Karnataka - Bangalore

Small companies caught in the crisis

— Photo: V. Sridhar

Hard hit: As a result of the slump in demand and the erratic power, many units are operating single shifts

Bangalore: Small may be beautiful. But try saying that to a small-scale industrialist these days and it is likely that you will get a cold stare. Life is approaching a standstill in the 5,000 units operating out of the Peenya Industrial Estate. Hit hard by the recession, matters are worsened by the erratic power. Over five lakh workers, of whom about 40 per cent are women, face an uncertain future.

M.D. Prabhu, president, Peenya Industries’ Association, says the situation has not yet escalated into a full-blown recession. However, he observes that units catering to the automobile industry — as suppliers and ancillary units — are firmly in the grip of a recession. This includes units which supply machinery to ancillary units which, in turn, feed the auto component industry. Bangalore, which is an important part of the strategy to making Karnataka a hub for the automobile industry, is now paying the price for excessively relying on overseas markets.

Mr. Prabhu reckons about 40 per cent of the units in Peenya cater to the automobile industry — directly and indirectly. Units which supply inputs and components to the hydraulic and CNC (Computer Numerical Control) machine tools are particularly affected.

The erratic power supply makes it more difficult. Mr. Prabhu observes that process industries, particularly those with heat treatment, are badly hit. He explains that the sudden unscheduled power outages are disruptive and wasteful. Materials need to be kept at a certain temperature for a certain length of time if the final output is to acquire the required properties. This is not possible with the current situation, he explains. In some parts of Peenya there is no power for over four hours in the morning, which makes it impossible for units to plan their activity.

As a result of slump in demand and the erratic power, many units are operating single shifts in Peenya. S. Biswas, who owns a small scale unit employing 10 persons in the estate that manufactures fabricated and pressed components, says the “power situation is getting worse by the day.” He points out that industries are forced to use captive power sources such as gensets, which imposes heavy costs. “While the power we buy from BESCOM costs Rs. 5 a unit, the cost of a unit of power generated by a genset is almost Rs. 10 a unit,” he says. Moreover, captive power cannot be used for operations such as welding. If costlier captive power is to be used efficiently, he has to run all his machinery so that the unit cost is optimised, he adds. But producing small batch sizes in the time of a demand slump makes that a difficult proposition, he explains.

Mr. Biswas, who recently started exporting locks for keeping ladders in place to the U.S., says the collapse of markets in the U.S. has affected his business. Since about half his turnover was from supplies to the automobile industry, he now faces a severe downturn. “The situation is so bad that there is no hope that things can change in the short term,” he says.

An automobile major, which was a major buyer of components from Mr. Biswas, has now significantly slowed production of trucks and heavy vehicles. Its payment cycle, which used to be about 45 days earlier, is now 120 days or even longer. Mr. Biswas used to receive payment 45 days after delivering his components. That is now 120 days. This has had a serious impact on his cash flows.

To make matters worse, the slump has had an adverse impact on his asset values, which determines his borrowing capacity. Mr. Biswas says the value of his land and machinery has fallen by about 25 to 30 per cent in the last 4 to 5 months. As a result, the value of the collateral security with his bank has fallen sharply.

“My access to working capital has suddenly shrunk,” he says.

Nearly every small unit has a problem of mounting inventories. Orders have been cancelled or deferred. “It is only a matter of time before we are forced to close down,” says Mr. Biswas.

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