The Down Turn

The year 2008-2009 saw the industry netting revenues to the tune of 3267 crores INR. This is exclusively the end-user sales figure. However the over all industry revenue was estimated at 3518 crores INR. The reason why the total industry revenue is much higher then the actual end-user sales is because many a companies procure finished products from others & brand them as theirs, and our survey team gets the turnover from both, resulting in duplication. With nearly 715 companies responding to our survey, giving us the information we sought in great detail, knowing fully well how much the company has manufactured with excise paid. And also trying to find out, which companies procure finished products from others & brand them as theirs, an exercise which has been done only thrice before, we did all of it again to give continuity to the process.

We are sure the figure which we have arrived at i.e. the actual end-user sales revenue of has definitely crossed 3200 crores INR.

Growth wise it has not been a good year for most of the majors with a few exceptions.

Revenue wise : Industry grew by 7 % a drop of over 20% over the last fiscal of 2007-2008.

Volume wise : Industry grew by 18% over previous year. This clearly indicates shrinking margins.

One must be clear in mind that this is a very good performance considering the stiff competition and the squeezed margins in view of the global economic meltdown.

Of the total revenue of 3518 crores, Online UPSs accounted for 87% while Offline / Line interactive UPSs accounted for nearly 12% while other products including Servos accounting for the rest.

Of the total revenue organized sector accounted for nearly 60% while 25% came through semi organized sector while 15% share still remains with the unorganized fly by night operators.

SD INVESTIGATES

Softdisk went about investigating weather there was actually an impact of recession, if so how they tackled the situation arising out of it. According to Mr. Pradeep Pimpley, Executive Director DB Power Electronics Pvt. Ltd., the real impact of Global Economic Slow Down has been felt in the second half of financial year 2008-09. The first half of last year was not too bad, since, the order book was based upon the enquiries for the previous year. The major segment effected due to this is IT and ITES. The reason is obvious. Most of the IT Companies are either from US or has major US clients. The effect on IT segment is also varied depending upon the type of Software development work they carry out for their customer segment. ITES companies like Call centers are badly hit. The overall effect is putting expansion plans on hold. They have given more stress on best utilization of their existing facility and infrastructure. Almost flat growth for big IT companies. However, the growth continued to some extent in telecom segment. The large telecom data center business though slowed down in pace, however, exhibiting positive trends. The telecom segment even during recessionary trend continued its positive trend for tower infrastructure. This has kept mid segment market for UPS going well (upto 200KVA). A small power data center with power requirement of 20, 60, 200KVA rating are also going as per plans. The Industrial market segment covering Power, Energy, Manufacturing, Steel, Cement, Oil & Gas, always experienced steady and normal growth of 10-12%. The same is continuing in this year. AS DB Power Electronics is equally strong in Industrial and IT Segment. We were never in Government Tender business or in the business where the UPS ratings is less than 10KVA, where mostly the requirement are from banking segment i.e. branches, ATM centers, etc. We have concentrated more on our strengths i.e. product range from 40 - 300KVA, re-worked our prices by taking our vendors in confidence, organized our sales and service operation and given more stress in enhancing customer relationship, laments Mr. Pimpley while Mr. Manoj Jain of Microtek International was of the view that meltdown has no major impact on this segment, as the UPS segment is connected with the IT/PC/SOHO MARKET, those users buying PC will definitely buy UPS for protection of their system, branded player in this area will be benefited, and as the rupee has depreciated massively, thereby hitting the trader community, which has been importing cheap product from China, their market share will shrink and the real manufacturer will be able to further increase their market share. He adds the recessive trend has not affected certain segments, which are not luxury items, UPS and INVERTERS are not luxury items and are very affordable, so we didn’t felt any impact of recession. As such this gave us opportunity to be more aggressive with our strong brand push.

On the other hand Mr. Rajaram Rammoorthy Managing Director of Electronics & Comntrols Power System Pvt. Ltd., feels the slowdown has given an opportunity for all companies to review themselves and take adequate precautions to remain profitable if the trend continues for a longer period of time. Generally, employee costs and other overheads were reviewed to make them more efficient, he laments. He further adds Low prices are being quoted by players who have high volumes who also give them support. This gives a feeling to customers that others are quoting with high margins. To compete with the competition, everybody is trying to quote low prices which will not be sustainable in the long run.

