After five years of double-digit growth, half of capacity idle as growth dipped to 2.73% in 2008-09.
At a time when the power sector is implementing plans for a huge increase in capacity generation, a majority of electrical equipment manufacturers are experiencing capacity underutilisation.
The Rs 50,000 crore industry has invested close to Rs 10,000 crore in the past two years to increase capacity by 60-100 per cent, anticipating huge business related to power generation, given the government’s thrust to electrify all villages under the mission of ‘Power for all by 2012’.
But the industry is now running at 50-60 per cent capacity and growth fell from close to 22 per cent in 2006-07 to 2.73 per cent in 2008-09. The industry had double-digit growth in the five years prior to 2008-09, says Murali Venkatraman, president of the Indian Electrical Equipment Manufacturers Association (IEEMA) and managing director of the Chennai-based conductor equipment maker, WS Industries.
The dip comes at a time when the power sector is supposed to be adding over 60,000 Mw of capacity during the current five-year plan and an ambitious 1,00,000 Mw during the 12th plan.
“In India, our focus is mainly on only generation capacity and there is a mismatch in investments in the transmission and distribution sector. Globally, it is balanced in the range of 2:1:1 for generation, transmission and distribution, respectively,” says S C Bhargava, executive vice-president, electrical sector, for Larsen & Toubro.
L&T increased its electrical equipment manufacturing capacity by 35-40 per cent in the past two years, he says.
Take the case of cables and conductors, which constitute about 30 per cent of the electrical equipment industry. In the past two years, manufacturers in this segment increased capacity by 30 per cent for normal cables up to 33 Kv and 400 per cent for high voltage cables, with an investment of over Rs 500 crore. Now their capacity utilisation is only 50 per cent. If the sector had an order backlog of Rs 2,000 crore at any point of time last year, this had come down to Rs 500 crore during the current year, says Vijay Pramod Karia, managing director of Ravin Cables, the largest manufacturer of cables in India.
According to IEEMA data, which tracks sector-wise production statistics of the industry on a monthly basis, the growth of sales of rotating machines, transformers and energy meters has declined. The growth of the switchgear sector is stagnant for the past two years. Only transmission lines, cables and capacitors are showing an increase in growth.
“The backlog in the power generation capacity addition in the first few years of the current five-year plan has upset the order flow to the supplier industry. For example, only about 3,500 Mw of capacity was added in 2008-09, as against a target of 11,000 Mw,” says Venkatraman.
The reasons for the lack of orders and capacity issues are many. Anticipated generation projects are being delayed due to various clearances and land acquisition issues, and the fund raising ability of private project developers. The government’s electrification projects had dried up for almost six months due to national elections and formation of a new government. And there was the global economic meltdown which affected exports.
Further, the power sector comes under the concurrent list and a majority of the execution of transmission and distribution has to happen at the state level. There are lack of co-ordination issues between the Centre and states, with many of the latter either delaying or ignoring the need to allocate adequate funds on a priority.
But the situation will improve, some feel. Siemens Director V V Paranjape says orders are flowing now to only heavy engineering companies with a large basket of products such as L&T, Siemens or ABB. Once the power plants under construction near completion, orders will flow to various sector specialist companies in the medium and small-scale sector as well, he says.
Siemens has invested heavily to create new capacities for various transformers and other electrical equipment, anticipating the demand.
Jitendra U Mamtora, chairman and managing director of Transformers and Rectifiers, agrees. “I think the industry need not worry on capacity underutilisation. Normally, it will take two-three years for a new plant to reach the optimum capacity. Power plants are under construction and it will take a year or two to see a large inflow of orders for most of the sectors in the supplier industry,” he says.
