Buoyant 2010-11, followed by sluggish 2011-12 (First two Quarters)

The year 2010-2011 saw the industry netting revenues to the tune of INR 4134 crores. This is exclusively the end-user sales figure. However the over all industry revenue was estimated at INR 4600 crores. 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 312 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 We have been doing only thrice before, we did all of it again to give continuity to the process. Out of 312 companies responding only 181 companies were awarded with SD Ratings. However most of companies are facing it difficult to match quarter to quarter sales of 2010-11 in 2011-12.

We are sure the figure which we have arrived at i.e. the actual end-user sales revenue of has definitely crossed INR 4100.00 crore mark .

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

Revenue wise : Industry grew by 14 % a raise of over 5% over the last fiscal of 2009-2010.

Volume wise : Industry grew by 27% 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 hammering the companies got during the global economic meltdown.

Of the total revenue of 3905 crores, Online UPSs accounted for 91% while Offline / Line interactive UPSs accounted for nearly 7% while other products including Servos accounting for the rest. We have not included the Home UPS sales figure in this.

Of the total revenue organized sector accounted for nearly 61% while 25% came through semi organized sector while 14% share still remains with the unorganized fly by night operators.

SD FINDINGS

Softdisk went about finding the state of the industry and also weather they was actually out of recession, The last two quarters of the second half were actually very good probably pumped by Govt. buying. 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 (up-to 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 12-14%. The same is continuing in this year. Softdisk believes that more and more people are moving towards Solar. Solar PCUs units are the new mantra for the UPS Companies, some have even manufactured and installed Solar UPS, with hybrid charge facility (Photovoltaic & Mains).

With consolidation being the mantra for Industry. One can say the entire Online UPS market can be divided into following APC-Schneider, Emerson (Cloride &DB), Eaton, Numeric, PCI, Uniline, Other Major players (Hi-Rel, Consul, Power One, Delta, Tritronics, Techser & Hykon) & the rest. Talking of market share Emerson has the highest market share of 24% followed closely by APC Schneider 21, Numeric 20%, Eaton 7%, Riello PCI 6% while other major players account for 22%.

SD ESTIMATES

Softdisk went about asking that its prediction in July 2011 that the total industry revenue will cross INR 5000 crore mark by March, 2013 trying to know what the Industry leaders thought. Many had little or no doubt to what Softdisk has predicted earlier, even though this response was at time when the global economies were trying to come out of worst ever economic crises, and Indian market was also shaken by it. Buoyant by previous years performance many even predicted the industry revenue to touch 6000 mark by March 2013. But as on date we feel that crossing 5000 crore mark barrier for end-user sales and 6000 crore mark including secondary sales is quite possible. Although few may disagree to the secondary figures, but being optimistic has always been the Softdisk attitude.

To the SD’s question 2010-11 Market was upbeat, But first two quarters are showing steady progress nothing flashy, why ?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

According to Mr. N K Agrawal of Delhi based Microtek International Pvt. Ltd., There is a Great Market potential as these products UPS and Inverters have become an essential part of every household, and as the middle class is growing rapidly in India the consumption of these products is also growing at the same pace. We do see sales of these products not only meeting but exceeding by a large number the Softdisk prediction of UPS industry revenues reaching INR 6000 Crore by 2013. (Here it is worth mentioning that Softdisk figure does not include the revenue generated by Inverters).

Mr. Agrawal feel agrees that in 2010-11 market had been very buoyant, This financial area the economy world over is moving under the shadow of fear of major recession in us and Europe, because of this the things have slowed down, it will not impact Indian markets but spillover effect is showing its sign. In-spite of all this we still feel that the UPS Segment will show a growth in this year also, he laments. 