Mr. Narayan Sabhahit Managing Director of Techser Power Solutions Pvt. Ltd., says although many companies were affected due to recession, Techser did not feel it to large extent except pressure on Margins. Our strategy was simple hold on to existing customers and do not take unhealthy hit on Margins. Since we work largely on BFIC segment, we in fact posted a growth in our turnover compared to previous year. He further adds, largely recession had a disastrous effect in Real estate, Automobile and IT/ITES segment. Therefore irrespective of being a small or big, whoever depended on these worst hit segments felt the slowdown. Of course the larger players will have cushion of other segments and comparatively cope with pressure better.

Mr. Tejas Seth of Managing Director, Asia Powercom believes that rosy days are over, we have to learn to live with less. Similarly Mr. Ramesh S, Managing Director, Powertronics says the recessive trends have definitely disturbed our sleep. But also helped us understand our potentials. It helped us to review our old customers, increased the post sale revenues. At the same time we also took a look on the diversification in products and also the engineering services. As a product we have added solar Inverters, Solar charge controller, Solar UPS etc.We have started the Electrical cabling, wiring activities, solar solution consultancy etc,. Other way the recession has also made us to focus on the system standardisation, Expenses management efficiently.

Accoring to Mr. Gaurav Burman, Director Transaction Business, APC - In the slow down market scenario, it is extremely important for both the vendor and the channel to hear customers’ voice and draw out a systematic roadmap for managing customer relationships. Most customers in the SME-large enterprise were trying to curtail or postpone spends in the economic downturn. This makes it increasingly important to build customer relationship and ensure satisfied customers by making both the pre and post sales experience enriching., he laments.

He adds, We also took some initiatives to support our partners and help them tide over the recession months (1) To alleviate the burden on our distributors and partners, we consciously took steps to ease out the inventory levels. Partners were also given the option to refresh inventory every 15 days (2) There was higher emphasis on generating end-customer pull through impactful promotional campaigns. (3) We also focused on customer segments that were relatively more insulated from the recessive trends eg. Home, SMB, Government.

Mr. Deepak Sharma , Country Manager, UPS for Delta Energy system Pvt. Ltd. echoed the sentiments according to him India is big market with huge potential in terms of growth segregated in organized and unorganised sector.

Driven by the guiding concepts of "dare to change" and "dedication to innovation", every business group at Delta has set aggressive growth targets. Our sound financial background and healthy cash flow serve as another competitive advantage in this difficult global economy. We plan to stay firmly in our areas of core competences. Delta is a company that consistently monitors market trends and takes on challenges to change and innovate. The economic downturn brought to our attention the need to expedite our speed of change and new product development. Delta is running at full speed to meet customer expectations and we are dedicated to taking the company to the next level of success. Delta is a strong multinational company, with lot of depth and strong base. Delta managed to grow in spite of the slowdown in the economy primarily because it could offer its customers a wider product range backed by excellent service support, and technical expertise to offer the right fit solutions.

Moving on to the question of Low Quotes
Mr. R Chellapan of Numeric Power Systems Ltd. feels, Softdisk has more scientific way of evaluating the market for its volume and quality then any other agency and would be more then aware of who is quoting low and how. According to him this has been the trend always. There is a serious shortcoming observed from the market that some of the UPS companies have started manipulating the Battery Amp Hour capacity by changing the labels like 100 Ah to 120 / 130 Ah knowing well such practice will tarnish the reputation of the entire industry. However they are short-lived ones and Industry will get corrected in the long run. Such companies are able to survive in situations where customers do not test the real battery capacity including WEIGHT of the battery as per catalogue plus UPSs complete performance at Full Load back-up time. He further adds The market crisis has hit IT growth / IT spending in certain verticals (like Automobile / IT / Textiles / Corporate considerably). Numeric managed this situation by distributing the Risk & Business Coverage a bit wider and managed to retain the market share.

