Mr. Rajive Kaul, Chairman of Nicco Corporation Ltd.
.
.
////////////////////////////////////////////////////////////////////- Mr Rajive Kaul*
It was the year 1991 when India experienced its worst economic crisis. Our foreign exchange reserves were less than 1 billion USD, after having borrowed against our country’s gold reserves. Our GDP growth rate was down to less than 1%. Unfortunately due to poor rains, we had faced negative agricultural growth. To top it all, inflation was running high. This crisis led to our government changing track from being a “socialist controlled economy” to a “liberalized more open economy”. Good results followed and today India has: Foreign exchange reserves in excess of 300 billion USD, our GDP growth is 8.5% and importantly our economy shall by the end of this year be a 2 trillion USD economy. In fact, today India is an engine of growth for the global economy alongside China and the other major emerging markets.
“Presently, India’s forex is in excess of USD 300 billion,
GDP @ 8.5% and by the end of this year poised to
become USD 2 trillion economy”
With the opening up of the Infrastructure sector, investments of one trillion USD are planned over the next five years. It is anticipated that the foreign direct investments into India will finance around 250 billion USD the balance 750 billion USD will be mobilized locally.
“Investment of USD 1 trillion is planned for
infrastructure sector for next 5 years out of which
USD 250 million will come from FDI”
As it is well known, China is the only substantial market which is growing more rapidly than India. However, leading firms such as Morgan Stanley, PWC and GoldmanSachs forecast that India’s growth rate will overtake that of China’s growth rate between the years 2015 to 2017 and thus emerge as the fastest growing economy in the world. India’s strength lies in its young population, 50% of who are in the age group of 25 years and below. These are the people who will ensure that what China has done yesterday, India shall do tomorrow.
The above macro indices of growth hold true for the cable industry in India as well. In fact CRU in their Arabcab conference held in Beirut in May 2010 had stated, and I quote;
“The Indian cable market could become the fastest growing major market, overtaking China, in a few years.”
The telecom sector in India is a good example of post reform major success. The mobile telecom market is presently about 800 million users and is increasing every month by addition of 18 to 20 million as compared to China’s growth of 10 to 12 million a month. The growth in this area has been exponential and has surpassed all estimates. This trend is also anticipated for the growth of internet connections and broadband deployment. Hence demand for optical fiber is expected to grow at a compounded annual rate of over 17%. Today India is already the 3rd largest consumer of optical fiber in the world and shall soon be the 2nd largest market in the world. Following this trend India’s leading manufacturer, Sterlite, is in the process of enhancing its annual fiber manufacturing capacity to 20 million kms putting it in the top 3 globally. Exciting new events such as major contracts from Army & Navy, the Indian Railways, the introduction of 3G services, the rollout of Fiber to the Home, and plans to lay a nationwide network of OFC to connect the country’s 1.2 million villages will act as major growth driver in the sector.
“Presently, Indian mobile market has about
800 million users and is adding
18-20 million users every month”.
“India, the 3rd largest consumer of
optical fiber in the world, on the road to
become 2nd largest”
On the other hand, the huge growth for mobile telephone lines has resulted in a decline of fixed line telephones and as a consequence the demand for copper telephone cables (JFTC) has declined steadily and is expected to be restricted to replacement demand only. In fact several factories which were manufacturing JFT cables have closed down.
Energy Cable Sector
The power sector in India is yet to show the explosive growth as seen in the Telecom sector. This is despite the acute shortage of power in the country. The planned addition to generating capacity of 78,700 MW in the Indian government’s 11th five year plan covering the period 2007-2012 is not expected to be met but it is heartening to note that the capacity addition in the last financial year ending March 2011 has exceeded 15000 MW, the highest ever increase in capacity in any one year till date. This augurs well for achievement of the target of 100,000 MW capacity addition set for the 12th five year plan covering the period 2012 – 2017. This is all the more bolstered by the fact that 60% of the capacity additions in this plan are expected from private companies, whose entry into the power sector is already giving renewed impetus to growth. This expected growth of 20 GW per annum is second only to China which plans an addition of 30 GW annually for the next few years.
“In the 11th five year plan 78,700 MW & 100,000 MW in
12th five year plan power generation capacity
is planned to be added”
Even greater investments have been allocated to the transmission and distribution areas. Double digit growth is expected in the installation of 400 kV lines and HVDC lines above 500 kV with the highest growth being charted for transmission lines of 765 KV and above. The distribution targets include electrification of 100,000 villages which do not presently have any electricity. The outlay in the distribution segment is expected to increase from USD 30 billion over the past 5 years, to approx USD 90 billion in the next 5 years. This shall greatly enhance demand for MV and LV cables from utilities.
