M & A CritiqueIn order to bring in efficiency in the way of functioning of public sector undertakings, the government is taking the merger routs. The Cabinet has approved the merger of SBI with its five associates, all state-owned oil companies will become one, and now, the government’s six consultancy firms will merge into Engineers India Ltd to create a mega-consultancy firm.
The merger of consultancy firms such as MECON, Telecommunications Consultants India (Ltd), Engineering Projects (India), WAPCOS, etc has been proposed in the Union Budget 2017. The idea behind creating a big entity is to take on competition worldwide and establish India’s footprint in the global business of project consultancy.
Merger rationale and benefits
There are nearly a dozen state-owned companies that provide a range of consultancy services and there is a scope of merging some of them to create a big company that can compete globally and put India on the global map of doing turn-key projects. At present, Engineers India Ltd (EIL) is the biggest state-owned consultancy firm in the country which provides turn-key engineering solutions to projects in India and abroad and Engineering Projects (India) provides turnkey execution of projects in the infrastructure space.
Then there are specialized consultancy firms like Telecommunications Consultants (India) Ltd which does similar work in the telecom industry at home and abroad. In fact, the company has spearheaded a host of projects in Africa. Similarly, WAPCOS gives consultancy in water, power and infrastructure related projects. MECON provides technical consultancy and project implementation services in the infrastructure sector.
The merger of consultancy firms will enable the new company to bid and take projects across industries and even compete will global consultancy giants like Bechtel and domestic companies like Larsen & Toubro and ABB. Merger of consultancies can help them integrate across the value chain of an industry. It also provides them the opportunity and capacity to take risks and explore new business, avail economies of scale, take higher investment decisions and create more value for stakeholders. A bigger merged entity will help to diversify in business and bring in operational efficiency.
The merger of state-owned companies will reduce inefficiencies across the sector and create an entity that will be better placed to compete globally. It will have all the resources – financial, manpower, technical capabilities to bargain and bid for projects across the world and bring in value for shareholders.
The government’s vision is that the merged entity or a bigger EIL will be able to take on global consultancy firm Bechtel, which is one of the most respected global engineering, construction, and project management companies. Established in 1898, Bechtel has executed over 25,000 projects across 160 countries on all seven continents. It operates in infrastructure, nuclear, security and environmental, oil, gas and chemicals, mining and metals.
About Engineers India Ltd (EIL)
Established in 1965, state-owned EIL is an engineering consultancy company which provides design, engineering, procurement, construction and integrated project management services. It provides services mainly in oil, gas and petrochemical industries and has also diversified into sectors like infrastructure, water and waste management, solar and nuclear power and fertilizers to leverage its strong technical competencies and track record. The company’s corporate office is in New Delhi and has four regional engineering offices in Mumbai, Kolkata, Chennai and Vadodara. The company has an overseas office in Abu Dhabi, which caters to the business needs in UAE/Middle-East region. It also has offices in London, Milan, and Shanghai to coordinate the activities of international procurement and marketing.
EIL has two subsidiaries — Certification Engineers International Limited (CEIL), provides services in the field of certification, re-certification and third-party inspection services. The second subsidiary EIL Asia Pacific Sdn. Bhd. (EILAP), Malaysia is engaged in the business of providing technical services for projects in oil and gas and other industrial sectors. The Company also had three strategic Joint Ventures. The TEIL Projects Limited with Tata Projects Limited pursues projects in oil and gas, fertilizers, steel, railways, power, infrastructure etc. Secondly, Ramagundam Fertilizers and Chemicals Limited with National Fertilizers Limited (NFL) and Fertilizer Corporation of India (FCIL) and Jabal EILIOT Co Ltd, with Jabal Dhahran of Saudi Arabia and IOTL to pursue business opportunities in hydrocarbon and infrastructure sector in Kingdom of Saudi Arabia. Some of the notable projects executed by EIL are world’s longest deck on single jacket for SHG Platform of ONGC, Jamnagar-Loni Pipeline of GAIL, one of the largest LPG pipelines in the world and 9 MMTPA Guru Gobind Singh Refinery of HMEL.
For the quarter ended December 2016, the company has reported standalone sales of Rs 325 crore, down -4.1% from the quarter ended September 2016. On a year-on-year basis, sales were down 11.8%. The company reported net profit after tax of Rs 85 crore in the quarter ended December 2016.
About MECON
It provides services in technical consultancy in design, engineering, and project implementation from concept to commissioning for industrial development in infrastructure and other service sectors. Established in 1959, MECON Limited was earlier called Metallurgical & Engineering Consultants (India) Limited. It is a state-owned company under the Ministry of Steel of the Government of India. In fact, the company began operations in 1959 as the Central Engineering and Designing Bureau (CEDB) of the Hindustan Steel Limited (HSL), the first public sector steel company.
After that CEDB grew as Metallurgical and Engineering Consultant (MECON), a subsidiary of the Steel Authority of India Limited (SAIL) in 1973. It later became an autonomous company reporting to the Ministry of Steel in 1978. It provides services in power, energy & environment, infrastructure, oil & gas, metallurgy and other specialized areas and is the first engineering consultancy organization in India to be accredited with the ISO 9001 certification.
About Telecommunications Consultants India Ltd (TCIL)
Telecommunications Consultants India Ltd is a state-owned company established in 1978 under the administrative control of Department of Telecommunications, Ministry of Communications. It is a notable telecommunication consultancy and engineering company and has made its vast and varied telecom expertise to many developing nations. It has extended its telecom consultancy and turnkey projects execution services to telecom operators, bulk users and others in India and 80 other countries in the Middle East, Africa, South & South East Asia. The success story of TCIL lies in its quality management and excellence in project execution.
The company’s organic and inorganic growth has led to multiply its standalone as well as group turnover manifold. In many countries, it has taken up projects in fields of telecommunications and information technology and is deploying new technologies in the field of Telecom Software, Switching and Transmission Systems, Cellular Services, Rural Telecommunications, Optical Fiber-based Backbone Transmission Systems etc. TCIL has diversified its operation and has been executing turnkey projects of power transmission, rural roads, and civil construction.
About WAPCOS
It is a consultancy and engineering, procurement & construction (EPC) company which provides integrated and customised solutions for sustainable development of water, power and infrastructure projects in India and abroad. Incorporated in 1969, it is a Mini Ratna company under the aegis of the Union Ministry of Water Resource. It is a techno-commercial organization, which utilises the talent and expertise developed in the various organizations of government of India and state governments.
The state-owned company achieved highest ever profitability of Rs 129.19 crore and secured new business of Rs 1,747.46 crore in the financial year 2015-16. It had paid a dividend of Rs 25.25 crore for 2015-16 to the government. This is the highest ever since its inception. The company declared a composite score of 100, which is the highest achievable score as per the MoU evaluation system of the ministry of heavy industries and public enterprises.
While the government’s intent to merge the six consultancy firms into Engineers India Ltd is laudable, it will face stiff resistance from the Union. The government should stay clear of any roadblocks and go ahead with the plan to cut cost and bring in operational efficiencies in the long-run.
