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Feature | December 2016

Foreign shopping to widen market

South Africa will be the next destination for Indian pumps as the demand from the region is growing day-by-day.

Pumps are a common and important component in almost all industrial segments across the world. The most commonly and widely used pumps are the centrifugal pumps or the water pumps, of which the agricultural segment in India are the largest consumers. The next most commonly used pumps are positive displacements pumps, aka industrial pumps, that lead industrial segments like waste water management, slurry moving, oil and gas, pharma, power, and mining to name the few.

According to the Indian Pump Manufactures Association (IPMA), the agricultural sector consists of 45 per cent of the total pump market in India, followed by domestic consumers at 35 per cent. The power segment consists of nine per cent of the total manufactured pumps in India.

Depleting ground water levels, increasing scarcity of water in the rural parts, fast-paced urbanisation etc., act as major growth drivers for centrifugal pumps in the country. But, for the last couple of years, the pumps market didn´t grow as predicted. This can be blamed on the global economic scenario, plus the dip in Indian domestic growth rate. The decline in the growth rate can also be attributed to the rising cost of production of pumps and lack of government investment in end-user industries.

Optimism rides high in projections when it comes to the Indian pump market. While the global markets are projected to grow at a CAGR of 5.47 per cent between 2016 and 2020, Technavio´s (a global sector analyst group) analysts forecast the pumps market in India to grow at a CAGR of 9.66 per cent during the same period. So, what are the factors that will drive the growth in India? Growth in the sectors such as power, water, waste water, agriculture and building services are expected to drive demand for centrifugal pumps in India. Rapid industrialisation, that includes investments in the water infrastructure and power generation sectors are growing. Urbanisation is the third reason.

Manufacturing sector
The Government of India has set an ambitious target to make India a global manufacturing hub. At the same time, it also targets to increase the contribution of manufacturing in its Gross Domestic Product (GDP). The aim is to increase the percentage of manufacturing to 25 per cent from the current 16 per cent levels of GDP by 2025. Pump manufacturers consider this as the silver lining that will trigger growth in the otherwise dull market. The country had included as many as 187 products to be manufactured in India that could be exported as well. India is among the 10 largest manufacturing countries in the world. In 2015, it improved its ranking from position nine to position six. With the ´Make in India´ program in progress, the government was successful in attracting more investments into the country.

According to a report published by India Brand Equity Foundation,´India´s manufacturing sector has the potential to touch $1 trillion by 2025. There is potential for the sector to account for 25-30 per cent of the country´s GDP and create up to 90 million domestic jobs by 2025. India was successful in getting Rs.15.2 trillion ($ 225.32 billion) as investment commitments for manufacturing in the first half of 2016.´

This is not all, there are investment commitments in the form of Foreign Direct Investments (FDI), in the agricultural equipment segment, including for water pumps.

Domestic Market
The Indian pump industry´s annual turnover is Rs.20,000 crore. Of the total manufactured pumps in the country, the demand can be segmented as follows - 43 per cent demand from agricultural sector; six per cent is used for irrigational purposes; 13 per cent is industrial segment; 30 per cent domestic consumers; and 9 per cent miscellaneous. According to recent reports, the water pump market in India is expected to grow at a CAGR of 13 per cent during 2015-2020.

According to Bharat B Patel, President, IPMA, ´The agricultural pump market is valued at around Rs.8,600 crore and expected to grow between seven to eight per cent annually. The positive economic outlook of the country will definitely boost the pump market in the coming years.´

Increased energy crisis and as part of its commitment towards mitigating climate change, India has taken various measures including strict norms on energy efficiency in water pumps. The market has shifted its focus to the star rated pumps in the last few years. In addition to this in the last five years, there seems to a visible oscillation towards solar water pumps. This is because rural parts still face shortage of electricity. And a solar pump appears to be a more practical and logical solution for many agricultural consumers.

The country has more than 700 pump manufacturers spread across large, medium and small segments. It is estimated that the annual production capacity is close to five million units. Some manufacturers supply both centrifugal and positive displacement pumps, while there are manufacturers who specialise only in industrial pumps. States such as Gujarat, Tamil Nadu and Maharashtra are known for their strong industrial base. Thus, the large portion of demand for industrial pumps come from these states, while Punjab and Uttar Pradesh are the larger agriculture states and see maximum demand for agricultural pumps.

