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November 2010
ELECTRICAL MACHINERY
November 2010
Contents
Advantage India
Market overview
Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations
2
Advantage India
India has a high number of Special Economic Zones (SEZs) in the engineering sector. There are 20 formally approved, 10 in-principle approved and 15 notified SEZs in the country. Domestic manufacturers have a wide range of capabilities and product offerings, as well as the ability to provide end-toend solutions that cater to large consumer bases. The manufacturing range of BHEL includes steam turbines, boilers, gas turbines up to 260 MW and generators up to 500 MW.
Favourable business environment and strategic Mature player Infrastructure location Infrastructure base Mature player development development base SEZs SEZs
Advantage India
Advantage India
Well-established players such as Bharat Heavy Electricals Ltd (BHEL), Crompton Greaves and ABB (India) Ltd are engaged in designing, manufacturing and marketing high-technology electrical products and services. The capacity established for manufacturing various kinds of turbines such as steam and hydro turbines is approximately 12000 MW per annum in India. A capacity addition of 78,700 MW has been proposed for the Eleventh Five Year Plan (2007 2012), translating to a higher demand for electrical machinery.
India is home to one of the largest technical workforces in the world and employs about 2.6 million people directly. This accounts for 29 per cent of the total workforce engaged in the countrys organised sector. The number of engineering graduates stood at 451,700 for 200809, resulting in a large pool of skilled labour.
Sources: Department of Heavy Industries, GoI, Annual Report 200809; Department of Heavy Industries, GoI, Annual Report 200910; Employment in Organised Industry: Engineering Sector contributes the most, Engineering Export Promotion Council website, www.eepc.org, accessed January 6, 2010; The IT-BPO Sector in India, NASSCOM Strategic Review 2010, pg.264
ELECTRICAL MACHINERY
November 2010
Contents
Advantage India
Market overview
Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations
4
Market overview
The Indian engineering sector comprises the heavy and light engineering segments. Electrical machinery forms a sub-segment of the countrys heavy engineering segment. This sector primarily caters to the power sector. Machinery and equipment (other than transport equipment) registered a growth of 18.8 per cent between April 2010 and September 2010, based on the Index of Industrial Production (IIP), and accounts for one of the highest growth among Indias various engineering segments.
Market size key electrical machinery segments
2.5
2.1
2.0 US$ billion 1.5 1.1 1.0 0.5 0.0 Boilers Turbines 200809 200910* Generators 0.9 0.4 0.4 0.2
Sources: * Production data is reported till October 2009 for year 2009-2010-Department of Heavy Industries, GoI, Annual Report 200910; Quick Estimates of Index of Industrial Production and Use-based Index (Base 1993-94=100) for the month of September, 2010, Ministry of Statistics and Programme Implementation website, www.mospi.nic.in, accessed December 02, 2010
Market segments
Electrical machinery
Generation equipment
Transmission equipment
Distribution equipment
Others
Electrical motors Wires and cables
Transformers
Exports
Exports of electrical machinery stood at approximately US$ 4 billion in 20092010 . Electric power equipment and parts constituted the largest share of exports in 20092010, and have been valued at US$ 3.2 billion (INR 15.2 billion), accounting for 20 per cent of the countrys capital goods exports.
US$ billion
0.4
0.3
0.1
Boilers
Indias production of boilers stood at US$ 1.1 billion (INR 73.9 billion) in 20092010.* The country is a net importer of boilers, and its imports are growing at a faster rate than its exports between 200809 and 20092010. Domestic players have the capacity to manufacture indigenous boilers with super-critical parameters of up to 1,000 MW unit in size. Bharat Heavy Electricals Limited (BHEL) is the largest manufacturer of boilers in the country and accounts for two-thirds of the market share.
In 20092010, production of turbines and generators was valued at US$ 432 million (INR 21 billion) and US$ 199 million (INR 9.7 billion), respectively.* Indias established capacity for the manufacture of various kinds of turbines such as steam, hydro and industrial turbines is more than 12,000 MW per annum. The countrys AC generator industry is adequately catering to the alternative power requirements of various sectors, with domestic manufacturers being capable of manufacturing AC generators ranging from as low as 0.5 KVA to as high as 25,000 KVA, with specified voltage ratings. India is a net importer of turbines and a net exporter of generators, with its domestic demand for turbines exceeding its domestic supply.
