SCT: Market Entry into Indian Railway

Introduction:

Mr. Shyam Sundar, an enterprise application engineer at SCT Company, suggested the adoption
of new screw compressors for use in Indian Railway brake applications. He presented this proposal
to Mr. Prasad, the Director of SCT Company, who agreed with scepticism. However, Mr. Prasad
is currently facing a dilemma whether Indian Railways would welcome the introduction of SCT
Company's new screw compressors. Despite recognizing favourable market conditions and the
existence of comparable suppliers in foreign countries, Mr. Prasad is hesitant about how Indian
Railways will perceive their product.

Company Introduction:

SCT Company, a pivotal entity in the core group, is synonymous with a profound legacy in
manufacturing and innovation. An extensive product portfolio spans Air Compressors, Air
Conditioning & Refrigeration Systems, Process Gas Systems, Vapour Absorption Systems, and
Industrial Gear Boxes. Serving sectors such as Oil, Gas, Steel, Cement, Food and Beverage,
Railways, Defence, and Marine, they are committed to redefining industries.

SCT company currently boasts a market capitalization of ₹3,989 crore, reflecting its consistent
growth over the past five years. The company's performance, as illustrated in Exhibit 5 of the
standalone profit and loss account, attests to its steady upward trajectory. Acknowledged for its
excellence, SCT has earned various accolades, including the Significant Achievement on the
Journey towards Business Excellence at the 22nd CII National Quality Summit in New Delhi in
November, 2014. Notable awards include the 'Award & Certificate of Recognition' for achieving
the highest score in People, People Results & Society Results in the RKQP 2013 Assessment.
Additionally, the Kaizen teams were honoured with Gold & Silver trophies at the 46th Mini
Convention of QCFI Pune Chapter in June, 2013. Demonstrating a strong commitment to social
responsibility, health & safety, and quality in its process, the company holds certifications such as
ISO 14001-2015, ISO 9001-2015, ISO 45001:2018, and IMS certification, underscoring its
dedication to stakeholders.

The Air Compressor Division (ACD), a vital component of SCT Company, significantly
contributed 25% (₹300 crore) to overall business last year. Known for precision machining, ACD
utilises state-of-the-art equipment to achieve remarkable accuracies, especially in crafting screw
rotors and compressor housing.

Their highly-trained workforce, spanning Quality, Manufacturing, and Assembly teams,

transforms unique designs conceptualised by Ph.D. graduate engineers into world-class products.
Collaborative endeavours with foreign universities and organisations, coupled with innovations in
screw rotor profiles, have earned SCT Company a patent and a few design registrations for the

This case contains proprietary and confidential information. Any erroneous and/or any unauthorized usage, reproduction, or illegal usage of the given
information is strictly prohibited and considered mala fide and may lead to legal consequences.
most energy-efficient design. SCT Company stands not just as a manufacturer but as a trailblazer,
consistently pushing the boundaries of industrial innovation.

The Market Segment:

The Railways

The future holds a promising outlook for the railway market, with heightened competition
expected to drive prices down. Choosing railways as an environmentally friendly and economical
alternative is poised to amplify market volume. Statistical data from Satista [1] for Indian market
reveals

● Revenue in the Trains market is projected to reach ₹1.24tn in 2023.

● Revenue is expected to show an annual growth rate (CAGR 2023-2027) of 6.25%, resulting
in a projected market volume of ₹1.58tn by 2027.
● In the Trains market, the number of users is expected to amount to 186.80m users by 2027.
● User penetration is projected to be 10.9% in 2023 and 12.6% by 2027.
● The average revenue per user (ARPU) is expected to amount to ₹7.94k.
● In the Trains market, 58% of total revenue will be generated through online sales by 2027.
● In global comparison, most revenue will be generated in China (₹5,488bn in 2023).

