“Report on STS Pvt. Ltd.

J-Component Report

MGT1022 - Lean Startup Management

TE2

Winter Semester 2018-19

Submitted by:
Aparna Yalamanchi 16BCL0008
Kailashnath K 16BEC0558
Ujjwal Kumar 16BCL0238
Sivaschandra Eluri 16BCL0245
Avinash Singh 16BCL0332

Project Supervisor: Prof. Venugopal P

In the early 1990s power distribution technology used in industries were very primitive. With
the growth of an industry, the machinery increases, creating the need for efficient and safer
power distribution technology like panel boards. During that period Hyderabad had very few
companies that made panel boards for power distribution. The larger industries in the city
procured their panel boards from Mumbai and Ahmedabad. There was a need for all the
newer industries in the city to adopt safer power distribution systems. One such SME (Small
and Medium Enterprises) that had started manufacturing panel boards in Hyderabad was STS
Pvt. Ltd. (Sanjay Technical Services Pvt. Ltd.)i.

With increasing demand in the renewable energy sector and the electric vehicle sector, the
company saw scope in increasing its product range. A company that did services for two
decades was slowly but steadily moving into a large product-based business when they
started manufacturing compact substations and industrial battery chargers.

STS Pvt.Ltd. was classified as a Non-Govt company and it was incorporated on 22nd May 1996.
It was a family run company that had six industrial units in Jeedimetla Industrial Area,
Hyderabad. It’s authorized share capital was Rs. 10,000,000 and its paid up capital was Rs.
10,000,000. It was involved in the Manufacture of electricity distribution and control
apparatus. This company was classified as a family business run by four directors.ii

History

The idea of business had started with a motor winding shed in the year 1990 at Jeedimetla;
the newly developing industrial area in the outskirts of Hyderabad. Mr. Sanjay and his father
started motor winding repair in a small store room of a relative’s manufacturing unit.

In the early 1990s; Jeedimetla was becoming a hub for machine tools, welding works and
electrical works. So taking this as an opportunity, they had also started repairing welding
machines that were being used by industries that opened in the area. These services needed
sophisticated hand tools and skilled labour. They had also begun taking up services like
internal electrification and other electrical maintenance works. During that time, they had
hired two helpers in production and this number later increased to fifteen before the start of
LT panel fabrication.
In the year 1992, they rented out a small open space to set up a fabrication shed. They also
rented out a welding machine and started steel fabrication works. This was when the
competition was very high in this sector in Jeedimetla. Their only strategy was to stick to
schedule without compromising the quality. This strategy worked for them even through the
toughest of times in business. Around this time, the pair was joined by Sanjay’s two brothers,
they together worked to expand business and had started to think of new ways to increase
income.

In 1993, they opened a retail store in a rented retail space that sold copper wires, light bulbs,
tube lights and various other electrical and mechanical tools and products that were needed
by all the industries in Jeedimetla. This retail store was run along with the motor winding
works and fabrication works till the year 1996.

In 1994, an executive who worked for Nirup Synchrome Ltd., a company that used to
manufactured pigments and dispersible dyes which were used in polyester textile industry
had contacted Sanjay for some steel fabrication work needed in his factory. This executive
board had seen potential in the brothers and had given them the opportunity to fabricate a
control panel that was required in their new factory. Networking was what helped them in
making the company’s first LT control panel. Unwittingly, they had been networking in the
industry circles until that point, which helped them in crucial times. All four directors didn’t
know electrical engineering or power distribution systems. They had taken up this
opportunity as a challenge and started to equip themselves to make LT Panels.

The Low Tension Control Panel board industry was still new in Hyderabad in the 90s. Most of
the newly set up industries procured their control panels from companies in Mumbai and
Bangalore that were already established.

The demand was discernible, all one needed was the courage to start the industry on a large
scale. Investments in services like motor winding or fabrication were minimal. While
investments in making LT Control panels were much higher and the market in the next decade
was precarious.
The market of this product solely depended on the introduction of new industries in the state.
While the introduction of new industries depended on various factors, but the one major
factor was the Government and its policies.

The company STS was founded in 1994 and upgraded to Private Limited in 1996. Due to lack
of sufficient technology and sufficient capital investment each control panel had taken longer
than the optimum time. A huge investment was made to obtain machinery, equipment and
space to make the control panels. Investment was also made to hire skilled engineers, to
improve productivity and also to improve the design of the panels. By the beginning of the
21st century numerous LT Panel orders were delivered to various companies like Dr. Reddy’s
Laboratories, Divis Laboratories etc.

By 2008, the company had gained enough turnover and orders to maintain a manpower of 20
employees in the office and 50 production workers in the factory. By the end of 2008, they
had enough engineers and expertise for the company to enter into the HT Panel sector.

