The transition from agriculture to manufacturing is still the route of higher productivity and key essential for raising the living standard in the developing economies. But diverting this route towards the manufacturing of capital goods/ industrial goods can trigger the growth in such economies 3-4 times. The economic expansion witnessed by the Chinese economy over the last decade bears a testimony to this fact. At present Chinese companies are gunning for global leadership in heavy equipment industries that were out of their reach not long ago, resultant China’s Shanghai Electric , Dongfan Electric and Harbin Electric etc are considered as the top global heavy electrical machinery and equipment manufactures.
Subsequent to China, industrial sector in India too has witnessed tremendous growth over the last decade. The industrial expansion experienced by the country has increased its confidence in the manufacturing sector. The country has not only proved its efficiency in manufacturing consumer durables but has witnessed expansion in the production of capital goods as well.
The Indian electrical equipment segment is one of the major vertical of capital goods industry in the country which comprises of heavy electrical and power plant equipments etc. The industry is highly diverse and manufactures a wide range of high & low technology products. EE occupies a large share in the total market size of the capital goods in the country. The IEE industry can be broadly classified into two sectors – generation equipments and transmission & distribution equipments.
Estimated Equipment Requirement
The demand for electrical equipment in India is expected to encounter significant expansion vis-à-vis growth of the power sector. The GoI has set high capacity targets of 72 GW and 93 GW respectively for the 12th and 13th FY Plan. Basis which the requirement of BTG as well as T&D equipments is surely to increase. The IEE industry has shown positive prospects of growth in past 5-6 years basis which it is expected that it will meet the aggressive market expansion target of USD 100 billion by the end of 2022.In addition the acceptance of Indian electrical equipments & machinery shown by the international players may size up the volume of international demand as well in upcoming years . It is pertinent to note that the exports of EE/HEE are projected to grow at a CAGR of 17.4% from 2013-17. The estimated requirement of power equipments in India is given below in Exhibit 02. GoI has been very conducive so far in their approach towards the growth of electrical equipment industry moreover the government has adopted several policy measures which has not only boosted the EE industry but the entire E&M industry has been benefitted. Increase in the import duty of power equipments equipments is one such example of government support towards meeting the futuristic EE requirement in the country. In addition it will provide a level-playing field to domestic manufacturers like BHEL, L&T etc.
Indian enjoys a wider industry space for T&D equipments and is expected grow more in upcoming years. As in order to meet the increasing power requirements of the country the demand for electrical equipments will get a boost. The requirement of equipments on the generation , transmission and distribution end are most likely to witness a significant increase 10 years down the line. By the end of 12th FY Plan the total demand for T&D equipments is estimated to reach up to USD 35 billion which can be observed from Exhibit 05. Beyond 2017 it is projected to grow further at a CAGR of 13.28%. Whereas the demand for Boilers ,turbine and generators is projected to grow at a CAGR of 15.22%,15.22% and 15.07% respectively between 12th and 13th FY Plan. Government support in terms of introducing favorable trade policies for protecting the domestic EE market is one of the key reason for such high demand projections of domestic power equipments in the country. Increase in the import duty of electrical equipments up to 21% has proved to be a milestone pushing up the demand for Indian electrical equipments. Due to the FTA signed by the Indian government and the additional subsidies provided to the Chinese manufactures, the dragons have captured close to 50% of the Indian EE market thus discouraging the demand for Indian EE. But the increased custom duties will bring back the hold of IEE into the hands of domestic players such BHEL, L&T, Bharat Forge, Triveni etc. Along with this other factors such as bann on the dumping practices from other countries ; growth of thermal power plants in India, utmost requirement to increase the T&D capacity etc are very much responsible in catering the growth in demand of IEE. The impact of some of the key factors in pulling up the demand for domestic power equipments is given below in Exhibit 05.
Opportunities in E&M Segment
The growing industry size of the Indian power equipments has huge volume hidden business opportunities for the players associated directly or indirectly with the industry. The INR 301662 crores market size projected for the Indian EE industry is expected to expand the business volumes for original equipment manufacturers (OEMs) , vendors to the OEMs , raw material providers and transportation service providers etc. The estimations done in Exhibit 08 defines the opportunity size for the above mentioned players.