Crompton Greaves, a leading player in the domestic and international power transmission and distribution (T&D) market, believes there is huge potential for growth in India. S M Trehan, managing director, speaks to Jitendra Kumar Gupta on the current power scenario, the impact of the economic slowdown on the sector and the listing of Avantha Power. Excerpts:
A few months back, everyone was worried about slowdown in the order books due to slack demand from the power and industrial segment. Have things changed now?
Crompton Greaves operates in three segments and the biggest one, which contributes about 68 per cent of consolidated revenue, is power T&D. Though there was a slowdown in the distribution side six months back, things have improved slightly. However, we must wait for another three months before it can be confirmed if things are actually looking up or it is just one month’s blip.
In the industrial segment, which accounts for 15 per cent, there was a considerable slowdown because all the industrial capex was put on hold. But things seem to be improving on that front as well. There was no slow down in the consumer goods segment, as people are still spending on these products.
But your competitors have been reporting lower order books and decline in sales.
Yes, there was slowdown. And many companies did report lower revenues and profits. But we did not suffer much. According to me, there was a big impact because of managements’ failure to adapt to the new conditions.
The biggest customer in India for power T&D, Power Grid, did not slow down. We won our 800 Kv transmission order, whereas many failed. Also, we never entered the Rural Electrification and Accelerated Power Development and Reform Programme (APDRP). Because others entered and exited, they slowed down. This is a business suited for small contractors. At the end of the day, a contractor might wonder why they should pay five per cent to a main contractor when they can execute it themselves.
Within transmission, what are the opportunities available in the higher voltage capacity?
The maximum voltage at which the power was transmitted in India in 1970 was 220 Kv. In 1975, it rose to 400 Kv and now it is 800 Kv. By 2012-13, it is expected to go up to 1,200 kv. But all these are rather small. If we generate more power, the T&D capacities also have to be augmented.
How is the company positioned to tackle the growth in transmission?
In India, we are number one and have a 33 per cent market share in transformers. We have always believed in entering first. As a result, we were the first to manufacture our 800 Kv transformers and have already tested our 1,200 Kv transformers. We are the first one in the country to have an experimental station for a power grid.
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What kind of capex are you expecting for the T&D space?
For every Rs 1 crore put into power generation, an equivalent amount has to be invested in T&D. The opportunities are huge. The demand will keep on growing at 20-22 per cent for the next 20 years. If we add 76,000 Mw of power generation capacity during the current five-year plan, the total investment required will be around Rs 300,000 crore. And Rs 60,000 crore has to be invested in T&D every year. But the fact is that 76,000 Mw is not going to be generated. We will end this five-year plan with an additional 65,000 Mw.
What are your expansion plans to capture this opportunity?
Crompton Greaves India currently has a capacity of 28,000 Mva and will expand this to up to 32,000 Mva by March 2010. In 2010-11, we have further plans to add another 6,000 Mva.
Crompton has acquired several overseas companies. How much have they contributed so far?
These five companies have grown at about 22-25 per cent annually in the last four years. All of them were loss-making companies when they were acquired. Now all of them are profitable.
While we are not able to export to Europe and US, through these companies we have a presence in these markets as well. Today, we are the seventh largest globally in transmission. And in another three years, we should become the world’s fifth largest.
Is the company eyeing acquisitions in Latin America?
We are. But it is too early to comment.
Was the slowdown much higher in overseas markets compared to India?
Yes, in Europe and North America there was a slowdown. But, from the transmission side there wasn’t much of a slowdown because of the stimulus packages. Europe is still building national grids and connecting all European Union countries together. The US is also trying to create a national grid.
In the last three-six months, there was a slowdown in the distribution side, because this segment is linked to housing. Lately, the demand for the distribution of renewal energy or wind energy has started picking up.
How has your overseas order book grown in the recent past?
On a year-on-year basis, the growth has been three per cent as on this June 30. This year, we will end with a five per cent growth. And next year on, it should be 15-20 per cent. This is quite good, because the order book has shrunk for other companies. In the previous four years, we were growing by 20 per cent every year.
What are your plans for Aventha Power?
We will be listing this company over the next 12-18 months. We have invested about Rs 227 crore in their 600 Mw power plant coming up in Chhattisgarh. By 2012, Aventha will have a capacity of 1,400 Mw. Out of this, about 65 per cent of the power will be sold on a merchant basis. Our stake is 26 per cent in the company.