Every panel made by STS Pvt. Ltd. had high quality switchgear and other electrical
components. Most of the switchgear was procured from multinational companies like ABB,
Siemens etc. The company also acquired a license with ABB in the year 2010.

Control panels had a number of complementary electrical products. Two of which were
current transformers and potential transformers. STSPL started a Sister Concern Company,
STRATON Electricals Pvt. Ltd. in 2012. This company manufactured current transformers and
potential transformers.

With growth in business, they also increased the number of products and services they were
providing. Years of experience in the industry had enabled them to identify products in the
market that had potential growth. In 2014, they started manufacturing compact substations
and in 2017 they started manufacturing float cum boat battery chargers in STSPL.

Collaborations were key in increasing business, especially when the product you sold was
based on engineering and design that had been pioneered by several other big multinational
companies. STS Pvt. Ltd began a partnership with Siemens (Instrumentation and Electricals
Business Unit) in 2015 and L&T Electrical and Automation in 2017.
Technology & Innovation:

In the early years STS had provided electrical services by making only LT and HT Panels. They
started with a generic design and improved it over the years. In this service the design,
components and their arrangements were changed according to customer requirements. This
service also included shipping, erection on site and personnel for installation on site.

Low Tension Control Panels

LT Panel was an electrical distribution board that receives power from generator or
transformer and distributes the same to various electronic devices and distribution boards.
Such panels were used in industries both for internal and external use and, therefore, they
were quite rugged to withstand different climatic conditions.

In industries, electrical panels that housed various equipment such as bus bars, circuit
breakers, meters, etc. played a major role in distributing the power. These panels were
distributed over various sections of an industry in order to supply the power to individual
installed systems and were connected through cable ducts.

In an industrial electric power system, electric power was supplied from either private utilities
or public utilities, or both. The supplied voltage was in the range of 11KV, 33KV, 66KV or
132KV. These high voltages were stepped down to a low voltage using step-
down transformers.

The voltages in the range of 440 volts or below were called as low tension systems. This
stepped voltage was further supplied to various panels and equipment through a switchgear
arrangement that consisting of electrical switches, circuit breakers, fuses, protection
equipment, metering boards, etc. Various transformers supply was given to the LT panels,
which acted as a main switching system for entire power distribution scheme and carried the
total load demand.

All the panels in the distribution system were ground with proper grounding & earthing to
protect the appliances as well as operating personnel. The LT panels were responsible for
distributing the power to various sub LT panels by receiving it from the transformer. These
were rated for 430 V, 3-phase, 50Hz three or four wire system. It was a floor mounted free
standing unit and it was totally closed and extensible type. Its design included all provisions
for safety of operation as well as for maintenance personnel.

Every panel had a different design and capacity depending on the electrical load of the
company procuring it.

High Tension Control Panels

HT Panel was like LT Panel except that it was used for high tension cables. HT panels were
designed for higher voltages which means they had higher level of insulation strength. STSPL
made HT panels of capacities 11kV and 33kV.

Instrument Transformers

In a power system, the currents and voltages were very large. Therefore, their direct
measurements were not possible. The solution was to step -down these currents/voltages
with the help of Instrument Transformer. With Instrument transformers they could be
metered with instruments of moderate size. Instrument transformers were high accuracy
class electrical devices used to isolate or transform voltage or current levels. There were two
instrument transformers needed: Current transformers and Potential transformers.

Current transformers were used so that ammeters and the current coils of other instruments
and relays need not be connected directly to high-current lines. The potential transformer
operated on the same principle as a power or distribution transformer.

A lot of research and development went into the design of these instrument transformers.
STRATON Electricals proved to be one of very few companies that designed their own
instrument transformers in the country. Since the company’s inception in 2012, many
different designs were tested. Most designs passed the testing phase but failed when used by
the client. These failures would have been catastrophic for the company’s future if Straton
Electricals weren’t STSPL’s Sister concern company. However, years of hard work and
investment proved to be fruitful because in 2019 they manufactured instrument transformers
up to 33kV and the entire power industry of India was aware of the company and its products.
These products became one of the highly reliable products in the country in a short span.

Compact Substations

Outdoor, above-ground substation structures included wood pole, lattice metal tower, and
tubular metal structures, although other variants were available. Where space is plentiful and
appearance of the station was not a factor, steel lattice towers provide low-cost supports for
transmission lines and apparatus. But in the 21st century, such large space for substations was
not feasible anymore and aesthetics were important to people. There was a discernible
demand for substations that were smaller and pleasant to the eyes.

A compact substation was an outdoor substation built in a metal enclosure, in which each
item of the electrical equipment was located very near to each other which created a
relatively smaller size of the substation. These compact substations were most popular in
electric vehicle charging stations.

STSPL had manufactured compact substations for various commercial buildings in the city and
had also supplied compact substations internationally.