“Distribution segment outlay is expected to increase
from USD 30 billion over the past 5 years to
USD 90 billion in the next 5 years”
The energy cable market in India was estimated at USD 3 billion in 2010 increasing at a compounded annual growth rate of over 10%. This can be broadly divided into following segments:-
• High voltage HV (> 132 KV): USD 300 million
• Medium voltage MV (11 to 66 KV): USD 900 million
• Low voltage LV: USD 1.8 billion
• Building: USD 800 million
• Distribution: USD 800 million
• Specialty: USD 200 million
The fastest growing segment is that of high voltage cables where the market after being sluggish for many years has now picked up and is projected to double in the next three years. In addition to the projected growth in power generation and transmission, the rapid pace of urbanization is also expected to contribute to enhanced demand for underground high voltage cable installations in place of overhead lines.
The pace of urbanization is staggering. As per a recent McKinsey report, by the year 2030 over 590 million people will live in cities, which is nearly twice the population of the United States. Also the number of cities with population of 1 million plus will be 68 up from 42 at present. By comparison Europe has 35 such cities.
In this growth scenario, multinational cable companies are increasingly entering the Indian market. In the High Voltage field J-Power and Finolex Cables, Furukawa and Universal Cables, Brugg and KEI Industries, Prysmian and Ravin Cables, Nexans and Polycab, and also General Cables have set up joint ventures or technical collaborations. These are expected to meet the demand for 132 KV, 220 KV and 400 KV XLPE cables, which are largely being imported at present.
In the medium and low voltage power cable field, the growth is fuelled by
the boom in the power, industrial, realty and construction sectors. Unfortunately, the cable industry continues to be fragmented with about 125 players in the organized sector and many more in the unorganized sector. There is need for consolidation to achieve economies of scale and bring in technology and quality improvements which have sometimes been sacrificed under the current intense competitive pressure and consequent low margins which are plaguing in the industry. This situation is not conducive to the long term health of our industry.
A large segment of low voltage cables is composed of building wires whose market is conservatively estimated at USD 800 million. Here the industry is composed of a few large units with thousands of small units in the unorganized sector. In this area, there is a pressing need for upgraded wiring systems and modern manufacturing technology to cater to safety and reliability in this fast expanding market. An encouraging sign is the emergence of more discerning customers with each passing year.
“Low Voltage cables is primarily composed of
building wires with estimated market share of USD 800 million”
Another sector which deserves separate mention is the automotive sector. The Indian passenger car market is slated to grow to over 9 million per annum by the year 2020, making it the third largest in the world. Currently, India is poised to cross a major milestone by producing 3 million cars and thus overtaking Brazil to become the sixth largest producer. The demand for wiring harnesses is currently being met by Motherson Sumi (65% market share) and a few other local companies some with foreign collaborators such as Yazaki and Delphi. A recent entrant is Leoni, who have set up a plant in Pune but the market is poised for the entry of more multinational players.
“The Indian passenger car market is slated to grow
over 9 million per annum by the year 2020”
Specialty cables have just started to become a significant market with the growth in sophisticated applications in many vital sectors of the Indian economy. The government of India’s thrust on non-conventional power generation such as wind, solar and nuclear power has led to a big push in demand of special cables required for these applications. The current installed capacity of 4560 MW for nuclear power is planned to grow by 3400 MW by 2017 and by a further 8000 MW till 2022. In the nuclear power area, the country is poised for the construction of a large number of power plants in a phased manner after safety issues occasioned by the Fukushima disaster are addressed. Similarly there is a major thrust on capacity expansion in wind energy envisaging addition of 22500 MW in the 10 years to 2022. For wind power, the number of major players such as Suzlon, Enercon and Vestas is being augmented by entry of other big players such as Siemens and Gamesa. The other areas contributing to the increased demand for special cables are the growth of mechanized mining and material handling, railways, oil & gas and shipbuilding industries. These areas require the use of flexible cables often designed for use in hazardous conditions.
The manufacturing base for specialty cables is concentrated in the hands of a few players such as Universal, Nicco, Uniflex, Radiant and KEI. However the potential growth in this sector has attracted the interest of global players like LAPP Cables who have already set up their second manufacturing unit while Nexans, Prysmian and General Cables are in advanced stages of entry. Such plans are strengthened by the possibility of India emerging as a regional hub for the manufacture of such cables, especially in view of the free trade agreements as also the comprehensive economic partnership agreements that India has with countries like Sri Lanka, SAARC & ASEAN countries, Singapore, Korea and Japan.
In conclusion, the outlook is rosy; the implementation of double digit growth in the cable industry is a challenging task. Particularly for multinational companies entering India, the complex regulatory framework, the bureaucratic red tape and prevalence of corruption are a daunting barrier. But reforms, though slow, are progressing and participation in the Indian market is a must for all truly global players, as India is on its way to becoming the third largest economy in the world over the next 15 years.
* Mr. Rajive Kaul is Chairman of Nicco Corporation Limited