According to the available reports, India´s agriculture segment consumes 140 billion units of electricity per year. This is equivalent to 18 per cent of the total consumption of the country. This segment has both star rated and non-star rated pumps. ´Farmers are not bothered about the energy efficiency of the pumps mainly because the electricity consumed by them comes free of cost. I feel, there should be more concrete steps to make farmers aware of the benefits of energy efficient pumps, or they will continue to buy the non-star rated pumps,´ pointed out Patel.

IPMA feels that there is a great opportunity waiting for pump manufacturers, if the old pumps are replaced by more efficient ones. This change may not happen overnight, but will eventually happen in a phased manner, in the coming years.

Many research firms had predicted the pumps market in India to grow between 15-17 per cent from 2015-2020. However, the growth rate in 2015 was in single digits and in the current year it is hovering near the double digit mark. Interestingly, the industrial pump market picked up, at the same time when the water pump market slowed down. In 2014-2015, the total contribution of the industrial pumps in monetary terms stood at 54 per cent. The expectation is that the projected increase in investments in irrigation segment, oil, and gas (both upstream and downstream) is expected to pull the pumps demand in the domestic market.

Challenges
The cost of raw materials has been on an increasing trajectory for the last few years, and the trend continues even in 2016. It is expected that the cost of raw materials will continue to increase in the near term, indicating a hit on manufacturer´s profit margins. This scenario may lead to more consolidation in the pump manufacturing segment in India.

´Sourcing material is a challenge in India. Some parts that are used for manufacturing of positive displacement pumps are not available in India and importing them has its own hurdles attached. This is not all, logistics is another major issue. If you are transporting raw material from one end of the country to the manufacturing unit at the other end of the country, be prepared for stumbling blocks,´ said Vinay Kumar Dhar, General Manager, Marketing, Roto Pumps Ltd. Patel voiced similar concerns. ´The water pumps segment is a challenging one for manufacturers as voltage band, water levels and quality of water differs from state-to-state. Though there is a standardisation through Bureau of Indian Standards (BIS), the departmental approvals differ from state-to-state. This is an additional stress to the industry.´

Exports
India exports pump to 100 countries in the world, with the Middle East, North Africa, USA, Germany and Russia being the major export destinations. Emerging economies like China and Latin America are also a growing market for Indian pumps, while South Africa is another upcoming destination. Technological adaptation in Indian pumps, maintaining the quality standards etc., have put Indian pumps on par with the global products. What gives the Indian products the edge over the other country´s products is the price factor.

Manufacturers were able to cope up with the demand dip in the domestic market because of the steady increase witnessed in exports. According to IPMA, 10 per cent of the total manufactured pumps in the country are being exported.

´We are targeting to increase the export to 30 per cent in the next three years,´ he shared.

The crash witnessed in the global crude oil price had hammered the export of industrial pumps starting from 2015 and continued in 2016. ´We at Roto Pumps Ltd export 75 per cent of our products. Global markets were also unfavourable for the last couple of years owing to what we saw in the global crude oil pricing. In 2017, we expect the global oil price to stabilise around $70.

We expect that it will bring back the momentum in the industrial motor export segment,´ added Dhar.

Conclusion Demand in the domestic market will be visible only when the announced large scale investments in infrastructure started rolling out. It may take a while before the visible impact of the said investments is seen. The immediate relief for domestic manufacturers is believed to come from the export market. Along with the developed countries, the Middle East and South Africa will be the destination for sure. However, to tide over the current sluggishness, pumps manufacturers are forced to sharpen their foreign shopping skills bit more in the short term.

This year the monsoons have been fairly good in almost every part of the country. Thus, the demand growth rate for agricultural pumps may be at the nominal level. However, initiatives by GoI to improve water supply and sanitation across the nation could add fuel to the pumps segment. The smart city initiative could be another segment which may facilitate a demand rise for pumps.

- RENJINI LIZA VARGHESE

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