How do you see the move of global electrical equipment giants shifting their focus to India? For instance French giant Legrand acquired the switchgear division of Noida-based Indo-Asian Fusegear; Schneider Electric acquired two units of Mumbai-based Zicom Electronic Security Systems.
This movement is not new – the global giants in this sector have been increasing their investments in India. What is happening now is the growing demand from non-government/industrial sectors like housing/ building sector, telecom, Infrastructure projects and IT etc. Also Indian consumers are becoming more receptive towards sophisticated hi-tech products with excellent aesthetics even at higher prices. As a result of this acceptance and the cost and time for establishing distribution channels, the major players in low voltage have taken the acquisition route to speed up their access to market. The recognized brand and the distribution channels are probably why significant premiums to conventional valuations are being realized. We should not be surprised to see more of such arrangements/ takeovers in future.
Do you think these companies have become an easy target for acquisition by international player? What could be the reason for the same?
The conventional LV product spectrum has become highly commoditized. In such an environment, the ability to differentiate by providing end-to-end solutions and continuous innovation in product design and aesthetics is the key to survival & growth. This would require the ability to infusion significant capital on product innovation, R&D and market development; the ability to access international patents and pan-continent development would favor MNCs in the most case. However, there are a few exceptions where the domestic players have grown global in outlook by acquiring overseas companies for technology access and easy entry into developed markets.
What are the major concerns that the Indian electrical equipment industry is facing and what type of government support would you expect towards remedial measures?
The main challenges facing the Indian Electrical Industry are:
• Inadequate focus on quality and reliability in most utility procurement through conventional tendering norms, to motivate “generation next” to consider this sector as an attractive career of choice
• In the short term, lack of skilled manpower particularly in the EPC and infrastructure creation sector and for maintenance of the networks
• Clarity and improper procurement programs leading to bunching up of orders leading to short term pressure on manufacturing and the supply chain
• A lethargic attitude to upgradation of national standards to reflect the latest trends in compliance and testing
• Lack of adequate and modern independent test facilities
• Day to Day procedural issues
IEEMA is actively working with the concerned government agencies and bodies to resolve these constraints but many of them require systematic and significant investments by both the Government and industry and material results may be visible only over considerable period.
Over the years do you perceive any change in the procurement policies of the government utilities?
The trend today is moving towards Turnkey contracts and EPC contracts. Hence the direct procurement by utilities is on the decline and utilities are changing with the changing time and with the reforms in the power sector post the Electricity Bill 2003, the unbundling of the utilities into separate entities like TRANCOs, GENCOs and DISCOMs has hopefully given impetus to more modern decision-making and processes. However with the large number of new entrants into the electrical EPC segment, there is a danger of sacrifice of product standards and reliability aspects on the altar of price reduction!
How do you see the future of the Indian electrical equipment industry?
The future of the Indian electrical equipment industry is bright since the infrastructure train has the power sector as the engine. Indian T&D Equipment manufacturers have increased capacities twice or trice over to cater to the expected demand from the 11th & 12th Plan which could be of about US $600 billion.
However, competition is expected from China, South Korea, especially in HV and power generation equipment. We are sensitizing the government of India to be very careful when entering into new FTAs/RTAs, since we have a `110,000 crore mature domestic industry, which provides direct employment to about 300,000 persons and indirect employment to about 1.5 million. The industry also currently exports electrical products of the order of about `20,000 crore to various countries, including developed countries.
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