With India assuming a key role in Asia, businesses have become attuned to the fact that they need robust infrastructure to attract and retain investors.

Well Govt. of India, singing of Nuclear Deal with the US, more importantly India getting NSG Waiver at Vienna after long deliberations and oppositions from certain countries is a welcome sign as it has opened gates for Nuclear Power Plants, 27 of them stated to be coming up by 2020. Already India has signed Uranium purchase agreements with three four countries which enable existing nuclear plants to work at full capacity by 2012.

With many new avenues opening up in bio-medics, telecom, process automation and in almost every sphere of life, this also indicates the future is very bright keeping in mind the current utility power scenario of the country. All this augers well for the Indian UPS Industry as Power Quality & Continuity will be the most sought after thing in years to come. So not withholding the resent economic meltdown, the ray of hope the Power Electronic Industry in the country remains unperturbed.

According to Mr. R K Bansal of Uniline Energy Systems Pvt. Ltd. Today Indian power conditioning market is getting more sensitive and mature to the evolving needs of the businesses. With India assuming a key role in the Asian economy, businesses have become attuned to the fact that they need to be robust in terms of infrastructure to attract and retain investors. Hence, Business Critical Continuity is being viewed strategically and upcoming businesses are realizing the importance of factoring and aligning it as key component in the overall business model.

In India, the five cities of Mumbai, New Delhi, Chennai, Kolkata and Bangalore have been the largest markets for power products. However, there has been a shift towards B & C Class cities such as Pune, Chandigarh, Lucknow, Hyderabad, Jaipur to name a few. These locations are fast becoming global hubs in terms of R&D, ITES & BPO, Retail, and Manufacturing and given the criticality of operations undertaken in these sectors, there is an increasing need for comprehensive network uptime solutions, Besides, given the upward spiral in terms of PC penetration in these cities, these cities have been showing a marked growth. He laments.

According to Mr. I B Rao & Mr. M R Rajesh economic slow down has adversely affected IT and IT infrastructure segment. The expansion plans are put on hold by most of the big names in IT, ITES. Even the aggressive companies in IT infrastructure segment are no exception. Their more emphasis on best utilization on existing IT facilities and also human resource. Even the Data Centers projects in telecom segment with few exceptions are either postponed or put on temporary hold. In last six months the demand for high power UPSs above 200KVA has gone down considerably. The situations now is wait and watch and do the things which are of most urgent in nature. If the similar situation continues for next two quarters of 2009, then, the situation in year 2010 will be more tuff. This market will not show growth more than 10% maximum than the previous year.

Adding further they say we view the present market scenario as an opportunity to strengthen his company’s presence in Industrial market segment. Extremely low prices are unsustainable if quality/ service levels are to be maintained. Price erosion beyond a point hurts all stake holders – manufacturers, channel partners, customers, etc. If it continues beyond a point it will lead to disastrous consequences for vendors.

Mr. Ramesh S Managing Director, Powertronix Ltd., Bangalore, believes that “In the past past year the net materials cost of all the products gone up and we are taking all cost cutting measures to control the pricing and offer great value to customers.” We are doing reverse engineering and research to check all the possibilities to reduce cost without compromising on quality, he laments. He further adds when we fixed expenses to keep the cash flow going, some people started quoting very low. But surely they can not repeat and sustain but certainly some of listed companies could do it for long time. That is to play a different game to keep the share price high. Even they have revert back at some point of time.

Tejas Sheth of Asia Powercom is of a different view, he believes that price volatility has hit the mid sized players more then their un-organized peers. We maintain offices at various location which increases our overhead, smaller/local player does not have to care about all these things and is not hurt to any extent. He further adds as far as recession is concerned worst is over, the growth rate will not be rosy in future any more & one has to be ready to face the stiff competition. We have seen even bigger player foraying into unknown territories as far as the product diversification is concerned.

Softdisk believes that prior to last year earlier few years the growth rate in the market was encouraging and UPS shipments taking a cue from the PC market have also witnessed a very significant growth, but since melt down, things have been going has been tough, it will correct itself in a quarter or two. Further the UPS penetration is now taking place in cities and towns outside the top 20 cities.