While Mr. Cristo George, MD of Thrissur, Kerela based Hykon India Pvt. Ltd. believes that after experiencing severe declines following the global recession in 2009, the UPS market turned around in 2010 with revenues higher than in 2009. But the market has experienced ups and downs over the past year. The consumer PC market more bent towards larger notebook adoption makes the intake restricted only to the desktop users who mostly settle for 0.5KVA to 1KVA power back devices. Uninterruptible Power Supplies grew twice as fast in the second half of 2010 compared with the first half of that year. The market continues to recover swiftly from the economic downturn with revenues in 4th quarter being 10.8% higher than the same period in 2009 because sales of large three phase UPS for enterprise data centers spiked in the 4th quarter. 

Mr. R K Bansal Managing Director Uniline Energy Systems Pvt. Ltd. elaborated on this issue, according to him when we speak about market, we have an enterprise market segment in mind. Most of the top notch UPS companies like APC, Eaton, Numeric, PCI to some extent mostly serve this business segment. Our strength lies in Govt. sector & PSUs. As per our understanding, the market segment revenue (excluding precision A/C, Electrical distribution, etc.) for UPS Systems is close to INR 4500 Cr. Looking at the present market scenario, the revenue collection from this segment shall be within INR 5000 to 5100 Crore in the current fiscal this year.

Even after a year of slump, 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. There is more emphasis on best utilization of 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. However we see a shift now, In last six months the demand for high power UPSs above 200KVA has gone up considerably. The situations now is wait and watch and do the things as they unfold. As of Uniline the economic recession has not affected. We expect more business from these segments and continue to maintain our growth. Apart from this, some business revenue is also expected from specialized Solar products what we manufacture for niche market. This shall also contribute to our growth plan.

Mr. Narayan Sabhahit Managing Director, Techser Power Systems Pvt. Ltd, Bangalore, believes that The average market in enterprise segment (in which we operate) is expected to grow at the rate of 15 -20%. The data center market is expected to see a growth of 20 - 25% as compared to last year. However, the remaining IT market growth is expected to the tune of 10 - 12%. Last few years the growth rate in the market has been encouraging (Leave apart the slowdown period) and UPS shipments taking a cue from the PC market have also witnessed a very significant growth. He further adds, the UPS penetration is now taking place in cities and towns outside the top 20 cities. According to him “Today the development process in every vertical is witnessing a speedy 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 Techser are fully geared to latch on the 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. 

Speaking on the recessive trend in the first two quarter, Mr. Suhas Joshi Director (MCIS) Delta says that current economic situation is turbulent and to some extent Indian market is also affected because of the impact on European market which is showing a dip. But government, education, ITes market is growing. Earlier the market was growing at 15-20% growth rate. Now it is growing about 8-10%. Organizations have entered a new era characterized by rapid, dramatic and turbulent changes. The accelerated pace of change has transformed the way a work is performed by employees in diverse organizations. The most common business strategy adopted by almost every organization is to think globally but act locally as it helps to deal with the challenges of doing business in the globalized economy. Delta Power Solutions has also adopted methodology on similar lines laments Mr. Joshi.

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 the overall UPS sales by 2012 might cross 5000 Cr mark subject to IT recovery. He believes that first two quarters of 201111-12 have been OK, not that bad as projected by many. He feels that for manufactures it is not that much of a problem, it is the week India Rupee against US$ which is cause of concern of importers.

NUMERIC, which has been the leader in the UPS industry, has taken larger initiatives with most modern manufacturing infrastructure to address the mass production requirements and geographically expanded to over 259 locations as of now.

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 for this having power continuity & quality are paramount. 

On the question of Reverse Auction, Mr. Chellappan was critical : The entire industry must boycott reverse auction without any exception. Reverse auction makes everyone to cut the others leg and their own as well since there is pressure in the minds of the participants. In reverse auction there is no scope for any company to present their strengths like : PRODUCT SPECIFICATIONS, R&D CAPABILITIES, MANUFACTURING & QUALITY SYSTEMS, ROLL-OUT ACROSS INDIA, INSTALLATION & SAFETY TO CUSTOMER EQUIPMENTS, SYSTEMS PERFORMANCE, UP-TIME & BUSINESS CONTNUITY, OTHER SUPPORT FUNCTIONS.