India to Emerge as the Most Lucrative Market for Global Locomotive Pantographs
Manufacturers [2]

India, one of the world's fastest-growing economies, has witnessed a rapid surge in the demand for
various transport services in recent years. According to market analysis reports, the country is
projected to achieve the highest Compound Annual Growth Rate (CAGR) of 4.5% over the
forecast period (2023-2033). The Indian government's proactive initiatives have spurred regional
players in the railway sector to enhance their capacities and compete globally. A noteworthy
example is the Banaras Locomotive Works, which announced the production of its 1,000th
electrical locomotive engine in January 2022. The company commenced the production of electric
locomotives in the fiscal year 2016-17, illustrating the industry's substantial growth and
modernization.

The Railway Braking System Market [3]

The railway braking system market exhibits a comprehensive segmentation across five major
regions: North America, Europe, Asia Pacific (APAC), Middle East and Africa (MEA), and South
America (SAM). Notably, the APAC region emerged as a dominant force in the market share
landscape in 2019. Within APAC, substantial investments in railway sectors were witnessed in
countries like the Philippines, Thailand, China, and India. These nations are actively fortifying
their rail transit systems by embracing advanced technologies. The commitment to innovation and
technology integration underscores a collective effort to enhance safety, efficiency, and modernise

This case contains proprietary and confidential information. Any erroneous and/or any unauthorized usage, reproduction, or illegal usage of the given
information is strictly prohibited and considered mala fide and may lead to legal consequences.
rail infrastructure across the Asia Pacific region. This strategic investment approach positions
APAC as a pivotal player in shaping the future landscape of the global railway braking system
market.

Figure 1 Lucrative Regional Railway Braking System Market [3]

The Challenges:

While screw compressors present numerous advantages, their integration into railway brake
systems poses distinct challenges, categorised from both the manufacturer's and customer's
perspectives.

From the manufacturer's standpoint, exemplified by SCT company, substantial capital is requisite
to adapt manufacturing facilities for screw compressors. SCT's existing machinery may necessitate
workforce retraining and production line adjustments, incurring high initial costs. Research and
development expenses are critical for designing, prototyping, and testing screw compressors,
demanding thorough investment for compliance with safety standards, durability, and efficiency.
Marketing efforts further contribute to increased costs, involving campaigns to promote the
advantages over reciprocating compressors, creating awareness, and educating customers.
Regulatory approvals and certifications add to the financial commitment, encompassing
compliance testing, documentation, and engagement with regulatory bodies.

This case contains proprietary and confidential information. Any erroneous and/or any unauthorized usage, reproduction, or illegal usage of the given
information is strictly prohibited and considered mala fide and may lead to legal consequences.
From the customer's perspective, typified by Indian Railways, challenges arise from a traditional
reliance on reciprocating compressors. Resistance, scepticism about reliability, and compatibility
issues hinder the acceptance of screw compressors. Integrating screw compressors into existing
brake systems necessitates meticulous planning, potentially leading to extended implementation
periods and disruptions. Ensuring safety and reliability requires rigorous testing, while overcoming
the perception of reciprocating compressors as more proven poses a significant challenge. Cost
considerations and the perceived high initial investment add complexity, necessitating a
demonstration of long-term cost-effectiveness. Regulatory compliance further complicates the
adoption process.

An analysis using Michael Porter’s Five Forces model identifies screw compressors as a substitute
threat to reciprocating compressors. Supplier and customer bargaining power hinges on their
capacity and capability to adapt to this technological trend. Established foreign competitors face
entry barriers, including challenging environmental conditions and 'Make-in-India' policies. SCT
can counter new entrants from India by leveraging early-mover advantages through existing
experience and expansive service networks, coupled with competitive pricing post-operational
cost optimization.

In essence, adopting screw compressors in railway brake applications poses challenges for SCT
company, including R&D investments, testing, manufacturing setup, workforce training, and
marketing costs for the SCT company. For Indian Railways, challenges encompass resistance,
compatibility, safety, cost considerations, and regulatory compliance. Addressing these challenges
is vital for the successful integration of screw compressors, promising the industry enhanced
efficiency, reduced maintenance, enhanced life, and improved braking system performance.

The Dilemma:

The overarching dilemma revolves around the risk associated with the acceptance of this new
product by Indian Railways—questioning the feasibility and capability of production.

