Showing posts with label unusal buisness. Show all posts

KAM-Avida Enviro Engineers MD

December 23, 2008

M Krishna,
Managing Director,
KAM-AVIDA ENVIRO ENGINEERS.

Business: Manufacture and maintenance of sewage cleaning equipment

Based: Hinjawadi, Pune

Year of inception: 1994

Big break: World Bank-aided five-year contract for Navi Mumbai 5-6 years ago

Employees: 70

Captial: About Rs 8.5 crore

Revenues: Rs 25 crore (2007-08)

Plans: Rs 100 crore revenues by 2012


Fifteen years ago, M Krishna lost his job when the cleaning equipment marketing company he was employed in shut shop. That led him and a partner, Pankaj Malhotra, to set up KAM-Avida Enviro Engineers, now a Rs 25-crore company that makes and maintains sewage cleaning equipment. Krishna, who is on the verge of closing a deal for Rs 25-30 crore in private equity investment from a US-based firm, aims to hit Rs 100 crore in revenues by 2012.

"Our growth in the next three to four years will be powered by four lines of business: drain cleaning equipment, compacting garbage disposal trucks, industrial vacuuming machines and street sweepers," says Krishna, seated in his no-frills office at Hinjawadi, Pune. The company’s factory premises, which need urgent expansion, are an oddity in the otherwise snazzy neighbourhood dominated by IT/ITES companies, including Infosys. "We’re going to acquire more land in this area to expand our manufacturing capacity," says Krishna.

His expansion plans are based on a spurt in growth that is expected in each of the markets that his four business lines address. Garbage trucks currently constitute the largest chunk of his revenues—Rs 20 crore—and this market, currently estimated at Rs 25 crore, is expected to grow to Rs 200 crore in five years. "This segment is getting privatised very fast. About 70% of our buyers are private contractors," he says.

The company’s second largest business is drain-cleaning equipment, which is what it began with originally. KAM-Avida started out as a marketing outfit for a Chennai-based company called Southern Powertech, which used to manufacture the drain cleaning machines. It subsequently diversified into other businesses and reduced its focus on sewage cleaning equipment, leading Krishna and his partner to start manufacturing their own machines. "The company I worked for earlier shut down because it didn’t have manufacturing capabilities. We couldn’t make that mistake," he says.

But getting into manufacturing was not easy given that neither Krishna nor


Malhotra had relevant experience. Fortunately, a common acquaintance introduced them to Porus Dadachandji, an engineer who worked at Varun Shipping and was looking for an onshore job. Dadachandji became the third partner in KAM-Avida and now leads its engineering operations.

Once manufacturing capabilities were in place, KAM-Avida’s next challenge was to create a market for drain-cleaning machines in India. Krishna recalls that even five years ago, most people (municipal corporations) did not see the need to use machines, as the job could be done inexpensively using human labour. Krishna and his team were eventually able to sell the machines on the efficiency plank—over a period of time, using machines was actually more economical. In the initial years, business was also slower because of bureaucratic slowness in municipal corporations. Much of it is still controlled directly by the civic authorities, but processes have become relatively smoother now, and this will improve further with contracts now being given out to private companies.

Bright future

Today, the market for drain cleaning equipment, which essentially consists of tankers fitted with suction pipes that eliminate the need for human labour, is estimated to be worth Rs 12-15 crore.

This market is expected to grow to Rs 50-100 crore in five years, and much of this growth will come from the sewage rehabilitation projects being undertaken in tier-I and tier-II cities. Sewage rehabilitation simply means that drainage networks are cleaned and cased with silt-resistant material, which is the only solution, because building new sewage lines would mean breaking down overlying road networks. Unlike the garbage disposal business, which is led by the private sector, drain cleaning is government (municipality)-led.

The industrial vaccuming and street sweeping business are relatively new ones for KAM-Avida. The company has sold 10 street sweeping machines, for which it has a technology tie-up with US-based Johnston, in the last 12 months. It expects business to expand with the NHAI’s Golden Quadrilateral project nearing completion. "With 10,000 km of road to sweep, machines are inevitable," says Krishna.

This apart, city municipal corporations are also prime customers, and again this market, now at just Rs 5 crore, is expected to grow to at least Rs 100 crore in five years. Industrial vacuuming (machines that vacuum spillage such as cement and oil), which is already a Rs 100 crore market, is the company’s newest business and it has deployed a couple of machines so far.

M Krishna

M Krishna, Managing Director, KAM-Avida

Krishna plans to fund the expansion required to address these growing markets with private equity money, for which, the company will dilute 48% equity. So far, about Rs 5-6 crore in bank loans and Rs 2.5 crore in borrowings from friends and family have gone into financing the business. "Part of the PE money will also go towards repaying debt," he says.

The company got its first break from the World Bank-funded drain cleaning project for Navi Mumbai about six to seven years ago, which included a five-year maintenance contract. Today, 10-15% of its revenues come from operation and maintenance contracts, while the balance comes from selling equipment.

Yet, raising money has never been their biggest problem. "In India, cleaning is considered taboo. When we started out, a lot of our work was educating people, convincing them that machines were necessary. It required, and continues to require, a big change in mindsets. I think of myself as a cleaner who has dignity," says Krishna, though even after over 15 years in the business he is not sure if mindsets have changed enough to transform a Mumbai into a Singapore or a Shanghai.

FULL STORY >>

SKM Egg Products CEO SKM Shree Shivkumar

SKM Shree Shivkumar

Business: Manufacturing, exporting egg powder

Based: Erode, Tamil Nadu

Year of inception :1995

Clients: Food companies in Japan, Europe

Big break: Being accepted by Japanese customers at a time when indian agri -products were shunned due to the pesticide problem.