Source: *Production data is reported till October 2009 for year 2009-2010 Department of Heavy Industries, GoI, Annual Report 200910
Transformers
Indias production of transformers stood at 44 million KVA in 20092010*, and is a net importer of transformers. The main users of transformers include the State Electricity Boards, Power Grid Corporation of India Ltd and other industries. Energy efficient amorphous core transformers (with low losses and noise levels) and special transformers used for the purpose of welding traction and electrical furnaces, etc., are also manufactured in India to meet the growing domestic demand.
The switchgear segment can be categorised into two main categories low tension (LT) switchgears and high tension (HT) switchgears. HT switchgears are comparatively more technology-intensive. Multinationals operating in this domain have better access to the latest technology. Indias production of switchgears and control gears stood at 13.5 million units in 2009 2010*. Players in the Indian switchgear industry manufacture the entire range of circuit breakers, from bulk and minimum oil, air blast and vacuum to sulphur hexafluoride, according to standard specifications for voltages ranging from 240 V to 800 KV.
Source: *Production data is reported till October 2009 for year 2009-2010 Department of Heavy Industries, GoI, Annual Report 200910
Power sector
The National Electricity Policy (NEP) stipulates power for all and annual per capita consumption of electricity to rise to 1,000 units by 2012. To fulfill the objectives of the NEP, capacity addition of 78,700 MW has been proposed for the Eleventh Plan. This is expected to enable growth of 9.5 per cent in the power sector.
Source: Ministry of Power, GoI, Annual Report 200809
10
Target capacity additions through hydro sources amounts to15,627 MW, thermal sources to 59,693 MW and nuclear sources to 3,380 MW. The Government is undertaking various reforms and development measures such as the Accelerated Power Development Reforms Programme (APDRP) and the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) to strengthen the power network and achieve stipulated targets.
Source: Ministry of Power, GoI, Annual Report 200809
11
Significant investment in capacity addition is planned across segments to achieve the target of power for all by 2012. The total investment envisaged is US$ 164.1 billion (INR 7,879 billion) by 2012.
60.0
85.6 0.0 Generation capacity Transmission network Distribution network addition creation Rural electrification Total
Source: Working Group on Power for Eleventh Plan, Central Electricity Authority website, www.cea.nic.in, accessed January 27, 2010
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Key trends
Upgrading technology
Industry players are upgrading their transmission capacities to the next higher voltage system of 765 kilovolts (KV), and are gearing up to supply transformers and related equipment of this class.
Indian manufacturers are becoming more competitive with respect to their product designs, manufacturing and testing facilities. Investments in Research & Development (R&D) in the electrical machinery industry are amongst the largest in Indias corporate sector.
Increasing competitiveness in the industry and changing consumer demands have led to new versions of products being launched in the market. Players are entering strategic alliances and tie-ups with technology suppliers to upgrade their capabilities.
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Products
Transformers, boilers Motors and generators Transformers, switchgear Wires and cables (insulated) Storage batteries Jelly filled cables Motors and generators Nickel-cadmium accumulators Transformers Motors and generators Jelly filled cables
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Source: Prowess, November 10, 2010, Centre for Monitoring Indian Economy
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ELECTRICAL MACHINERY
November 2010
Contents
Advantage India
Market overview
Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations
16
Source: Formal approvals granted in the Board of Approvals after coming into force of SEZ Rules as on 15 January 2009, SEZIndia website, www.sezindia.nic.in, accessed January 5, 2010
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ELECTRICAL MACHINERY
November 2010
Contents
Advantage India
Market overview
Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations
18
November 2010
Investments
The largest inbound deal announced in the country was the 9 per cent acquisition of Avantha Power & Infrastructure by Kohlberg Kravis Roberts & Co, USA for US$ 49.23 million in June 2010. The largest outbound deal announced was the 100 per cent acquisition of HR International Crushing & Screening Ltd, UK by TRF Ltd India for US$ 4.51 million in March 2010.
The largest domestic deal announced was the 20 per cent acquisition of Anupam Industries by Aditya Birla Private Equity Fund for US$ 10.89 million in February 2010.