He further adds : After all we are supplying and installing a POWER CONDITIONING product, A CAPITAL EQUIPMENT and not a box pushing activity. In the absence of a detailed technical selling based on performance, reverse auction becomes a simple number game for everyone. This will lead to killing the very industry practice itself simply and the customers will realize this after few years later. If this is for computer stationery (or) purchase of tube lights etc then the reverse auction is Ok as most competitive bidder will sell more.

According to MR. Rajaram Rammurthy MD, Electronics & Controls Power System Pvt, Ltd. : The reverse auction process is not a favourable option for the customer as well as the UPS Manufacturers. (1) No. of participants are not known. (2) Genuineness of the participants are not known (sometimes customer plays proxy to put pressure on the other suppliers), names of companies participating in the tenders are not known. Etc., The reverse auction is a forced and rapid price reduction tactics. In the quest for more business volumes, unreasonable bids are made leading to commercial unavailability of supply. It is also a possibility that the customer is affected by this process. In addition, the bidding process is very time consuming.

Will all companies cooperate in boycotting? Since there are a few companies participating in such reverse auctions, I suggest that all companies boycott by signing a declaration, either under the auspices of “Association UPS Manufacturers”, or “UMDA”, or “Softdisk”, which can be sent to such customers to communicate the boycott. That would be ideal. However, one needs to be firm on the threats from such customers blacklisting the boycotters.

According to Mr. Anoop Nanda, MD, Eaton Power Quality India Pvt. Ltd. Reverse auction is not suitable for customized solutions, which is what UPS selling has now become. We believe that buying UPS starts from conducting a Power audit, determining specific loads, and then proposing a solution which includes proprietary softwares and patented technologies. He says A reverse auction bundles apples with oranges, notwithstanding if it’s appropriate for the buyer or not. I also think that tendering is a more transparent process and it takes into account the vendor history with an emphasis on solutions, laments Mr. Nanda.

Mr. N P Krishnan, Director Marketing of Consul Consolidated Pvt. Ltd. Believes that in Reverse auction there is an urge to become L-1 even if it is at the cost of going down on Bill of Materials. So all of us must be alert and not bring down prices, just for the top line. We must mature to the level of ensuring that we don’t cut each other’s throat.

He further adds 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.

More or less similar view were expressed by Mr. P K Gopalakrishnan, CEO of WeP Peripherals. According to him in reverse auction the vendors will be squished to the maximum from the customers and due to high competition might end up in narrow margin . In regular tender we know what the margin is and what all services or support we will give to customers. Clients also must realize the support they will be requiring till the life of the product and must not encourage this practice. 

Softdisk believes that All said and done, simple way out for UPS companies to avoid getting squeezed by customers is to boycott all reverse auction.

The Market & Price pressure :

According to Mr. I B Rao & Mr. M R Rajesh of Power One Micro 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, they laments. Adding further they say we view the present market scenario as an opportunity to strengthen our 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 to 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. Going Solar is a prime example. Further the UPS penetration is now taking place in cities and towns outside the top 20 cities which further increases the over heads and makes sustainability difficult.

According to Mr. Shankar C Nagali of Managing Director of Cosmic Micro Systems, 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.

NORMS OF THIRD PARTY MAINTENANCE

Mr. Rajaram Murthy of Electronics & Controls Systems Pvt. Ltd. : Third party servicing is considered by customers to reduce the cost of maintenance and ease of accessing the maintenance personnel. Though it may appear as a good option, the assumption that customer makes is that all UPS are serviceable by anybody, which often is not the case. It always depends on the type and technology of the UPS as well as the ability of the third party.

There are risks for the third party taking the AMC on as is where is basis, especially when the spread is too high. It is not practically possible to understand the working status of the UPS and can lead to severe loss and poor sustainability of the third party company if the UPS are not in working condition or if the spare parts are not available.

Customers have to pay higher service charges in case of award of a UPS for service to other than the OEM due to risks of providing standbys or having to replace the UPS in case of non-maintainable conditions. Third Party Servicing is prevalent mostly in Banks. It is obvious that they are the ones who are benefited in the process.