According to Mr Sumant Kumar of Powernet solutions Pvt. Ltd. Slowdown phase has shown us the worst though things may all that bright in the near future but certainly today the development process in every vertical is witnessing a growth. Interpretation of word ‘development’ in its correct form, has been taken seriously by the concerned agencies / authorities. The Infrastructure development required to address the challenges of 21st century is being put in to place. This is a good sign to a certain extent Government is also keen in making efforts towards enduring availability of Power. What we see today may not be looking very rosy form the Govt., but I am sure with nuclear deal and Nuclear reactors coming up there will big orders from companies like ECIL, BHEL, BEL and the likes. “We at Powernet are fully geared to latch on opportunities when it presents.” As always, Quality of the product & support package will remain paramount to us.”, he laments.

Speaking on the overall scenario of the industry Mr. Sabhahit believes that all this put together, there is growth pattern happening. These are the areas where continuity of power is very essential, since these companies are facing the Global Challenges. And hence the demand for the UPS and Complete Power solutions is on the rise not withstanding the slowdown.

According to Mr. Arun Ghosh India’s GDP growth despite slowdown is currently hovering around 6% mark which gives us an indication of the industrial expansion that is already happening at a rapid pace. The rigidity of the Indian economy was reflected during global meltdown. As such in the growth of the UPS category. This growth rate in an economy that is already the world’s fourth largest in real terms (Purchasing Power Parity) is expected to grow the faster then any other country barring China. The key factors for India’s growth in the UPS market are would be:

  • Increase in PC & server sales resulting in increased demand for UPS.

  • Increased penetration in B, C & D class cities has been another reason for the category growth.

  • Growth in the economy will lead to the growth and increase in IT spends of verticals like IT, ITES, manufacturing, BFSI and Government. There by leading to the increased demand for the UPS systems in these verticals. Increased awareness for quality of power has also boosted the demand for UPS systems. UPS provides protection against voltage fluctuations and low voltage.

Talking on fluctuating prices of base material of the UPS Systems, Mr. R Chellappan of Numeric & Deepak Sharma of Eaton both believe that price hike in base material is past its peek, while the cause of concern has shift to adverse foreign exchange rates. Mr. Chellappan believes this Financial year will educate us about recovering a disaster apart from managing the competition.

According to Mr. Deepak Sharma of Eaton Power Quality the UPS industry will see a steady demand in future. Many companies had stalled expansion and investment plans and had started extending the life of their existing equipments. These companies are now re-evaluating their plans, providing valuable opportunities for the power quality industry. We think that India's power management industry is going to grow at a rate of 15-20% CAGR - current period excluded.

Mr. N P Krishnan of Chennai based Consul Consolidated Pvt. Ltd. believes that the market has been customer driven and price plays a decisive role in most cases. With volatile lead prices leading to fluctuating battery prices it will be difficult to sustain low prices. Customer demands have become unrealistic which are difficult to meet at prevailing prices and payment terms – asking for 3-5 years warranty / life of batteries which battery manufacturers do not provide. AMC rates are also very low which will lead to poor sustainability. In addition, the UPS is losing its respect and stature as a product. The UPS industry needs a makeover.

According Ramesh S, Managing Director of Powertronix Ltd., Bangalore. ”The metal price fluctuation is definitely disturbing the business. Every time the change in the price takes place, it takes 2 to 3 months to settle down our business from the disturbance. But now Powertronix has already came out with some of the Transformer less UPS Technologies, which solves to some extent to keep us independent from this impact. Off-course right now the lead price is impacting our sales which we are unable to do any thing about this.

Mr. Shankar C Nagali of Bangalore based Cosmic Power Systems Pvt. Ltd. is of a different view, he believes that price volatility in UPS industry was very rear. Currently also raw material prices have varied quiet a bit but the final product prices have really not varied much. Most of the time it is UPS manufacture who has taken the hit. Its only when battery prices go up final product price goes up. In the beginning it was very difficult but over now last 3 quarters end customer is educated by all vendors. Now end customer understands & accept the price change as & when. Though it is not that easy.