Revenues: About Rs 100 cr (2007-08)

Profitability indicator: Net profit of Rs 10 cr

Employees: 140 regular (plus 100 contracted)

Plans :Triple revenues by 2011-12, start selling branded eggs

Conventional wisdom need not always work. At a factory at Cholangapalayam village, 20 km from Erode, Tamil Nadu, SKM Egg Products has all its eggs in one basket, in a manner of speaking. The firm produces 1.1 million eggs daily at the Erode unit. It doesn’t stop there—the eggs are then broken. After removing the eggshells, SKM workers, using machines, ensure that the mixture is processed and undergoes treatment from a high-pressure spray before making its way out as egg powder, ready to be exported to 24 countries.

Customers, a proud CEO SKM Shree Shivkumar says, include Kraft, Heinz and an arm of Unilever. The multinationals use egg powder as an ingredient in their food products. Shivkumar’s father SKM Mailenandhan started SKM, the group that runs SKM Egg Products. Mailenandhan started his career as a general store merchant. In time, he became a poultry feed dealer, and then, a manufacturer too. His modus operandi was to not only sell feed to farmers, but also collect eggs from them for further trade. By 1993, when Shivkumar joined his father’s business, SKM was making money in the feed business, but losing it in egg trading. That was despite SKM being a major player, with daily volumes of 1.5 million eggs. "I got involved to set the business right," recalls Shivkumar. "Some improvements happened, nothing dramatic. The fact is, we were competing with small companies."

The shift

That was when a new window of opportunity opened up for SKM. The Tamil Nadu Industrial Development Corporation (Tidco) sought a co-promoter for a venture thatwould export eggs in processed form. SKM applied, and was chosen. SKM Egg Products was set up in 1995 in technical collaboration with Belgium’s Belovo. Tidco took an 11% stake (currently 7.6%). The plant at Cholangapalayam was set up in 1997, with a breaking capacity of 1 million eggs a day, capable of processing 3,500 tonnes of egg powder a year. This has since been upgraded to 4,600 tonnes.

The egg-powder exports segment is indeed a niche. Three players—SKM, Venkateshwara Hatcheries and Ovobel—constitute a market worth about Rs 230 crore. Venkateshwara has a capacity similar to SKM’s; it can process about a million eggs every day.

The ease with which SKM Egg moved into the processing space couldn’t, however, be sustained when the business was up and running. Trouble hit almost immediately. The problem was pesticide residue. It was an issue that shook the whole Indian agri-products industry, and SKM took time to beat the negative perception about the country’s products. After over three years, things started looking good.

Shivkumar attributes the turnaround to a seminar that SKM conducted for potential suppliers and distributors from across the globe ("there were guests from 27 countries") in December 1999. "Seeing is believing," says Shivkumar, "and all of them could see our processes for themselves." In 2001, when SKM Egg broke even, all the high-interest debt had been done away with.

The breakthrough had come from Japanese customers. It didn’t take long for others to sign on. About 40% of the company’s Rs 100 crore revenues (for the year ended March 2008) came from Japan, another 40% came from Europe and the rest from other countries. SKM hasn’t tried the US market despite it being a big egg-powder user. That’s because, Shivkumar points out, the cost of hosting full-time US inspectors at its factory, as also incurring the duties, is not something SKM is keen on now.

At the other end of the business process are suppliers. They form the most important part of the SKM business. That’s because one of the parameters that the company prides itself on is quality. And, in an egg powder business, quality hinges mostly on the input supplier. SKM has tie-ups with farmers across 16 farms who, together, supply 1.1 million eggs daily. To ensure product quality, SKM has its own supervisors and veterinary professionals at the venues.

SKM is now tweaking the model a bit by investing in its own farm. The target is to produce 600,000 eggs daily. Simultaneously, the company will set up a feed mill and also increase its egg-powder processing capacity to 6,000 tonnes a year. All this would entail an investment of Rs 58 crore (the outlay for this year). About 1.5 million eggs a day would be needed to make those 6,000 tonnes of egg powder a year. That leaves 200,000 eggs in its bag. And that’s the starting point for SKM Egg’s debut in the domestic market.

Branding eggs

The plan is to float branded eggs in India. Market research done, the idea will enter its test-marketing phase by October 2008. It might not be easy for SKM to taste immediate success in branded eggs, a nascent market where the likes of Suguna Poultry already have a presence. But SKM could take heart from the fact that egg

SKM Shree Shivkumar

SKM Shree Shivkumar, CEO, SKM Egg Products

consumption is often propped up by strong economic growth, and a branded egg typically fetches at least a 50% premium over a normal one. Shivkumar says: "Five years back, the per capita consumption of eggs in the country was 38 per year. Now, it’s over 50." SKM could also have numerous variants in this business, including protein-enriched ones. Of course, a product targeted at the domestic market has another use: it won’t be hurt by currency fluctuations.

The plan, then, is to hard-sell branded eggs in India and consolidate the egg-powder business overseas. India, Shivkumar says, isn’t a market for egg powder. There would be an opportunity only when bakeries gain in size, or institutional users are mandated by law to use pasteurised eggs. Increasingly, SKM is looking to market value-added products, like mayonnaise mixes, overseas. This strategy is expected to up SKM’s net margin to 15% (from 10% currently). The company is targeting revenues of Rs 300 crore by 2011-12. One-third of that could be from branded eggs.

There could be better opportunities if the world market is opened up, says Shivkumar. For instance, egg-powder makers have for years been lobbying with the government to make Russia open up, but in vain, he says. The threats are from diseases like bird flu, which could hit its eggs business. But, Shivkumar believes SKM’s accent on quality could help tide over such crises. For the time being though, SKM is happy breaking eggs. And lots of them!

FULL STORY >>