Questions:

1. Should the SCT company invest in manufacturing screw compressors for the Indian
Railway Brake compressors market? If yes, what should be their plan for convincing Indian
Railways to shift to Screw compressor technology instead of continued use of
Reciprocating compressors?
2. What are the Risks involved in the business? Simulate the level of risk associated with
production of this product.
3. What strategic decisions should SCT Company take to have the early mover advantage and
keep foreign competitors at bay? Elaborate consequences of each decision.
4. Within Indian Railways, should there be any specific positioning for specific segments like
passenger express trains, metro trains, goods trains, tram trains, mono rails etc.?

This case contains proprietary and confidential information. Any erroneous and/or any unauthorized usage, reproduction, or illegal usage of the given
information is strictly prohibited and considered mala fide and may lead to legal consequences.
Exhibit 1: What are Reciprocating and Screw compressors?

Reciprocating compressors and screw compressors as shown in Figure 2 (a) and (b) respectively,
are two distinct types of compressors, each with unique working principles. In a reciprocating
compressor, a piston moves back and forth within a cylinder, creating a vacuum during the piston's
intake stroke and compressing the refrigerant or gas during the compression stroke. This
reciprocating motion generates pulsating flow, and the compressor typically has multiple cylinders
to maintain a relatively steady output. Reciprocating compressors are known for their simplicity,
durability, and effectiveness in low-to-medium capacity applications.

(a) (b)

Figure 2 (a) Reciprocating Compressor (b) Screw Compressor [4]

On the other hand, screw compressors operate on a completely different principle. They consist of
two interlocking helical rotors within a chamber. As the rotors rotate, they trap and compress the
refrigerant or gas, gradually reducing the volume as it moves along the screw profiles. This
continuous, smooth rotary motion results in a steady flow of compressed air or gas. Screw
compressors are preferred in applications requiring higher capacity and continuous operation due
to their efficiency, lower maintenance needs, and reduced pulsation compared to reciprocating
compressors. The choice between reciprocating and screw compressors depends on the specific
requirements of the application, with reciprocating compressors excelling in smaller-scale
operations, while screw compressors are favoured for larger-scale and continuous-duty
applications.

This case contains proprietary and confidential information. Any erroneous and/or any unauthorized usage, reproduction, or illegal usage of the given
information is strictly prohibited and considered mala fide and may lead to legal consequences.
 (a) (b)
Figure 3 (a) Reciprocating Compressor [5] (b) Screw Compressor [6]

Exhibit 2: Production cost comparison between Reciprocating and Screw Compressor

The SCT company is already into manufacturing and supply of reciprocating air compressors and
their systems to Indian Railways. A comparison of production cost between reciprocating and
screw compressor is presented in the table below.

Table 1. Production cost comparison

Reciprocating compressor [₹] Screw compressor [₹]

Total cost 3,70,000/- 2,84,000/-

(23% lower than
reciprocating)

Exhibit 3: Energy cost comparison between Reciprocating and Screw Compressor

The table below indicates the thermodynamic performance comparison of the Reciprocating and
Screw compressors.

FAD (Free Air Delivered): This is the volume of compressed air that an air compressor will
actually discharge as a result of the compression process. Higher value of FAD is preferred.

Volumetric efficiency: The volumetric efficiency of a compressor is defined as the ratio of actual
volume sucked by the compressor at the inlet to the swept volume. Higher value of volumetric
efficiency is preferred.

This case contains proprietary and confidential information. Any erroneous and/or any unauthorized usage, reproduction, or illegal usage of the given
information is strictly prohibited and considered mala fide and may lead to legal consequences.
Shaft power: Shaft power means the mechanical power required by the compressor to compressor
the air. Lower value of shaft power is preferred.

Specific shaft power: The Specific power of a compressor is the energy (shaft power) used divided
by the compressed air output (FAD). Lower value of specific shaft power is preferred.

