The Rs 52,000 crore electrical equipment industry, which sells cables, switchgears, transformers and other large electrical products, is seeing a surge in growth.
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The electrical equipment industry has much to cheer about, indeed. Liquidity has improved and companies have resumed expansion plans. Housing and construction projects have seen an upward swing, sending the sector’s sales graph on a brisk rise. Add to this the increasingly sophisticated and aesthetically-trained eye of the Indian consumer, and the news gets happier. Companies are now willing to spend more on products that satisfy this need.
In step with this exciting trend, global electric equipment companies with deep pockets are targeting Indian makers to increase their foothold in the domestic market, which is growing at 20 per cent annually. Last year, French giant Legrand acquired the switchgear division of Noida-based Indo Asian Fusegear for Rs 600 crore. Another French energy major, Schneider Electric, acquired two units of Mumbai-based Zicom Electronic Security Systems, for Rs 224.7 crore. Japan’s Matsushita Electric acquired an 80 per cent stake in Mumbai-based Anchor Electricals for about Rs 2,000 crore four years ago.
The switchgear and control gear industry in India is a fully developed one, producing and supplying a wide variety of switchgear and control gear items required by the industrial and power sectors. The entire range of circuit breakers from bulk oil, minimum oil, air blast, vacuum to SF6 are manufactured to standard specification. The range of products produced cover the entire voltage range for 240V to 800KV, switchgear and control gear, MCBs, air circuit breakers, switches, rewireable fuses and HRC fuses with their respective fuse bases, holders and starters.
According to the Indian Electrical and Electronics Manufacturers’ Association (IEEMA), the electrical equipment sector recorded growth of 14 per cent in actual terms during the past year.
Demand for capacitors recorded a huge 35 per cent growth in 2010-11 due to enhanced focus on power quality which requires discoms (power distribution companies) to install capacitors with certain improved standards.
Rotating machines segment which includes low tension and high tension motors and alternators registered a 11 per cent growth, with a particular rise in the share of energy-efficient motors.
Low voltage switchgear products like contactors, miniatures circuit breakers registered a 20 per cent rise thanks to continued demand from cement, steel, original equipments manufacturers (OEMs), construction and infrastructure sectors.
The cables segment registered highest growth of 16 per cent, mainly due to 32 per cent growth recorded by the control and special purpose cables segment.
Higher domestic demand drove the growth in the transformer segment. This segment includes power and distribution transformers, both of which registered a healthy growth.
The Challenges
Indian companies find themselves caught between the onslaught of cheap products from China and the high-end sophisticated products from international players.
The growth and fortunes of this sector are largely dependent on the industry overall.
The inputs and raw materials currently used are mostly of local/domestic origin. This makes it difficult for them to match the fine finish of international goods.
| CRISIL Comments |
| CRISIL’s analysis of more than 310 electrical equipment manufacturers in the SME sector revealed a healthy CAGR of 19.01 per cent during 2008-09 and 2009-10. This growth has resulted in the average sales per employee increasing to Rs 1.80 million in 2009-10 from Rs 1.20 million in the previous year. CRISIL’s analysis reveals that despite the strong growth in revenues, the enterprises’ operating margin declined marginally, to 9.08 per cent during 2009-10, from 9.41 per cent in 2008-09, on account of limited flexibility to pass on raw material prices to customers. Companies constituted 53 per cent of the sample and unlike most other sectors, the electrical equipment manufacturing companies were larger than proprietorship and partnership firms, with larger turnovers of Rs 165 million, as against Rs 105 million for partnerships and Rs 54 million for proprietorships. Similarly, the companies had higher investments in fixed assets (Rs 25 million) than non-corporates (Rs 10 million) as on March 31, 2010. Most players in the industry cater to power distribution entities or to other large electrical equipment manufacturers. Maharashtra is the hub of electrical equipment manufacturers, with more than 40 per cent of the enterprises situated in the state. |
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