Faced with changed market conditions and consequent slowdown in performance, Southern Gas needs a radical revamp in strategy to get back to good health, finds out SHOMA PATNAIK
Of Goa’s listed companies, Margao-based Southern Gas needs a stimulating push. The company’s performance is under pressure because of fundamental changes in the business climate. Radical revamp in product line along with long-term measures is due for this reputable manufacturer of gases for the fortifying lift.
Southern Gas 2014-15 first half numbers are reflective of strain. While income at Rs 11.5 crore is slightly down 2.5 per cent over the corresponding period of the previous year, net profit is lower 14.9 per cent to Rs 46 lakh. The deceleration in pace is after all round decline in finances in the previous year where profits have dropped 18 per cent and profitability adversely affected.
Deflated numbers, says Gautam Pai Kakode, chairman and managing director, must be seen in the context of the overall slowdown in business environment where customers are economising and cutting down on expenditure considerably. Further, mining closure in Karnataka and consequent shutdown in a number of fabricating units is also another problem to contend with. It has affected sales considerably as Karnataka is a major market, he says. The other two states where customers are located are Kerala and Tamil Nadu, adds Kakode.
The company, he continues, has initiated measures to step up performance. It includes producing more specialty or rare gases and introducing more products. It is also trying to reduce cost by importing raw materials and aiming to expand the customer base. Longer term measure would be to make major changes in the production process so as to meet the requirements of user industry. But that would need considerable capital investment, he concedes.
An established company, Southern Gas is in the manufacture of medical and industrial gases since 1963. The company supplies life-saving oxygen gas cylinders to South-India based hospitals. Demand for oxygen from hospitals continues to be robust but the market is changed radically. Large multi-nationals have entered the fray and they are supplying oxygen in liquid form. Liquid oxygen is decanted in large tanks from tankers and it is refilled regularly. The tanks are huge with capacity of 10,000 cu meters or more.
On the other hand, companies like Southern Gas supply gaseous oxygen in small cylinders of just six cu meters. With hospitals preferring oxygen in mega tanks to save time on frequent changing of the cylinder, the scenario is indeed grim for Southern Gas. The market for small cylinders of gaseous oxygen has not dried out completely, points out V R Pai, business development manager, because hospitals back-up oxygen for emergency. It is a big consolation for the company, says Pai as sales occur from the purchase of emergency cylinders.
A Goan company, Southern Gas is headquartered in Gogol and has local promoters. However, manufacturing facilities are located in Bangalore, Bhadravati, Calicut, Cochin, Harihar, Hubli, and Mysore. The company produces oxygen through the air separation process, a technology that is become outdated with the current demand for liquid oxygen.
Besides medical gas, Southern gas also produces Dissolved Acetylene (DA) or welding gas. It is used for fabrication and in almost all industries. However, even in DA although the demand is good, competition is from LPG (known as cutting gas).
Currently, a rethink is on at Southern Gas as how to overcome the problems occurring from changed market conditions. As a manufacturer of oxygen gas, the company has made considerable investment in cylinders. Moreover, even the manufacture of liquid oxygen is a tough proposition as capital expenditure will have to be incurred on large tankers.
The company, says Kakode, is planning to diversify into rehabilitation products such as wheel chairs, walking aids, hospital beds, etc. India leads in world death records due to road accidents and the market for rehabilitation products is not tapped properly. Further, thanks to good relations with hospitals it is a segment that is promising, he says.
In rehabilitation aids, the company plans to be the direct importer, wholesaler and retailer so as to provide goods at competitive rates. The vision is to have showroom at all places, in the south initially but slowly expanding to North. The diversification, however says Kakode, can only take place in 2014-15 and in the meantime recently implemented measures to step up production and sales will add to the bottom line. September-March 2014-15 will definitely be an improvement over the first half avers, Kakode.