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Tushar Mane

The State of Business 2013

Dressed up, but nowhere to go
Poor infrastructure dogs existing companies and no new industrial project has come up in the Nashik belt

Krishna Gopalan

The drive from Nashik to Sinnar is barely 30 km, but don’t make any bets on how long it will take. On a bad day, you could spend over two hours on this two-lane stretch choked with smoke-belching vehicles of all shapes and sizes. It’s been a decade since a four-lane highway was promised between the two industrial towns but nothing’s moved on that. “All of us opened shop in Sinnar when we heard there was going to be good connectivity between the two places,” rues Sudhir Badgujar, owner of Ashwini Industries. With a turnover of around ₹5 crore, Ashwini has two units that manufacture high density polyethylene bottles and fabric bags. These eventually go to clients such as Multimol Micro Fertilizer Industries, Royal Agro Foods Industries and Vaibhav Agro Industries. Like a multitude of other people, he lives in Nashik (and lives quite well, by his own admission) and works in Sinnar.

There are nearly 15,000 commercial units across the six industrial areas in Nashik — Satpur, Ambad, Sinnar, Dindori, Vinchur and Peth. While a majority of them are micro, small and medium enterprises, there are nearly 200 large-scale projects as well. Together, these provide employment to about 150,000 people. The big names with a manufacturing base in this zone include Mahindra & Mahindra, Schneider Electric, GlaxoSmithKline Pharmaceuticals, Larsen & Toubro, Mico and Siemens. An impressive line-up, but everyone here will make it a point to mention that not one large industrial project has come up in the zone in the past decade. 

The biggest name in this part of the country is Mahindra & Mahindra and this is where its SUVs and passenger cars are made. According to Pravin Shah, chief executive of the automotive division, the advantages of Nashik are its good climate and connectivity to Mumbai. “The challenges are availability of power, water and scarcity of land. It is also crucial that there is a good railway network since that will reduce the congestion on the roads,” he points out. Shah also emphasises on the need to complete the airport project quickly — “That will form the next growth phase here.” 

But the common perception is Nashik does not possess sufficient political clout and has, hence, not managed to progress the way Pune has. Key infrastructure projects have still not taken off with little clarity on when they will eventually materialise. Evidently, the time lost has cost Nashik dearly. 

Not such great times

Jaspal Singh laughs easily and often. That is, until he begins to speak about his business. A third generation entrepreneur, the 33-year-old Singh declares the current phase is the worst since he entered the family business of manufacturing rock crushing equipment in 2003. “There was a time when the equipment would be loaded on to a truck and cash would come immediately. Now, we have to wait for over a month,” he says worriedly. 

For FY12, Singh Quarry Equipment and Singh Engineering Works had a turnover of ₹60 crore, but that figure looks like a tall order in the current fiscal. The company has let go of most of its contract labourers — the staff strength of 250, of which 175 were contract labourers, is down to 100 currently. “We were looking to invest about ₹2 crore in buying machines but that’s definitely on hold now,” says Singh.

This time last year, the company was operating at 150% capacity utilisation; now, it’s down to 70%. Enquiries are still coming in — prices of the equipment Singh makes range from ₹10 lakh to ₹3 crore — but most orders remain on paper; purchase decisions are being deferred for the most part. “There is a serious liquidity issue. Things have improved since Diwali but we still have a long way to go,” Singh adds. 

Most people in the industrial belt have been struck by rising costs. Sanjeev Bafna, chairman and managing director, Seva Automotive, the largest dealer for Maruti Suzuki in Nashik town, offers his experience as a case in point. “One and a half years ago, we were paying our mechanics a salary of ₹5,500 each month. That is now ₹10,000. The price of power, too, has gone up from ₹7 to ₹12 per unit in this period,” he says. Bafna’s ₹300 crore dealership business is spread across six districts, including Nashik, Nanded and Wardha, with Nashik accounting for about a third. “Turnover has increased by about 10% every year, but thanks to rising costs, it has been accompanied by a 20% fall in profitability,” declares Bafna.

