Home appliance major Electrolux Kelvinator Ltd (EKL) may offer part of its excess capacity for contract manufacturing to other refrigerator players.
The company has the largest installed capacity of 750,000 pieces in India but it remains underutilised to a great extent.
Rajeev Karwal, chief executive officer (CEO) and managing director, said: “Few players in the industry have approached us whether we can manufacture for them by using EKL’s spare capacity. We are negotiating with them. The talks are preliminary.”
The Rs 2,800 crore refrigerator industry in India is suffering from huge overcapacity. While the installed capacity is around 6 million pieces, annual sales are around 3.2 million pieces.
The industry expected the figure to go up to 3.5 million in 2003. On the other hand, installed capacity will go up by another 0.7 million pieces after LG commissions its plant in 2004.
EKL’s capacity utlisation was 50-60 per cent after closure of its Nandlur plant in the south last year. That plan had capacity of around 150,000 pieces a year. EKL has two plants at Shahjanpur (Rajasthan) and Warora (Maharastra).
EKL is fourth largest player in refrigerator in India after Whirlpool, LG and Godrej. Even if there is volume growth this year, the result has been offset by price erosion. The fastest growing segment, frost free, has seen highest erosion.
Karwal said the way forward was to offer value-added items with higher margin. EKL has come out with value-added refrigerators for direct cool and frost free segments.
EKL recently exited from compressor business. Karwal said EKL is talking to manufacturers such as BPL and Matushita for sourcing compressors. “We will give the contract soon,” he said.
EKL is exploring ways to cut cost and outsourcing wil be one option. This was part of a comprehensive restructuring package to turn EKL profitable. It has downsized its workforce from 3500 to 2150 at a cost of around Rs 100 crore. Further reduction was on the cards.
EKL is conducting a study at Shahjanpur to reduce manpower. The study will look at improvement of processes and design re-engineering and is expected to be over by September 15. The Warora plant will be examined thereafter.
Karwal said the purchase team was looking at make or buy options to outsource various components. EKL has posted gross sales Rs 191 crore in the half year ending June 2003 with loss of Rs 25.2 crore.
From Business Standard, India