Battery Chargers

Research and Development in a medium-scale industry had always been full of risk, but also
very essential for innovation. The company gained industry expertise in the field of power
distribution systems, but they had to keep up with emerging trends and start manufacturing
innovative products. One such product with a high demand and very promising future was
the industrial battery charger. They started manufacturing float cum boat battery chargers
for industrial purposes under the ‘Power Electronics Division’ from 2017.

Collaborations:

Collaborations were key in increasing business, especially when the product you sold was
based on engineering and design that had been pioneered by several other big multinational
companies. STS Pvt. Ltd acquired license with Siemens (Instrumentation and Electricals
Business Unit) in 2015 and L&T Electrical and Automation in 2017.

In the electrical industry where competition was very fierce, it was important for a company
to meet certain production standards in order to stay afloat in the market. STS understood
the importance of licensing and therefore strived hard to meet the production standards to
get licenses from top corporations in India.

STSPL had collaborated with various industry leaders in electrical switchgear sector like ABB
and Schneider Electric.

Partnership with ABB for HT panels upto 33kV (2011):

ABB was a pioneering technology leader that works closely with utilities, industry,
transportation and infrastructure customers to write the future of industrial digitalization and
realize value. Acquiring a license from the company had turned out to be very valuable for
STS, as it had opened up new market opportunities.

Partnered with Siemens for Fully type tested assembly LT Panels (SIEPAN8PU) (2015):

One of the world’s biggest producers of energy-efficient, resource-saving technologies,

Siemens was a pioneer in infrastructure and energy solutions, as well as automation and
software for industry.

Partnered with L&T for Fully Type tested assembly LT panels (2017):

Electrical & Automation was a major business portfolio of Larsen & Toubro. The business
basket of Electrical & Automation (E&A) contained low and medium voltage switchgear
products, electrical systems, energy meters and automation solutions. Its products and
solutions catered to industry, utility, building & home, infrastructure and agriculture
segments.

By acquiring these STS was able to gain the trust of its buyers. These partnerships meant that
the company followed certain production standards, thus this increased revenue of the
company and proved useful.
The Central Excise Crisis

On 22nd December 2000 Central Excise Officers raided the STSPL office in Jeedimetla. In India,
Central Excise duty was an indirect tax levied on those goods which were manufactured in
India and were meant for home consumption. The taxable event was 'manufacture' and the
liability of central excise duty arises as soon as the goods were manufactured. It was a tax on
manufacturing, which was paid by a manufacturer, who passed its incidence on to the
customers.

The Central Excise Rules provide that every person who produced or manufactured any
'excisable goods', or who stored such goods in a warehouse, shall pay the duty leviable on
such goods in the manner provided in rules or under any other law.

Any person or undertaking liable to pay Central Excise had to obtain a Central Excise
Registration. Separate Central Excise Registration was required for each of the manufacturing
premises. In case a manufacturer or producer liable to pay Central Excise did not obtain
Central Excise Registration, a penalty of upto Rs. 10,000 and/or imprisonment of upto 7 years
could be imposed. Therefore, it was important for Entrepreneurs involved in manufacturing
or production to know about their Central Excise liability and maintain compliance.iii

This Central Excise Registration was exempt for small scale enterprises that do a turnover of
less than Rs.50,00,000. In 2000, STSPL did only Rs. 42,00,000 of annual turnover in the
previous assessment year. Like most novice businessmen, there was no proper check on the
documentation of Purchase Orders (PO) and Quotations. All records were manual and nothing
was computerised. They had carefully maintained the annual business turnover less than Rs.
50,00,000 to avoid the intense scrutiny of the Central Excise Office that comes with Central
excise registration.

The Central Excise Officers claimed that STS Pvt. Ltd. had done a turnover of Rs.80 lakhs in the
previous assessment year. They brought around 40 officials to check every document in the
office. If they proved their claim they could penalize the company for Rs. 56 lakhs. This turned
into a court case that dragged on for a year. This year was the worst year for the company
and its future. A lot of investments were made until this point and business was at a snail’s
pace because of the court case. There were fleeting thoughts of closing everything after the
case. In mid-2001, the company remained closed for a month due to lack of work. Employees
were paid salaries for no work.

In January 2002, they emerged successful in disproving the claim and could continue business
but the damage was already done. This incident in the company’s history was the one that
gave its Directors the courage to fight any odds that came their way.

Adversity makes one stronger. The next year they did their Central Excise Registration after
achieving a turnover of 55 lakhs and an annual turnover of 97 lakhs the following year. This
point in the company’s history was a major turning point and there was no looking back.

Instrument Transformer Failures

A lot of research and development went into the design of instrument transformers. STRATON
Electricals proved to be one of very few companies that designed their own instrument
transformers in the country. Since the company’s inception in 2012, many different designs
were tested. Most designs passed the testing phase but failed when used by the client.

