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Feature | December 2014

Legislation must be introduced

Saurabh Kumar, Manager, Product Head - Pan India, Power Capacitor Division, Havells India Ltd is optimistic about growth in the capacitor industry as he sees some improvement in his order book position.

How was the demand-supply position of capacitors in the last five years considering the sluggish period in the power sector? In the last five years, the market was afflicted by delays in projects, fiscal difficulties confronted by EPC contractors and compression on margins. Demand from the market was stagnant and beleaguered. Moreover, the much-anticipated growth from certain emerging segments such as electric agility (EV & HEV), HVDC/FACTS, and local manufacturing of electronic goods came to a standstill. Unfortunately, ferocious competition among peers and a rise in input costs also brought the industry to the edge. Exports of LV power capacitor and demand for MV power capacitor from a few utilities were the only segments that brought in some profitable growth.

With power projects worth Rs 3.9 lakh crore on the cards, do you think enough opportunities will open up in the future ?
Everything will depend on the new government´s ability to stimulate domestic demand, create new market opportunities, and facilitate access to the global market. With the new government´s pledge to focus on infrastructure and power sector, we expect that the much-needed thrust to energy conservation, transmission & distribution (T&D) loss reduction & power quality improvement would materialise. All of this will increase the demand for capacitors and power conditioning devices. The government needs to focus on areas such as high-voltage, direct current, high speed traction, electric automobiles etc., which will simulate primary as well as secondary demand. The industry on its own should also create demand by creating awareness among clients on the benefits of power acclimatisation (reactive power compensation, harmonic filtering, transient suppression etc.) Enhancing the level of quality and reliability of the products and services with cost competitive and innovative products will make the domestic industry globally competitive and help de-risk domestic manufacturing by reducing overdependence on the domestic market for survival and growth.

How is Havells India gearing up to meet the demand in the future?
Havells will expand manufacturing capacity to 5 MVAr /month by 2015 and 10 MVAr/month by 2016-17. Our company is also initiating many measures including educating consumers on benefits of improving power quality (reactive power compensation, harmonic filtering, transient suppression etc.), strong representation and following good practices, improvising standards to enhance product quality and reliability.

What are the challenges faced by capacitor manufacturers?
The presence of a large unorganised sector affects the policy framework and fragments the distribution market. The sector has multiple suppliers, giving tremendous bargaining power to buyers. The challenge in such a situation is the overall lack of focus on quality of the product as the smaller players constantly bring the prices down. This also defeats the entire purpose of promoting safety in electrical equipment. The larger, branded players will not enter the price wars at the risk of compromising on quality.

In addition, the industry is also facing lower price realisation and rise in input costs, lower capacity utilisation and less demand.

Proper legislation and regulations must be introduced to ensure basic minimum quality of product, irrespective of source. The government plays a very important role in imposing compliances. At the same time, it is also important to promote healthy competition and entrepreneurial initiatives. Another challenge is the stiff competition from China in the export market that has reduced share of Indian products in the domestic market.

What are the reasons behind China´s lead in the export market?
The reasons are listed below:

Financial sops - Chinese manufacturers are given export subsidies, social security subsidies and access to financing at rates below 6 per cent per annum. As a result, Chinese companies have a 24 per cent pricing advantage over their Indian counterparts.

Access to key raw material - Chinese manufacturers have access to key raw materials at subsidised prices, which are banned from being exported. No such restrictions exist in India.

Non-reciprocal market access - In tenders issued by Chinese national power companies such as the State Grid of China, Southern Power Grid of China and the Chinese Provincial Utilities, foreign companies, including Indian companies, cannot participate directly, as they need a local presence. No such conditions exist in India.

How far have Indian manufactures been successful in producing technologically advanced technology capacitors? In this regard, which are the advanced capacitors manufactured by your company?
Currently, the Indian capacitor industry which is capital intensive with high break-even levels is facing several problems pertaining to basic survival. Hence implementation of advanced techno¡logy has not made much headway in the last five years. With the opening of the market and with the country targeting gross domestic product (GDP) growth rate of 8-9 per cent in the coming years, the industry should be able to introduce advance technology and innovative products in the future. Havells focuses on advance capacitors for renewable energy systems (wind power converters, SPV, hybrid systems) that are expected to contribute to a significant portion of global energy supplies.

What is your current order book position? Have you witnessed any shift in trend on a y-o-y basis?
Order booking flow in Q3 of the current financial year is improving as compared to last year. The industry will surely witness good growth with upcoming projects and new power sector policies. We also expect the input cost to stabilise and even get the much-needed respite based on strengthening of the Indian rupee, as witnessed in the recent past.

Janaki Krishnamoorthi
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