Table 2. Technical performance comparison for discharge pressure of 10.2 kg/cm2

Reciprocating compressor Screw compressor

FAD [m3/min] 1.716 1.877

Volumetric efficiency 76.81 77.7

[%]

Shaft power [kW] 13.85 13.85

Specific shaft power 8.071 7.382

[kW/m3/min]

Following table indicates return on investment for screw comparison considering a requirement
of 1.8 m3/min of FAD, 8,000 hrs of operation per year and ₹11/- rate per unit [1 unit= 1 kWh] for
electricity.

Table 3. Energy cost comparison

Reciprocating compressor Screw compressor

Total energy/year 8.071x1.8x8000 7.382x1.8x8000

[kWh] =1,16,222.4 =1,06,300.8

Energy cost [₹] 12,78,446/- 11,69,308/-

(8.5% lower than Recip)

Exhibit 4: Indian Railway Requirements

Climate and environment conditions:

● Maximum atmospheric temperature: under sun 70 oC and in shed 50 oC
● Humidity: 100% saturation during rainy season
● Locomotive and equipment will be designed to work in coastal areas (humid and salt laden
atmosphere) and in desert areas (externally dust atmosphere)

Technical data:
● Drive: AC electric 3-phase motor, Totally Enclosed Surface Cooled (TESC)/Totally Enclosed
Fan Cooled (TEFC)
● Mounting: Mounting at three Points.

This case contains proprietary and confidential information. Any erroneous and/or any unauthorized usage, reproduction, or illegal usage of the given
information is strictly prohibited and considered mala fide and may lead to legal consequences.
 ● Free Air Delivery: 1.745 m3/min ±5 % as per IS 5456 : 2006 or higher,
● Delivery Pressure: 10 bar (10.2 kg/cm2) nominal
● Compressor motor speed (rpm): Not more than 1,500 rpm
● Voltage (V): 415 ±10%, 50 Hz AC nominal
● Power(kW): Not more than 18 kW
● Volumetric efficiency: 70% minimum

Endurance test: It is a continuous test and shall be carried out by running the compressor with
compressor delivery pressure at 10.2 kg/cm2 running at rated speed. The test shall be of 400 hours
duration.

Exhibit 5: Standalone Profit & Loss account

SCT Company ------------------- in Rs. Cr. -------------------

(Standalone Profit & Loss account)

INCOME 19-Mar 20-Mar 21-Mar 22-Mar Mar 23

Total Operating Revenues 710.24 821.13 823.26 1021.17 1239.34

Other Income 14.51 18.47 10.12 12.32 11.19

Total Revenue 724.75 839.60 833.38 1033.49 1250.53

EXPENSES

Cost Of Materials Consumed 379.98 474.09 424.07 591.62 666.12

Operating And Direct Expenses 46.07 67.47 68.75 86.37 109.57

This case contains proprietary and confidential information. Any erroneous and/or any unauthorized usage, reproduction, or illegal usage of the given
information is strictly prohibited and considered mala fide and may lead to legal consequences.
 Changes In Inventories Of FG,WIP And -6.25 -29.67 26.67 -31.31 31.04
Stock-In Trade

Employee Benefit Expenses 101.16 111.49 113.20 129.49 143.69

Finance Costs 0.15 1.21 1.69 2.11 0.08

Depreciation And Amortisation 21.85 32.56 37.59 35.22 33.54

Expenses

Other Expenses 101.56 110.53 77.53 105.89 123.22

Total Expenses 644.52 767.68 749.50 919.39 1107.26

Profit/Loss Before Tax 80.23 71.92 83.88 114.10 143.27

Tax Expenses-Continued Operations

Current Tax 21.10 16.21 20.50 28.99 35.78

Deferred Tax 3.87 2.22 -0.46 0.21 -1.08

Total Tax Expenses 24.97 18.42 20.04 29.20 34.70

Profit/Loss For The Period 55.26 53.50 63.84 84.90 108.57

This case contains proprietary and confidential information. Any erroneous and/or any unauthorized usage, reproduction, or illegal usage of the given
information is strictly prohibited and considered mala fide and may lead to legal consequences.