Wires and cables manufacturers are focusing on retail, changing their business strategy due to delay in payments by institutions.
March 30, 2019
Wire and cable manufacturers have changed their strategy and are focusing more on retail than institutional sales, owing to delay in receiving payments from institutions.
Normally institutions enter into long-term contracts with suppliers of wires and cables. But some projects are delayed because of unavoidable circumstances, resulting in working capital betting blocked for suppliers.
On average, the payment from these projects is cleared in eight-nine months, during which raw material prices change, resulting in a further delay of payments. The delay in payment hits producers’ margins. However, spot sales through distributors and stock-keeping units (SKUs) yield fast payment. Spot sales result in a speedy clearance of pipeline inventories, thus improving business sentiment.
As reported in a leading daily, after rejuvenating the brand and product packing, V-Guard has engaged Frost & Sullivan to develop a robust manufacturing system supported by 250 service centres in the country. This is the first company to introduce three-layer wires in India. With an estimated revenue of Rs 2,500 crore in FY19, the company plans to enhance its manufacturing capacity through greenfield projects.
Institutional buyers approach manufacturers directly to negotiate pricing and payment terms for their large infrastructure projects. For housing and urban infrastructure projects, companies get discounts on bulk supplies from SKUs or distributors directly.
A recent CRISIL Research study has found the Indian cable and wire industry has grown at a compound annual growth rate of about 11 percent by value in the last five years to reach Rs 52,500 crore in FY18. In general, the industry’s earnings go in tandem with prices of key raw materials, mainly copper and aluminum. In value terms, CRISIL Research expects the industry to grow by a CAGR of approximately 15 per cent and reach an estimated INR 1033 billion by FY23. Meanwhile, rising copper prices have prompted manufacturers to raise prices of their products, which they revise every 14 days.
