Hyderabad: About 40 years ago, P. Ravindra Reddy had a choice between joining a private sector firm that offered him 40 times the salary he was then earning or becoming an entrepreneur.
Strategic ties: Ravindra Reddy’s MTAR now caters to the needs of nationally important organizations such as Isro, NPCIL and HAL. Bharath Sai / Mint
Reddy, who was then making Rs1,000 a month at state-owned machine tools maker HMT Ltd, chose the latter option, taking up a government loan of Rs3 lakh for technocrats turning entrepreneurs.
Reddy, a mechanical engineer, founded MTAR Technologies Pvt. Ltd, focusing only on high-precision engineering works. He left the public sector job because he thought it didn’t offer sufficient freedom of thought and innovation or encouragement for talent. He didn’t want a private sector job either, preferring to set up a venture of his own that was different.
“We did not want to be one amongst hundreds of engineering and fabrication units that came up in Balanagar Industrial Area of Hyderabad those days,” said Reddy.
Reddy, who graduated from the Ananthapur Engineering College in Andhra Pradesh, had discontinued his doctoral research at the Indian Institute of Science in Bangalore and worked with HMT for six years till 1970, heading a wing that specialized in high-end engineering works, before the entrepreneurial bug bit him.
“I knew that it was a difficult task for MTAR to focus on high-precision engineering works since we neither had sophisticated machinery nor skilled workmen with us at that point in time,” admits Reddy.
MTAR spent substantial money and time on acquiring strengths in these two key areas before it took up critical jobs and executed them to create a niche for itself in the marketplace, emerging as a leading precision machining, fabrication and design centre. “Visualizing the need for advanced machines and personnel for taking up certain kinds crucial works well in advance, we went on buying machines and sometimes fabricating the machines in-house, while willing to keep them idle for years before the business opportunity came,” says Reddy.
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MTAR was the first Indian engineering firm to import a CNC, or computer numerical control, machine from Japan in 1980, when hardly anyone in India had acquaintance with such machines. It spent a lot of time on training staff on such machines to acquire the expertise to execute complex and high-precision engineering works.
While Rs50 lakh was its first major order in 1973, the size of large work orders at MTAR has now crossed Rs100 crore. Having worked in the wing at HMT that catered to the government’s nuclear power department for couple of years also helped Reddy tap the sector for orders, although the order flow was very slow.
Did his company fail to realize that the frequency of high-end precision engineering work orders was slow?
“We were fully aware that the order flow for such high-end works will be low but the area we chose gave us high margins to sustain ourselves for longer periods,” says Reddy. “The promoters also did not take any profits from the company for years and went on to plough back them into the company.”
Banks were more than willing to lend MTAR money, but the company didn’t like to borrow. “We always tried avoiding borrowing money from banks, though we did borrow sometimes. Now, we are almost a zero debt company,” Reddy says.
MTAR availed of funds from banks when it needed to augment infrastructure to tap business opportunities, with a plan to repay at the shortest possible time. The strategy, says Reddy, was to always prepare the firm with engineering infrastructure so that it had the edge over rivals when the opportunity arose.
Having developed a close association with the space and defence sectors over nearly four decades, MTAR helped the departments in changing many critical drawings and designs of their equipment to improve their end-use. MTAR now caters to the needs of nationally important organizations such as the Indian Space Research Organisation, or Isro, Nuclear Power Corporation of India Ltd, or NPCIL, and Hindustan Aeronautics Ltd, or HAL. MTAR manufactures precision machined parts for nuclear power reactors, and engine and structural components for aerospace and defence applications.
“We had built cryogenic engines and Vikas engines for satellite launch vehicles, major equipment and critical components for nuclear power reactors and met the needs of the Indian space and defence sector,” said Reddy, while refusing to elaborate on the nature of space and defence equipment that MTAR made, citing confidentiality issues.
Akhil Gupta, chairman of global private equity firm Blackstone Advisors India Pvt. Ltd that invested $65 million in MTAR in November 2007 for a minority stake, said, “MTAR is a sector leader with very unique skill-sets, capabilities and in-depth understanding of a very niche and high potential industry.”
On Blackstone’s investment, Gupta said, “We are very enthusiastic about this investment as we foresee a huge growth opportunity for MTAR both in domestic and global markets.”
Reddy said the Blackstone investment helped the company scale up its operations in terms of management expertise, global best practices and technology, apart from giving the company access to Blackstone’s global network. MTAR now has seven engineering and fabrication units in Hyderabad catering to the needs of the Indian space and defence sectors.
In the last three years, the company has experienced a slowdown in business from NPCIL with new nuclear projects on hold because of a lack of fuel, said Reddy.
“We are now gearing up to meet the needs of global multinational firms in the areas of oilfield equipment and energy. The agreements of the Indian government with the US, France and other countries in the field of civilian nuclear power area will throw open major opportunities for us,” said Reddy.
Reddy said business opportunities from global companies will go beyond the so-called offset clause that requires defence firms to procure locally at least 30% of the value of every contract worth Rs300 crore or more awarded by India. “The opportunity is much bigger. The MNCs are looking at players like MTAR to meet their global requirements, which works out highly cost-effective for them even after taking into account the freight costs,” he said.
India’s ambition of building 60,000MW of nuclear power generation capacity by 2030 would also offer a lucrative opportunity for domestic engineering and fabrication firms capable of building nuclear reactors.
MTAR is now setting up two more advanced engineering units in Hyderabad to meet the needs of global companies in oilfield equipment and energy. It plans to set up one export-oriented unit, or EOU, and the other in an aerospace and precision engineering special economic zone, or SEZ, coming up close to the new international airport in Hyderabad.
“While the EOU unit is coming up at an investment of some Rs100 crore to take off before the current fiscal-end, the unit in the SEZ is estimated to cost some Rs200-300 crore and take a couple of years to commence operations,” said Reddy.
V. Sreeramulu, director, said the company expects to more than treble its revenue in the next couple of years to Rs300 crore from Rs100 crore in the fiscal to March 2009. The company aims to reach a revenue size of over Rs500 crore in the next four years.