A host of business opportunities exist for entrepreneurs in the Rs 1,100 crore industry
For TM Venu, the founder of Chennai-based Bharat Refrigeration, the last ten years have been that of brisk business and new opportunities.
Having started with a small air-conditioning manufacturing unit 30 years ago, Venu moved full-time into the commercial refrigeration business a decade back, riding on the explosive growth in the country’s US$ 383 billion retail industry. As orders poured in, he expanded his product line from water-cooled chillers and blast freezers to ultra-low temperature freezers and cold storage rooms. Today, the boisterous domestic demand ensures that 90% of his production is gulped by the Indian market and only 10% is what goes into exports. “There is high demand for refrigeration products from sectors such as agriculture, dairy, retail and pharmaceuticals. The supply side, however, is limited,” he says pointing to the opportunities that remain untapped.
The lure of the commercial refrigeration industry, growing at around 35% annually, has got global players such as Blue Star, Godrej & Boyce, Bitzer and Haier to get active in this segment. They are now rolling out new product lines to meet changing consumer needs. It is on the shoulders of developing economies such as India and China and some countries in Latin America that the global demand for commercial refrigeration equipment is likely to touch $29.3 billion by 2012, according to the latest estimates by the Freedonia Group, a US-based market research firm. It believes that the growing number of food retailers and restaurants will fuel the growth of this business.
The business
A number of opportunities in the commercial refrigeration business beckon entrepreneurs. These include manufacturing, assembling, installation, distribution and retailing, servicing, exports and refrigerated cargo movement. A large part of the industry is in the unorganized segment, and many players provide a multitude of services that overlap. However, big players also outsource plenty of manufacturing contracts to local players. As these equipments are used across sectors such as retailing, pharmaceuticals and agriculture, the demand is perennial. However, the performance of downstream sectors do fluctuate the demand-supply matrix.
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Even if enough demand is not generated, as is the case these days because of the economic slowdown, the replacement business still thrives. Many retailers and companies trash out older equipments in favor of more innovative products and newer models. Some may even bend in favor of products from multinational companies that may offer time-bound free service contracts. But this does not deter local players from striking a chord with their regular customers with prompt delivery and top-of-the-class service. With India being a low-cost manufacturing destination, a number of big multinational players are seeking to set up manufacturing units here. This would also help them service their clients better.
Manufacturing is an intricate business and quite challenging. Setting up a small plant requires high investments in terms of land, machinery, technology and manpower. According to an industry player, even the smallest unit could cost you anywhere between Rs 5 to 10 crore. More than manufacturing, it is testing for high quality that could leave small players in a tizzy. The Bureau of Energy Efficiency accords star ratings to electrical products, and these could sway customers in favor of highly-rated products.
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Thus, more than manufacturing, it is the assembling business that is more promising for newcomers. “Technical knowledge and understanding of how this business works is very important,” says Vinod Kumar Rekhi, Managing Director, Patton Refrigeration India. Patton is a New Zealand-based company that is into manufacturing and wholesaling of refrigeration equipment. There are a lot of players who do the assembling work for big companies. Rekhi insists that getting into the servicing business is also a great opportunity. For example, if Voltas was to set up a cold storage unit for its customers in a small town in Ludhiana, it may outsource after-sales services work to a local player who could reach out to the customers faster than Voltas. This also offers a good opportunity to understand the nitty-gritty of what goes into the installing and servicing of such units.
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