Electrical Equipment Firms Run Plants At Half Capacity.

NEW DELHI: Companies supplying electrical equipment to power plants are running their factories at half the capacity because of poor implementation of projects and competition from China and Korea, prompting some industry officials to say that they will think twice before investing on the basis of government targets.

Manufacturers of transformers, transmission lines, switchgears, conductors and cables, who had expanded capacity after the government prodded them to prepare for a booming market, are a disappointed lot.

They are paying higher prices for inputs like copper, steel and aluminium, competing ferociously with each other and have been forced to cut selling prices by 15-25% to withstand a flood of imports from China and Korea. Most electrical equipment makers are not willing to consider the government's 12th plan capacity addition targets, while a few are gearing up to further expand capacities.

Electrical component companies began expanding facilities in 2007 in anticipation of rise in demand both in domestic and global markets. The country had planned to add 78,755 mw during 2007-12. While the targets were scaled down to 62,000 mw midway, the actual capacity addition is likely to be less than 50,000 mw. Markets in Europe and Middle East have virtually closed down after the sub-prime crisis.

Electrical equipment manufacturers association, IEEMA president Vimal Mahendru said competition from Chinese and Korean companies add to the woes of manufacturers. On an average foreign goods are up to 20% cheaper than Indian equipment.

Ravin Cables chairman and managing director Vijai Karia said Chinese exporters are able to give long-term credit at Libor plus 2-3% against 14-15% in India. "Cables industry is operating at just 40-50% of installed capacity. Indian exports to surrounding countries have stagnated after 2008 crisis and also as local capacities have come up. Chinese and Korean imports into India have grown manifold in last 3-4 years.

There are no new projects coming up and government offtake has slowed down. The government's negative duty structure is also hurting us," he said. The present manufacturing capacity of switchgears is sufficient to meet demand for another five years. The country is expected to add 1,00,000-mw capacity during 2012-17.

IEEMA vice president J G Kulkarni said copper, aluminum and steel have skyrocketed whereas profit margins of manufacturers have drastically eroded. Indian Transformers Manufacturers Association Anil Agarwal said the domestic transformers industry is operating at 7-8% profit margin, while the conductors industry is operating at 5%. "The industries need at least double-digit margin to survive," he said. About 30% additional capacity is available with companies in transmission lines manufacturing business.

"As a confidence-building measure, the government organised a major conclave in 2007 to discuss 11th plan targets with power industry. The same is being done for 12th plan. But people will be cautious this time," said IEEMA director J Pande.

IEEMA chairman, rotating machines division, Krishnakumar Ramanathan said last financial year rotating machines industry showed a double-digit growth. However, growth in new orders has slowed down in the first five months of the new fiscal year and is currently in single digits.

"Manufacturers still have order books of three to six months, and in general, there is cautious optimism about the prospects in the coming months," he said.

Source : economictimes.indiatimes.com