M&A scenario details
Period: January 1, 2010October 31, 2010 Deal type Inbound Outbound Domestic No of deals 5 5 4 Largest deal value (US$ million) 49.23 4.51 10.89
Sources: Deals, Thomson One Banker, accessed 11 November 2010; Fact Sheet On Foreign Direct Investment (FDI), Department of Industrial Policy and Promotion website, www.dipp.nic.in, accessed November 9, 2010; Ernst & Young analysis
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ELECTRICAL MACHINERY
November 2010
Contents
Advantage India
Market overview
Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations
20
Indias electrical machinery sector has been allowed 100 per cent foreign direct investment (FDI) through the automatic route, which is permitted in the countrys electrical machinery sector. Foreign technology agreements are also allowed under the automatic route for this sector, with the following conditions: Lump-sum fees should not exceed US$2 million. Royalty should be levied at 5 per cent on domestic sales and 8 per cent on exports, net of taxes. Royalty of up to 2 per cent on exports and 1 per cent for use of trade marks and brand name without any technology transfer is allowed. Some of the initiatives taken by the Government to promote the engineering segment: SEZ policy and industrial corridor development across centres of development Removal of tariff protection on capital goods Reduction of custom duties on a range of equipment Incentives for R&D activities Initiatives focused on infrastructure development and construction as well as to increase power generation
Source: Investing in India, Department of Industrial Policy & Promotion website, www.dipp.gov.in, accessed January 8, 2010
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ELECTRICAL MACHINERY
November 2010
Contents
Advantage India
Market overview
Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations
22
Opportunities (1/2)
The long-term outlook for the electrical machinery sector is promising with a positive projection of accelerated growth as market-oriented reforms provide high incentives for capacity addition. The GoI envisages Power for all by 2012 and plans to add 78 GW of capacity by 2012 and another 92 GW by 2017. The Planning Commission estimates investments of US$ 156 billion (INR 7,500 billion) in power generation, transmission and distribution in the Eleventh Plan (20072012), to address Indias chronic power shortages. Foreign participation in the development and financing of generation and transmission assets, engineering services, equipment supply and technology collaboration in nuclear and clean coal technologies is expected to increase.
The light electrical machinery segment consists of electrical wires and cables, lifts and escalators, dry cell batteries, lead acid batteries, and fluorescent tubes. The sales of wires and cables industry is expected to grow by 16 percent in 2010-11. The growth in demand is expected due to increase in electricity production, rising construction activities, growing broadband reach.
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Opportunities (2/2)
India is expected to become a major hub for manufacturing nuclear reactors and associated components as it has signed nuclear agreements with different countries. State-owned Nuclear Power Corporation of India Ltd has plans to set up nuclear reactors to add substantial capacity in the near future. The Government proposes to add 3,380 MW of nuclear power capacity by 2012, as a part of its capacity addition programme in the Eleventh Five Year Plan.
There is significant potential for the manufacture of heavy electrical equipment, which in turn will augment the demand for the latest technology for nuclear power generation. This is a huge opportunity for players to re-orient and focus their efforts to access technology for higher capacity thermal units and nuclear reactors. Power generation capacity surpasses the transmission and distribution capacity in India, leading to an unexplored avenue in power evacuation from generating stations.
Power transmission in India, which is currently carried out largely in the 220 KV and 400 KV range, is expected to move up to a higher range of 765 KV and High Voltage Direct Current in coming years. This is a significant opportunity for manufacturers with capabilities in high-voltage (HV) technology, to develop technology to handle such high voltages needs in the country.
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ELECTRICAL MACHINERY
November 2010
Contents
Advantage India
Market overview
Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations
25
Industry associations
Engineering Export Promotion Council (EEPC) Vanijya Bhawan, 1st Floor International Trade Facilitation Centre 1/1,Wood Street Kolkata, West Bengal700016 Phone: 91-33-22890651, 22890652 Fax: 91-33-22890654
E-mail: eepc@eepcindia.org
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November 2010
Note
Wherever applicable, numbers in the report have been rounded off to the nearest whole number. Conversion rate used: US$ 1= INR 48
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ELECTRICAL MACHINERY
November 2010
DISCLAIMER
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