Indian Cable Productio n US$ 2.

2 bn CRU e stim ate s that Indi a n cabl e production in 200 5 was US$ 2.2 bil lion. T his m ean s th at the Indian pro duction i s com par abl e to tha t of France or Mexico, for exam pl e. Chinas cable production in 2005 is e sti mate d to be US$ 17 billio n, nearl y 8 tim es hi gher t han India. Thi s ratio is much h igh er th an th e r atio of China s GD P to In dia s, a s (a) Chin a h as m any m anufacturin g industr ie s th at ar e ver y i ntensi ve in thei r consum ption of c abl e, and (b) C hina i s going through a sust aine d boom in infr ast ructure de velo pment. Very Large Number of Cable Producers The Indian cabl e i ndu stry is hi ghly fra gment ed wit h a very lar ge number of cabl e pro ducers many hun dre ds of compa nies a lar ger tota l th an can be found in any oth er country in the world exce pt Ch ina. M any of th es e Indi an compan ies ar e sm all - scal e c abl e producer s, th e smal le st of which ar e f a mily -run operat ions wi th only th e mo st ba sic of pr oduction equipm ent. Larger Indian Cable Producers At the other end of th e s cale in th e In dian in dustr y a re som e r el ativ el y l arge ca bl e producer s, but ev en amongst th es e l arger pl ay er s ther e ar e o nly a smal l num ber whose annual sa les of insulat e d wir e & c abl e approach or exc eed US$ 10 0 mill ion. The lar ger In di an ca ble producer s include Finol ex C able s, t he B irla Group (includin g Univ er sal Ca bl es, Vindhy a Telel ink s and Birl a Ericsson Opt ical), St erlit e Opt ical Technologi es, Ha vell s Indi a, Nicco Cor p. and KEI In dustries. These a re al l l ist ed companie s. Pol yca b i s a lar ge priv at ely -owned cable pr oducer, whil e Hindust an C abl es i s a sta te -owne d m anufacturer o f tel ecom ca bl es. Very Limited C onsolidation CRU e stim ate s that e ven the l ar ge st In di an ca ble producer, the Finol ex gro up, accounts for only 5% of tot al Indi an ca bl e production. In matur e m a rket s it woul d be more usual to find that th e larges t ca bl e producer ha d 15% to 20% ( and som etime s a much hi gher perc enta ge) sha re. Th ere has been only ve ry limit e d consoli dat ion amon gst the m ajor pl ay ers in the Indian cable indu str y. The t endency of Indi an c abl e compani es to grow organical ly, rath er th an by ac quisition of competitor s, m ean s th at no c lear ly domin ant groups hav e em erged in the I ndian cabl e indu stry. Many Major Listed Cab le Companies Most of th e m ajor cable compani es in In di a are li st ed compani es or ar e part of l arge in dustria l groups th at are th ems elv es li ste d com pani es. This bi as in Indi a towa rds l ist ed compani es contrasts with many othe r dev eloping regions of t he world wher e listed ca ble compan ies are not so wide spr ea d as the y ar e in Indi a. In China, for exam pl e, only a few of th e l arge cabl e companie s are li st ed, a s most of the othe r s h av e develo ped from stat e -ow ned ent erprises or have be en newl y e sta bli s hed by priv at e entrepr en eurs. Th e situ ation in India also contrasts with South America, wher e, wi th a few not able exc ept ions li ke Ma deco, mo st of t he m ajor ca bl e groups a re su bsi di ar i es of forei gn groups or ar e privat el y owned. Improved Ind ustry Pro fitability