According to Mr. Ramdin Sangha of WeP Peripherals,the market is segmented in terms of users who are either cost driven, value driven or technology driven. End users who are only cost driven may take the advance of certain players quoting extremely low prices. But by & large customers today are looking forward to a comprehensive value added solutions and do not mind paying for better technology also, in case it helps environmentally, social causes. In such scenarios the capability of the vendor to offer high technology, complete product range will govern the prices for the customized solution and it may not be the only denominator for selection process. Delta firmly believes that even during difficult economic situation a good solution will command the right price.

ALTERNATIVE ENERGY SOLUTIONS

"Mr. R Chellappan of Numeric Power Systems believes that there is no other alternative than to explore alternate technology. This can be in the area of Solar. “We have developed a Solar Hybrid UPS, which is doing exceedingly well.”, we are the first and only UPS manufacturer which has a fully Solar Powered fabrication plant in Chennai, he proudly laments. Our total installed capacity in Solar may well exceed 500 KWp. To further the growth of our Green Energy projects we have created a wholly owned subsidiary named Numeric Solar Pvt. Ltd. More recently we have installed 10KWp Solar Project with a 2 way inverter using MPPT Technology in Kenya and another 8 KW plant in Japan. He is quick to add we also need to revisit feature-value equations for customers to try and optimize wherever possible. There is by no means a quick fix solution but one has to take concrete & definite plans to ensure that the value we provide to customers remain optimized."

Mr. Pardeep Pimpley Executive Director DB Power Electronics Pvt Ltd., says “Very few are aware about DB's contribution to renewable energy segment, since, we have never boosted or advertised on our competency in this field. We have installed 100KW Grid Interactive Solar PCU in collaboration with Central Electronics Ltd (CEL) Government of India, way back in 1996, when this concept was unheard of.

We remained silent for few years, since there was not much development seen in the market. Since year 2003, we have again paid our attention and developed complete product range from 1-250KW single PCU, which is the highest of its kind for indigenous development. Other than DB, who claim to be in this field are mostly importing Solar PCU's from different countries like Australia, Germany, etc. Over a period of time with partnership of Tata BP Solar, we have installed more than 5.5 Mega Watt Solar Power with different ratings. We also make Wind and Solar hybrid systems. Around 200KW power is being generated in Thailand. We are very much active in this field and we are waiting for the right opportunity for future development in the field of Renewable energy.” The Research & Development is the biggest asset of DB Power Electronics, Pune.

Mr. Deepak Sharma of Eaton Power Quality says “We are already catering to the wind segment and are looking at the opportunities that alternative energy sources like solar power offer. We plan to launch our photovoltaic inverter in India and are looking for channel partners who will distribute the solar powered product.” We especially aim at catering to the needs of the rural India. He laments.

According to Mr. Deepak Sharma Country Head of Delta Energy Systems, Delta is a multinational company and our mission is to provide Innovative, Clean Energy efficient solutions. Delta has the competency to offer alternate energy solutions like Solar, Wind integrated with UPS to offer environment friendly solutions to our customer who are value & technology driven.

Asia Powercom, Powertronix Systems Ltd., Microtek International have all joined the Solar bandwagon.

ON GOVT. TAXATION POLICY & THE CHINISE DOMINANCE

According to Mr. Anil Munjal of PCI Limited “The government is quite conscious of the power scenario in the country, yet it seems that all the new addition to the installed capacity do not gives us the comfort of continuous power even by the year 2012. Despite this grave situation, there are no special incentives or support for the UPS installation except in a very limited way. Considering the importance of UPS Systems in a growing economy and keeping in view the power scenario what is it, the Govt. should certainly exempt all UPS Systems from import duties and excise duties.”

After all, What will an importer or manufacturer do with UPS Systems or batteries except to use them for ensuring continuous good power quality and help to generate more affordable and help cut cost for our manufacturing and services and thus make them somewhat more competitive globally, he adds.