Sales volumes have remained constant since FY11 at around 10,000 vehicles a year. But, even as average costs — on labour, IT and stationery, among others — have increased by at least 30% in the past year, the effort to sell the same number of cars has increased sharply. In good times, Bafna recalls conducting five to 10 sales camps each month. “Now, we have about 20-25 camps. If we advertised once a week earlier, we do it at least thrice now,” he points out. 

In the slow lane

Several upcoming projects in Nashik have missed their expected deadlines

During our hour-long conversation with Bafna at his showroom in the MIDC estate at Ambad, his phone rings just once. There are hardly any visitors at the showroom and the man himself says only about two in 12 people actually buy cars. “In the past, of every 10 who came, at least three bought a car. Consumers are postponing their purchase decisions and that is hurting us,” he laments. “The situation is bad... I have not seen anything like this in the past many years,” he adds. 

Concurs Lalit Boob, who owns a petrol pump in Ambad. “A year ago, we were selling 10,000 litres of petrol and 20,000 litres of diesel everyday. Now, it is barely 4,500 litres of petrol and 10,000 litres of diesel,” he complains. Boob is a wholesaler and retailer of fuels. In addition, he is also a clearing and forwarding agent. He expects to close FY13 with a turnover of ₹100 crore, a 30% drop from last year. “ We were looking to invest ₹70 lakh for an industrial fuels depot in Mahad [about 300 km from Nashik], but now we have put it on hold,” he says.  

Premature optimism

It’s 7.30 in the evening and Arun Chavanke isn’t even close to winding down for the day. He walks briskly across his nearly-empty unit that manufactures industrial springs, pointing to the work in progress. “If things have to look up, we need at least two big companies coming in quickly,” he declares. Chavanke started the ₹1.5 crore Aerona Industrial Springs in Sinnar in 1998. “We started the business here because we were told large auto companies would be coming in. We wanted to become component suppliers to them,” he says. In the past decade, Chavanke says, there has been endless talk of companies such as Hero Honda, Volkswagen and John Deere coming in. “None of these projects has materialised and we are still waiting for some good news.” 

Aerona manufactures about 15 tonne of industrial springs a month against a peak capacity of 25 tonne. His customers are mainly small auto companies. Competition is taking a toll, though. “Since many players have entered the fray, the selling price has remained at about ₹80 per unit while manufacturing costs have increased 50%,” he says. Seeking customers outside the region isn’t an option since transport costs will be prohibitive. At the same time, “there is almost no local market, barring a handful of companies. No new company has entered this zone in the last 15 years,” Chavanke adds. 

Chavanke and Badgujar weren’t the only folks who set up base in the region expecting a surge in demand. The hotel industry also fell prey to this. For instance, Ginger and Ibis set up new properties close to each other in Nashik city. “All the quality hotels put together have over 1,000 rooms in Nashik. That’s not a small number,” says Deepak Chandak, director of the ₹150-crore Panchavati Group of Hotels. Chandak owns five properties in Nashik with a total of 177 rooms and says there has been a 15% drop in occupancy during the current fiscal. “The market for hotels is quite saturated here. Properties were opened in anticipation of new industries, which has not taken place,” he explains. Chandak entered the market in the early 1980s, when land prices were low. “We have a large land bank. But it is quite tough for the new entrants since high land costs are a serious challenge,” he points out. Locals point out that real estate prices have tripled in the past five years, both for commercial and residential use. 

Of course, those in the construction business are still a relatively happy bunch. Tushar Sanklecha, for instance, has his hands full till the end of the next fiscal: he has 4 million sq ft of residential projects coming up. The business development director of the ₹36-crore Sanklecha Constructions expects to close FY13 at ₹50 crore. “This is a big market where issues like power are still not serious. We have a shutdown only on Saturdays,” he says. “Yes, we have to contend with rising costs relating to skilled labour and a tight credit situation, but we are still optimistic,” he adds. Sanklecha is part of a small subset of businessmen here who are relatively unaffected by the slowdown.

But Boob, who is also an executive committee member of the Ambad Industries And Manufacturers’ Association, says a key demand to the government has been more affordable land for small and medium enterprises in the MIDC area. “Today, residential land encroaches upon industrial plots. If industrial plots cost ₹5 crore per acre, how is one to do business here?” he asks.

Is the government listening?

 

 

 

 

 

 

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