Softdisk believes that UPS Manufacturers should come up with say No to TPM, unless the company that had sold the machine refuses to maintain the machine. This should be binding on all Manufacturers. This practice if persuaded with not only make Servicing an assured income and bring revenue to the company on the other hand customer will have longer life for its system as similar & not substitutes parts will be used to replace the faulty component. 

ON THE TAXATION FRONT

Divergent view were expressed by on taxation front. Where one segment believes that UPS imports should be exempted for taxes the segment talks of protecting the interest of Indian UPS Manufactures.

According to Mr. Anil Munjal of Riello PCI Ltd. believes Govt. should considering the importance of UPS systems in a growing economy and keeping in view the power Scenario what it is, the Govt. should certainly exempt all UPS systems from import duties Customs Duties, excise duties etc. Although “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” , he laments.

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. Suhas Joshi, of Delta Energy believes government must consider reducing various formalities which consumes lot of time. Online facility should be encouraged as it saves lot of time, ensuring paperless and green monitoring. Manufacturers like Delta face lot of difficulty and cost bearing on intrastate movement. Transport checks at multiple checkpoints needs to be reduced, he laments.

On a milder note Mr. Thomas Koshy, Direct Hykon India Pvt. Ltd., Although there is a definite reduction in the excise duty the threat we may face in the future will be MNC directly entering and targeting the end customers. US & UK companies may come up as a major threat in the next 2 years as things stand today. Here the government should think of giving an edge to the Indian manufacturers by way of imposing duties and levies to MNC products. We agree that more players (both abroad & indigenous) will do better choice for the customers but should come out with definite plans for encouraging the Indian manufacturers, he lament.

Those who encourage protecting the interest of Indian UPS Manufacturers believe that when it come to taxation, Mr. Sumant Kumar, Director Powernet Solutions suggest that Back-up systems called by various names like On-Line UPS, Static Converters, Line Interactive UPS, Inverters, Home UPS to be classified under a single heading, with a VAT applicable @5%. In many states of India the Taxation has been at 5% on UPS and 14 % on Inverters. Though there are changes in Design & Technology of the various products mentioned, the application is almost same. If we maintain a common Taxation on all the above products mentioned above, we can prevent confusion among the taxation authorities, UPS dealers and manufacturers.

According to Mr. R V Vinod, Managing Director Arvi Systems & Controls Pvt. Ltd. believes that Barrier to Entry for Multinationals should be increased from current levels. Currently, there is not much of a barrier as Government wants to increase foreign investment as well as increasing bilateral trade. Multinational companies enjoy better subsidies compared to Indian manufacturers – especially difficult for Indian UPS Companies which are entrepreneur led with limited financial capacity. Government should consider alternate mechanisms for Banks and Governments (which currently do not provide road permits for supply to them in Road Permit requiring states) to procure products from across states thereby not forcing companies to register for sales tax.

MOVING TOWARDS 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.

We have successfully commissioned over 2MWp solar projects involving various capacities in last two year. Earlier we had 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 have revisited feature-value equations for customers to try and optimize wherever possible. There by coming up with Offgrid, Hybrid tie solutions for all sorts of application. We ensure the value we provide to customers remain optimized.

Techser are another company foraying into Solar market. They have installed over 200KWp in last fiscal. Tritronics have installed & Commissioned Solar UPSs in Rajasthan Schools. Powertronix, Uniline, PowerOne, Hykon all trying their hand in the Solar Energy Solutions Market. Go Green seems to be the new mantra for UPS Manufacturers.

CONCLUSION :

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.

Softdisk has seen it all over the past two decades, 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 purchasing 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

Softdisk believes that if Manufacturers mad rush for sale at any cost continues, one cannot expect a growth of 25-30% as it used to be but settle for 12-14% growth, atleast for next two years, unless some thing miraculous happens. So UPS business is not rosy and bright but has still not lost its scent.

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