The year 2012 is surely not a time that BEML Ltd can forget or get over easily.

This is its year of missed business targets, of being in the limelight for the wrong reasons. Its key customer — the Army Chief — has bad-mouthed its products and a miffed company has crossed swords with him legally. A time of roil when its outgoing CEO is under suspension.

The defence PSU has also seen a decade of change and a sort of culture shock. Until ten years back, the then Bharat Earth Movers Ltd was a quiet ‘me-too' government company. Less known, not seen and happy to be just producing bulldozers, mining machinery, rail coaches and hardy military trucks. (It was the first Indian company to make mining and rail equipment; it still does and is entrenched in those areas.) The other two Bangalore-based Defence PSU siblings, Hindustan Aeronautics Ltd and Bharat Electronics Ltd, were far more visible than BEML.

In late 2002, the then Chairman and Managing Director of six years retired and a rank outsider took charge. Since then BEML has altered its name, changed the way it functions, talked big and leapt into business areas it never earlier imagined — such as to make planes, enter coal fields or going to trade as far as in Brazil, Shanghai and Indonesia.

In this decade, a typically staid and introverted PSU was catapulted into the limelight and corporate adventure. Its stock was already being traded on the bourses since a 1992 divestment. But in 2006 BEML offloaded some 11 per cent of its stock and went in for a successful Rs 450-crore follow-on public issue. It was now set on a dream run of turning over Rs 5,000 crore by its 50th year – two years away – and double that figure in the next three years.

At a news conference on June 1, Mr V.R.S. Natarajan, CMD until then, shifted the goalpost by a year. By March-end this year, one goalpost had been knocked down. BEML fell short of the Rs 4,000-crore turnover by around Rs 400 crore.

Its officials justified this: some Rs 200 crore worth of mining and rail orders and Rs 100 crore as exports did not happen. All these are said to spill over to the current Q1.

For some insiders, the Rs 5,000-crore dream remains further away for now. BEML did not respond to queries made for this report.

JOLT AND RUMBLES

Recently, the company was in for far more serious, extraordinary and unprecedented jolts. On June 11, Mr Natarajan, BEML's chief for these ten years, was suspended by the Ministry of Defence; it said this was needed to ensure a fair, tamper-proof investigation by the CBI. He has been under the CBI scanner for at least two controversial deals. One is over the award of a Rs 40-crore contract to a Coimbatore-based ERP firm. The CBI has named him in this case and searched his office and home.

A 2007 joint venture with Hyderabad's Midwest Granites for contract mining of coal has gone awry and an ugly case is before the Company Law Board.

A small but prestigious part of BEML's business is the supply of off-road trucks to the Army. These are used to move people and ammunition in tough road-less terrains. they are used as carriers and launchpads to fire missiles and to carry important communication equipment, among others. BEML assembles these trucks under licence from the Czech and Slovak company, Tatra, by importing parts through a London-based export subsidiary of Tatra.

It was a controversy over the Tatra ‘Kolos' trucks that have now brought BEML and its erstwhile chief to grief. Mr Natarajan is not an accused in this case but the CBI has questioned him about the deal of 1986. The issue is also being read in the context of the then Army Chief's March revelation: one of his former men apparently offered him bribe to clear a new tranche of 600 trucks, he said. Some 7,000 BEML military trucks are in use since 1986. Gen. (retd) V.K. Singh also said he had issues over its quality, price and the procurement route.

The rumblings over the Tatra trucks started in 2005 but came to a head in March this year.

Defence deals

The military business of trucks, bridges and armoured vehicles is barely 20 per cent of its business. Once the sole supplier, BEML is relegated since 2010 into a multi-vendor race for trucks. And it is clueless how it can fight the commercial damage caused by competition and order dip on the one side and the taint on the other. In a normal year, it would have assembled and sold to the Army 500-600 trucks of different categories.

Recently, the company confirmed to Business Line that in the last two years, the truck production and revenue had been dented by half: to about 300 trucks and Rs 250 crore.

The Ministry of Defence is also delaying a decision on the truck purchase. “We never thought we would be hit this way,” an insider said on another occasion. “In these 26 years, we never got a complaint over its performance or our service.” Significantly, quite a few quarters have championed the Tatra trucks; the DRDO which shoots its surface-to-air missiles on the BEML-made trucks has given them a thumbs-up, too.

But the impact of all this can financially hurt BEML for another two years, the senior official said in a different context. As they ponder the crisis, some insiders vaguely also mouth `pressure from other manufacturers' – implying that BEML's competitors may be a crucial factor in the jam that their company is in today.

BEML is called Asia's second largest earth mining company with 70 per cent of the market share. (Komatsu, L&T, and Caterpillar are after the same pie.) Mining and construction equipment – bulldozers, dumpers, earth movers – are its bread and butter, accounting for 50-60 per cent of turnover. Then comes the metro and rail coaches business, which brings in some 20-25 per cent of the revenue. BEML supplies nearly 200 metro rail coaches to the Delhi Metro Rail Corporation and due to make 150 for the Bangalore Metro project. .

It has earlier said the current financial year will be good, as orders worth about Rs 7,000 crore are in hand and fresh orders of Rs 5,000 crore are due from rail and defence customers.

According to a senior old-timer, BEML's present trouble is a “temporary aberration.” “It is a good company, the fundamentals are strong and it will shake off all this and take off again,” the person said.

His take: “90-95 per cent of its products are non-defence. A blip on the five per cent [the trucks] will not make any impact. The infrastructure, mining and rail sectors are growing. Why are we not talking about that but about a piffling trucks segment? Defence orders are small and not too reliable. It is difficult to cater to defence needs”.

Customer base

The manufacturing lines for mining machinery and rail coaches are solid and “There is nothing wrong with the company per se . Prior to 2002, this company was run in a simple and simplistic manner.” This situation may have been a fall-out of “an individual's work style.”

BEML's larger customers — the coal mining companies and their power plant builders — will be there for many more years, says another insider who does not want to be named. “60 per cent of power generated is from coal-based plants — to which BEML supplies. So we will not suffer.”

What is the salve to BEML's wounds?

A shadow has been cast on its image but BEML will “spring back clean once the management is re-cast,” said the old-timer.

That process is on. As the senior-most director, Mr P. Dwarakanath, Head of the Rail and Metro division, became the acting CMD on June 12. He is also said to be contesting for the top post. The Public Enterprises Selection Board is expected to declare its choice on June 22.

> madhu@thehindu.co.in

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