanish manufacturer of castings, which it sells to oil exploration companies, is beleived to have been in talks with some Coimbatore-based companies to make castings in Coimbatore on a contract basis.

These potentially revolutionary changes have been triggered by the fact that companies in Coimbatore (including engineering units, textile mills and manufacturers of textile machinery) have run up a mind-boggling debt of some Rs 50,000 crore, which a cross-section of industry representatives here attribute to the recession, power shortages and poor policy and financial support from the government.

“The attitude towards equity and other partnerships is now changing, thanks to recent trends,” K Illango, president of the Coimbatore District Small Industrial Association (CODISSIA), recently told Busines Standard.

Manufacturers are also thinking of diversifying into new areas and have turned their focus to the public sector. For instance, the Railways are planning to establish a coach building factory at Palakkad in Kerala, near Coimbatore. According to a railway official this project alone can provide orders worth Rs 3,000 crore per year to the city’s engineering industry, provided cost and time commitments are agreed upon.

The other new focus areas for Coimbatore’s engineering industry are engineering giant Bharat Heavy Electricals Ltd (BHEL), power generation companies, other infrastructure companies (both private and public) and shipyards.

Coimbatore is home to over 50,000 engineering units and a large number of textile mills and manufacturers of textile machinery, which have reported a 40-50 per cent drop in orders and capacity utilisation. Most of the units are SMEs.

The engineering units, which produce equipment ranging from small spares to large items of machinery for big engineering companies such as automobile majors Hyundai, Ford, Ashok Leyland, Maruti Suzuki and organisations like Reliance, ISRO and BHEL, said that their order books and capacity utilisation had dropped alarmingly since 2007-end. This, together with delays in payments from customers, had increased their borrowings to some Rs 20,000 crore.

“Despite the recession there are enquiries from customers, but we are not able to convert them into orders,” a senior officie-bearer of the Southern India Engineering Manufacturers’ Association (SIEMA) told Business Standard.