According to the sur ve y by CRU of f inancial r esult s of the major li sted Indi an ca ble compan ies, industr y profit abi lit y ha s be en im prov ing in r ecent qua rter s. A ver age profit abi l ity weak ened from Q2 2002 onwar ds (i.e. Q 1 of the In dian 2002/03 f inancial y ear), and the lo w point for th e industr y w as re ache d in Q1 2004 (i. e. Q4 of F Y 2 003/04), as in th at quar t er some of th e m ajor pla yer s in t el ecom cable s re porte d bi g o per atin g l oss es. Sinc e Q2 2005 av erage m argins for th e Indian cable indu str y ha v e be en abov e 10%, so co mpar ed to m any other m ark ets, wher e opera ting ma rgin s in th e cable in dustr y ev en in good y ear s ar e in the r ange 5% to 10%, the financial performance of the In dian ind u str y i s qui te strong. Large Informal Sector In the Indi an ca bl e indus try th er e i s a lar ge infor mal or unorgan ised secto r. Some sma ll ca bl e companie s compet e by s e lling pro ducts of du bious quali ty at low prices. Whi le such a black mark et s ector a lso ex ist s in other countries, i t i s a particul arl y big probl em in In dia. Smal ler local ca ble producer s m a y be encoura ged in som e mar ket sectors (e. g. PVC power ca bles for utility dist ribut ion networ ks) by l egi timat e tactic s, such a s price pr ef erences, but in th e unorganis e d sector almo s t an ything go es. In some inst ances smal l ca bl e pr oducers bypass the regul ations th at l ar ge an d m edium -s iz ed cable pro ducers ha ve to fol low. Compani es in the unorganis e d sector may avoid pay ing tax es or ta k e advant age of unm et ered power suppli es intended for agr icultural user s. Counterfeit Cables an Issue In matur e m ark et s, such as Wes tern Europe, products such as building wir e are gener all y regarded a s commoditi es , with lowe st pric e and a vail abilit y bein g the k ey criteri a for pu rcha ser s. Qualit y i s a s econdary co nsidera tion in matur e ma rket s, as purcha sers usua lly assum e th at all cable s that ha ve the a ppr opriat e product a ppro val s m eet th e r equ ired perf ormance specification s. In In di a, however, the mar ket situ ation i s diff erent: d om est ic consumer s ( e.g. for building wire us ed in re si denti al construction) ar e likely to be qu alit y consci ous, awar e of br ands of cabl e th at hav e a re pu tation for qu alit y and war y of buyin g poor qual ity products. In a m ark et where perceptions of qu a lity a r e i mport ant, unscru pulous sm all pro ducers m ay try to sell counterfeit cable s, usur pi ng th e bran d -nam es of th e mor e r eput able Indian cable m ak ers. Cable Companies Show Resilience Even more than cable compani es in other countries, Indi an ca bl e producer s e xperi encing financial diff icultie s h av e shown a r emar ka bl e abil ity to sur vi ve, u sual ly in a weak ened form, rather than bein g bought by othe r groups or undergoing outrigh t closur e. This beh aviour contrasts with the US or Europe, for e xam ple, where on a r ela tiv ely short time scal e pr essur e from sha rehol der s and ba nks forc es the man agement of poorl y performing cabl e businesses to close un profita bl e o per ati ons or to s eek ration ali sa tion opportuniti es. In In dia, by contrast, companie s in difficulti es may c arry o n tr ading for sever al year s, opera ting under Indi as bankru ptcy prot ection r e gulat ions. In most part s of India, but especi ally i n ar ea s such a s Calcutta, it is difficult to close bus ine sses becau se of l aws that prot ect wor ker s employment right s. Thus the e xit barr iers in the Indian c abl e i ndustr y are hi gh, which h as al so t ended to mak e out side inv estor s v ery cautious a bout ent eri ng joint v entur es or set ti ng up green -fi el d opera tions in In di a.

Foreign Investment in JVs There ar e a num ber of ca ble -ma king joint v entures in In dia invo lvin g for eign groups, but ther e has not be en a big mov e ment by forei gn inv estor s into In dian cable manuf acturing. Th e t rack record for forei gn inv esto rs in th e In dian cable industry i s gen eral ly poor. T here ar e several exam pl es of fore ign compani es that in the past h ave est ablish ed joint v en tures in Indi a but which have e ven tuall y wi thdrawn, eith er due to m ark et condi tions rem ainin g poor ov er a num ber of ye ars or to consi stent l y we ak performanc e by t he joint v entur e. Ca bl e busine sses in Indi a th at are wholly owned (or ne a rly so) by forei gn groups are rar e. It i s inter esting that som e of the lea ding global ca bl e grou ps hav e no pr esence in I ndia, except vi a tra ding c ompani es. Contrast with China The r eluctance of fore ign inv estor s to go it a lone in the Indi an ca bl e m ar ket contrasts with what ha s h appen ed ov er recent y ear s in China. Depen ding on th e m ark et sector, a for eign cable group in Chin a m ay choose ei ther to set u p a join t v enture with a local co mpany or to est abl ish a wholly -owned bu sine s s. More ex per ienced inv est ors in China ha ve the confidence not to need the support of a local par tner, unl es s th er e are go od r ea sons for seekin g such suppor