Everybody treats one cable like the other
Buyers should be made aware since a lot of engineering and quality control needs to be followed in the raw material and manufacturing process, Vijay Karia, CMD, Ravin Cables, informs R Srinivasan.
Recent news reports said that power cable manufacturer Ravin Cables is embarking on an ambitious investment plan. We met Vijay Karia, Chairman and Managing Director (CMD), Ravin Cables, on the sidelines of IEEMA's Cablewire conference since he is also the IEEMA, Cables division, Chairman. Excerpts of the interview:
There has been a slowdown in demand from SEB's which are the principle customers in this segment. Growth rates for the equipment industry have been better than earlier years. Is there any reason for the industry to be optimistic this year?
There is full reason for the industry to be pessimistic because 80 per cent of the demand is from the state electricity boards (SEB's) and there have been a lot of media reports about the power sector defaulting on loans to the banks. All the banks have downgraded the power sector. They are not willing to restructure loans to the SEB's. So SEB's are going to face a problem of payment and therefore if they are not able to pay, they are perhaps also going to slow down their capexes and if that happens, definitely we will get affected.
What is the growth rate since last year to this year?
The growth rate of the cable industry has been about 11-12 per cent but in absolute terms the growth rate has been negative. This increase is only because of the increase in the commodity prices. So over the last couple of years the industry has remained stagnant but in value terms the turnover has gone up and that is because of the rise in commodity prices.
Would you support privatisation of the distribution segment and will the cable and wire segment benefit from this?
The problem that we see of transmission and distribution (T&D) losses is not so much from the generation point to the transmission point but the main losses that are taking place are in the distribution segment. In the distribution segment the government is not moving very quickly to curb the losses. At least since power distribution is mainly a state subject it depends on politics and the election timings of state governments. The power sector policies are then dependent on all these factors. So if they privatise the distribution network definitely there will be a big boost not only in demand for the industry but it will also mean a very big boost in the savings into the power sector. In his presentation MK Deore [Director, Projects, Maharashtra State Electricity Distribution Company or MSEDCL] showed that it had privatised one distribution segment of Bhiwandi and here per month they are getting a Rs 10 crore surplus from Torrent, which is an earning to them. So after privatisation of the distribution network the government has earned money whereas when they are doing it on their own, they are losing money. So both the industry and government will benefit from this.
Are we using the best or more efficient technology in wires and cable? With a boost to rural electrification, do you see an opportunity to rein in outdated technology and leapfrog to a better one?
The opportunities are there. The technologies are available but in today's market the approach has become commoditised. The buyer is looking for the cheapest product. The seller does not have the wherewithal to offer him the best technology. In most of the cases today what we are seeing is that rather than improving on technology, people are worsening on quality. So it is a big negative thing that is happening in the overall electrical segment and more specifically in the cable and wire segment and that is because of intense competition and the excessive capacities that we have.
Is there more to be done in terms of R&D and testing in India?
Currently, I think research and development (R&D) in India has stopped in the wire and cable segment and also to a very large extent in the electrical segment. Nothing seems to be moving without a subsidy. We have the highest power tariffs in the world and on the other side we have the lowest telecom tariffs in the world. The telecom industry got a big fillip when their industry was given a deemed export status. From having to wait for years for a landline connection, today at least nearly 90 per cent of our population has mobile phones with them. So the problem of R&D which is persisting in the industry can only take place if the industry is making profits. Today if all the money is going into sustaining yourself from going down under, then you are not going to be spending on R&D and this is going to be a big threat to the industry in future. We foresee this and that is why we have tied up with Prysmian to overcome this problem where we have global access to R&D and technologies.
Are we on the path to better standardisation of wires? If not, then what is stopping us?
We are on the path to better standardisation but the pace is very slow. The demand from various stakeholders of the industry is for more rapid standardisation and more rapid progress and for which speed needs to be picked up if we have to get somewhere because inflation is increasing. You heard [ex-power minister] Suresh Prabhu say that what they started 10 years ago and they spent $10 billion for it, today if we try to replicate that we would have been spending over $50 billion for it. So today what we spend 10 years down the line is going to hold us in good stead and investment in infrastructure, without doubt, is absolutely essential in India.
