Government is looking to provide LED Bulbs at Rs 44 under the Domestic Efficient Lighting Programme (DELP) scheme against the current retail price of Rs 250-300. Arun Gupta, MD, NTL Group talks with Akash Sinha about the LED lighting industry’s growth and its feasibility to provide bulbs at a low cost of Rs 44. Excerpts:
1. How do you see the growth of LED Lighting Industry over next 5 years?
We are already witnessing spiralling growth in the LED lighting industry. The current value of LED lighting market in India is 4000 crore, we are expecting it to reach 21000 crore by year 2020. The industry is likely to grow at a CAGR of 50% in the next 5 years. The demand is likely to be increased majorly in outdoor (street & road) lighting. Consumer segment is also starting to gain momentum and consumer in general is getting aware of benefits that can be accrued through adoption of this technology. The increased focus of the government to provide sustainable lighting solutions especially in the lamp category will further expected to fuel the adoption of LED on grass root level. Also, the industry is witnessing great demand in commercial projects & offices and which is further expected to touch pinnacle in the coming days.
2. What are the chances of success of DELP scheme?
DELP scheme is already a success. Around 20 million LED lamps have been distributed in India till date and the government is planning to distribute 77 crore LEDs in the next three years. Current energy saving according to DELP is approx 7million KWh per day. At the same time DELP scheme has actually made mass manufacturing a reality in India.
With the Government’s Domestic Energy Efficient Lighting scheme, LED bulbs are being provided to all domestic consumers at an initial payment of Rs 10 each and the balance will be in 9 installments, chargeable in their electricity bill, hence, the cost for an LED bulb to domestic consumer will be Rs 93 through this programme due to bulk procurement, compared to the current open market retail price in the range of Rs 250-300 for LED bulbs.
3. How the LED manufacturing industry is looking at the take of government to provide LED bulbs at such a low price?
In this program, if the government purchases at Rs 78 and supply it at Rs 90, they are cutting off the entire distribution chain. In a typical situation Rs 78 should translate into a tax paid consumer price of approximately Rs 170-180. So basically following elements are affecting the cost:
* Distribution chain
* Initial supply price because distributor volumes are very small as compared to government volumes
While programs such as DELP have added tremendous value to the industry, by promoting this energy efficient and green technology, all is not well with the industry. By building mass volume & demand, this is detrimental to distribution sales of the brand operations in the country.
4. Can we have number of households adopted LED Lighting under DELP scheme?
If we look at the current scenario, the Government is offering 2 bulbs to each household and 2 crore LED bulbs have already been distributed in the country. This basically means that we are looking at around 1 crore households.
5. Is it feasible for LED bulb producers to sell it to the government at a price of Rs 44?
The current product design & costs do not give any visibility of reaching the Rs. 44 mark. During the process of bringing down the current prices the manufacturers have almost completely wiped out their margins and any margins available in the supply chain. Reaching this price level will require a complete design change or some significant cost reduction at the component level which does not seem feasible currently. In fact price reduction, if any, from current levels is likely to be marginal.
6. Will govt’s decision to sell it at Rs 44 affect the quality of the LEDs?
Most of the components for LEDs are imported from China. Therefore, the prices are also dependent on the import duties. There is a stiff competition with narrow margins, so there are chances that it may affect the quality of the product. To promote ‘Make in India’ the product should be fully manufactured in India according to the quality standards given by Bureau of Energy Efficiency, which will not be possible with any further reduction in prices.
7. Is the industry ready to manufacture at this level or else what preparation’s they are making to meet this huge influx of demand?
When the government started this activity, as there was demand, industry capacity has gone up 8-10 times in a very short span of time and that too at a rapid pace. As a part of the industry we have scaled from 30,000 to 2million product a month, in the next 3-4 months we will be at 5million per month.
8. It will surely increase the top line of the lighting companies but how it will affect the bottom line?
The companies are having top line benefits, due to the large sales volume. Cost reduction has already come down due to:
* Squeezing margins in supply chain
* Standardization of components by having large demand
Squeezing margins is basically driven by the intense competition among brands. There is hardly any bottom left for the companies. Bottom line are adversely affected.