February 17, 2009
Power Equipment Manufacturing Companies in India See Harder Times
Analysis of: Siemens: Low voltage Shobhana Subramanian & Varun Sharma / Mumbai February 13, 2009, 0:58 IST (www.business-standard.com)

Implications: It is reported by Shobhana Subramanian & Varun Sharma in the Business Standard of 13th Feb that in these hard times,orders though small are like diamonds to companies.This is exemplified by the news that Siemens has won an order worth Rs 212 Cr(the size is minuscule by Siemens standard) from Steel Authority of India to provide a power distribution package to the latter’s Rourkela Steel plant, cheered by investors pushing up the stock by 2 percentage points in the stock markets.The news report mentions that the slow down has affected the revenues which Siemens derives from the distribution sector dropping to 36 per cent from the healthy 47 per cent in December 2007. Fortunately, however, it did not affect operating margins sustained over 9 percent through prudent management of the cost of raw materials. However BHEL in the public sector apparently has done much better, with OPM of 17 percent. Other private sector competitors, like CGL, Thermax, Areva and Voltas having floundered.

Analysis: Post reforms in 2003, the power distribution sector in India experienced unprecedented growth, when power equipment manufacturing companies and EPC contractors saw huge top line momentum and over 25 percentage point net post tax margins.

This motivated large scale expansion plans by almost all manufacturers of electric equipment catering to this sector. Government of India chipped in with huge funds through capital expenditure schemes such as

1.APDRP (Accelerated Power Developed Program for upgrade of Distribution network for improving reliability and loss reduction with sanction of Rs 100000 Cr).

2.RGGVY(Rajiv Gandhi Grameen Vidyutikaran Yojana for mass scale Rural Electrification Works with CAPEX sanction of Rs 25375 Cr)

Now apparently, there is a slowdown,as seen by most manufacturers in their fourth quarter sales, in capital expenditure with customers compelled to delay plans in the absence of a clear picture on the demand front. So orders could remain unexecuted.

Some of the reasons for the slowdown are
1. Not enough skilled manpower and contractors available
2. Concrete Pole supply not sufficient
3. Work quality not standard so commissioning of these networks is in jeopardy.