The generation capacity of our country needs augmentation by 6,000-7,000 MW per annum to make our National Electricity Policy of 'Power for all' by 2012 a success. Will local cable manufacturers be able to meet this demand?
We will be able to meet this demand more than adequately. The 11th and 12th Five Year Plan had a huge projection of demand for electrical products in general and more so for the wire and cable and conductor industry and capacities were set-up accordingly based on projections of demand. So we don't see a problem in meeting the demand rather we see a problem in creating that demand today. If we face a shortage and if there is a shortage of wires and cables, capacities can be ramped up pretty quickly. But if existing capacities are not utilised, it will mean a big burden on the industry. It will also have a cascading effect on lots of industries down the line.
What bearing will the equipment import policy have on the industry since Chinese products are said to be flooding the Indian market?
China is one of the top exporters of wires and cables to India but it is not just the products that are harming the industry. It is also the policies of the government which is harming the industry. If you consider the rate of import duty on raw materials, the duties, taxes and local octroi etc, the Indian cable industry is at a negative duty structure vis-a-vis imports. So this negative import duty structure coupled with high interest rates out here, coupled with the fact that banks are not extending loans to the power sector, coupled with the fact that there are fluctuating commodity prices, but everybody does not have access to hedge themselves against fluctuating commodity prices, means that the local industry is at a huge disadvantage vis-a-vis imports. To give an example, the differential duty between raw material and finished goods is just 2.5 per cent in India i.e., import duty. Now local goods attract a CST of 2 per cent both on purchase and sale so you add that, you add the higher cost of transportation out here, you add the higher interest costs out here, and we are getting out-priced by the product by 10 per cent. So even without China dumping on a straight sale basis, they would be able to kill the Indian market. This is where the policies of the government need change.
What would you suggest?
There should be a minimum protection of 10 per cent for the local industry otherwise they will not be able to survive.
How will the industry cope with idle capacities, shrinking margins, widely fluctuating forex rates and increasing cost of both commodities as well as interest costs?
The industries are facing a very stressful time and if not let out from this stress very quickly a lot of the industries especially the smaller ones who generate a lot of local employment are going to fail. That is one thing. You have rightly put in all the total ailing factors of the industry. The way out of it as I said is government policies. I am not talking about subsidisation but I am talking about a policy which helps protect the local industry. I am talking about an even playing field for the industry. Most of all one of the ills facing the industry is intense internal competition where products are getting devalued because of the quality. Everybody treats one cable like the other cable. There is a very commoditised approach by buyers towards the products. This is the biggest challenge facing the industry and for that buyers have to get educated to understand that every product that looks alike is not the same or similar product. There is a lot of engineering that goes into the cables. There are a lot of quality methods that have to be followed in the raw material and manufacturing process. Most of the good companies follow this process. They are very quality-conscious. They are very conscious of the fact that they should not supply substandard products to the market. But unfortunately some manufacturers find a price war to be the most convenient way of gaining a market share and after fighting the price war they substantially dip the quality of the product. So it is going to be a case of self-regulation first internally into the industry. The Bureau of Energy Efficiency has got a star rating for various electrical products. Unfortunately, our cable and wire industry does not have such things. We (a few like-minded people) have initiated a forum called the Indian Approved Cables Initiative (IACI) to help improve or help police the quality of products that are being sold in the market.
About Ravin Cables
The company has embarked on an investment plan of Rs 200 crore for
capacity addition as well as setting up a new super-specialty facility
to cater to the growing demand from the cable industry, which is
currently Rs 15,000 crore.
The company also plans to enter the renewable energy sector i.e., solar
and wind. Last year, the company had signed a joint venture agreement
with Italy-based Prysmian Group to manufacture all kinds of cables -
low, medium and high-voltage as well as specialty cables.
Prysmian has picked up a majority 51 per cent stake for about Rs 200 crore.