Mr. Venkat Rajaraman, CEO of Su-Kam Power Systems Ltd. believes that today UPS is 100% dominated by Chinese, but in inverter Chinese are as week as they are strong in UPS, Home UPS is taking the market of Line Interactive UPS, and there is no presence of Chinese Home ups or inverter in the country. We are trying to change the game for UPS also, he adds.

According to Mr. Vinod Kumar R V of Bangalore based Arvi Systems & Controls Pvt. Ltd. for the past two-three years the Indian UPS industry has been facing stiff competition from Taiwanese/Chinese players who by virtue of mass production have advantage on pricing on smaller UPS where as in larger UPS, European players will fight the Indian manufacturers and that too with plants located in China.

Chinese products have influenced the market with low pricing and sadly some have fallen prey to their low quality and less reliable solutions. However the industry has to realize that the true strength and good quality is possible only by reposing confidence & belief in indigenously designed and manufactured products and encouraging them for giving reliable & quality product, to extend timely service and spares support to customers on long term basis, rather than going for low priced, not proven & time tested product of china for reliability & quality for Indian conditions.

He also believes that Government has to take steps to standardize the specifications for UPS as per the minimum requirement conforming to Indian power conditions. Give more encouragement to indigenous manufacturers of UPS in public and government an industry so that they can provide better service and spares support compared to the imported products.

According to Tejas Sheth believes that it is the Survival of the fittest. In Inverter industry it is only Indian manufacturing who is ruling as they have put in the infrastructure. But in UPS not many companies have put in infrastructure & hence we see major portion being imported. Its just due to their manufacturing capability they are able to become economical. India can also do the same stuff which we see with Inverter manufacturer. But currently yes it is Chinese manufacturing which is dominating market.

In order to face this challenge, Indian companies have to follow the principles of globalization - sourcing parts from wherever it is price-effective. Moreover thought has to be directed at eliminating waste, improving co-ordination with vendors, reducing the down time of machines, full capacity utilization and better bargaining with buyers and vendors.

Similarly, Mr. Deepak Sharma of Eaton Power Quality is very clear in his views according to him globalization, like outsourcing, is here to stay. Today, businesses can source goods from around the world, produce their product wherever it makes economic sense, and sell it anywhere. International trade is forecasted to grow at a high rate of the world gross domestic product (GDP). The economic impacts of globalization are enormous.

Rather than fight globalization and market forces, it is prudent to adapt oneself to changing circumstances, focus on low cost, high quality products backed up with a good service network, to take advantage of the market reality.

Softdisk believes that being a negligible contributor to the GDP, Power Electronic Industry does not receive enough attention from the Govt., we believe the Govt. should realize the importance of Power Continuity as it is the life line of major GDP contributors. Finally it all boils down to service, companies with better service infrastructure will always survive. We have seen even the companies offering Chinese product doing well as they are at the top when it comes to services.

FOREIGN COLLABORATIONS

Taking of collaborations most of the company in top 20 list have a foreign collaboration. Either these foreign companies are directly present in India thru 100% subsidiary or thru JV, technical tie-ups or a distribution arrangement. Only exception to this list is Delhi based Tritronics India Pvt. Ltd., headed by Mr. Rajan Chadda & Rajeev Chatrath, who have entered into a strategic tie-up with Luminous. Numeric breaking relations with Socomec, it is another company which can be excluded from this list, however there international presence makes it connect many a foreign companies.

Softdisk has seen it all over the past 18 years, more often then not some of the companies use a lot of word jugglery in there promos, it must be the same thing which some one else must be offering without making lot of noise and at a better price. It is one area where customers need to be watchful. From the customer point view, we have a complete chart prepared, what to do while purchsing a UPS.

Some current technology trends are:

  • Green technology

  • High efficiency machines reducing operating expenses

  • Less harmonics from UPS resulting in low pollution of utility

  • Highest power to footprint ratio which will lower real estate costs

If the economic down slide continues, it will be difficult times for the industry, however Softdisk believes it is just an over-correction & Power Continuity being critical for all sectors, things will normalize by next quarter however one should one cannot expect a growth of 25-30% as it used to be but settle for 12-15% growth, atleast for next two years, unless some thing miraculous happens. So UPS business is no rosy and bright but has still not lost its scent.

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