Every failure product was replaced by Straton despite incurring huge losses by doing so. The
failure of these products was very bad for the company’s reputation. However, they did not
stop trying, they drew funds from STS and made better products and tested them.

Years of hard work and investment proved to be fruitful because as of 2019 they
manufactured instrument transformers up to 33kV and the entire power industry of India was
aware of the company and its products. These products became one of the highly reliable
products in the country in a short span.

Industrial Trends

An increase in the number of new industries was directly reflected on the enquiries that come
their way. But set up of new industries was dependent on various factors, and the last two
decades had seen drastic highs and lows.
In all the lows, the worst was during the partition of Andhra Pradesh. Investors were wary of
starting new industries in Telangana and Andhra Pradesh. A lot of control panels delivered
during this time were to companies in Tamil Nadu, Maharashtra and overseas. But with the
passage of time, investors did come around and start new industries in both the states.
Moreover, there were more enquiries from Andhra Pradesh than ever before because of the
industrial boom and the major manufacturing plants starting there.

In biggest of highs was when the government started encouraging generation of electricity
from renewable sources of energy. ivA number of solar power plants and wind mills projects
have started in the country.

As the Indian economy grew the electricity consumption was projected to reach 15,280 TWh
in 2040. With the government’s ambitious green energy targets, the sector had become quite
attractive for both foreign and domestic investors. It was expected to attract investments of
up to US$ 80 billion in the next four years. Government of India had ramped up its previous
target to achieve 225 GW of renewable energy capacity by 2022.

The boom in renewable energy industry was very profitable for HT Panels, Instrument
Transformers and Industrial Battery Chargers sector. STS had already executed orders for
various solar and wind energy companies like Greenko Group, ReNew Power Limited, Tata
Power Solar, Mytrah Energy etc.

Competition:

STS had seen immense competition over the years, the sector of industries they work with
always preferred STS. The reason was that STS targeted large scale Pharmaceutical,
Construction, Solar and Wind energy companies. These companies could not risk quality as
they will lose exorbitant amounts of money if production stops even for a day and faulty
power distribution can hinder production. Hence, such companies did not compromise on
quality by going for cheaper products in the market.

STS faced competition from various manufacturers in local market and from all over India in
the panel manufacturing sector. In Hyderabad, they have emerged as the most preferred for
many major Pharma companies, especially Dr. Reddy’s Laboratories.
In the case of instrument transformers, they faced competition more from the established
national players than from the local market.

Complement goods and Suppliers:

The combination of HT & LT panels with instrument transformers helped the customer with
a one stop solution for all their electrical needs. STS had started manufacturing complement
goods by starting manufacture of Instrument transformers.

They had also started making compact substations which were used in place of substation
yards and serve the same purpose but with reduced foot print.

Quality of product had always been the company’s utmost priority. They used superior quality
raw material that was procured from the reliable vendors of the market. Some of these
vendors were:

 CRCA sheets - Essar/Tata

 Aluminium sheets – Hindalco
 Bus Bars (Cu, Al) - Century/Hindalco
 Powders - Akzo Nobel/Jotun
 Cables - Finolex/RR Kabel
 Hardware - Caparo/Unbrako

Sales and scope:

The boom in solar and wind energy had already begun and HT Panel enquires from these
industries were very high.

STS also saw scope in the industrial battery charger industry. This was a power electronic
product that was needed in any HT electrical component.

There was another very important sector where there was a lot of potential for business. It
was the Electric Vehicle sector. The charging stations for Electric Vehicles needed compact
substations. The Government of India was offering $1.4 billion in subsidies to support the
domestic Electric vehicle industry. A lot of electric city buses had already started operating in
some metropolitan cities of the country.

STS had also gotten a proposal from a private bus service provider to collaborate and set up
charging stations along the Bangalore-Chennai route, which was one of the busiest Bus routes
in South India.

With so many opportunities to expand business and so many products with market potential
STS was looking forward to expanding its product range and reach in the next 5 years.

Gross Sales in STS Pvt. Ltd from 2010-2018

Year Sales (in lakhs)
2010-2011
2476.61
2011-2012
3538.30
2012-2013 2865.61
2013-2014 3632.47
2014-2015 4334.83
2015-2016 3801.36
2016-2017 4721.04
2017-2018 5717.89

GROSS SALES
8000.00

6000.00
Sales

4000.00

2000.00

0.00
10-11 11-12 12-13 13-14 14-15 15-16 16-17 17-18
Yrs

Endnotes

i
www.sanjaytechnical.in
ii
www.zaubacorp.com
iii
Business Portal of India: Taxation: Excise Duty
https://archive.india.gov.in/business/taxation/excise_duty.php
iv
Renewable Energy Industry in India: Overview, Market Size & Growth | IBEF