The transmission and distribution (T&D) equipment industry, already a fiercely competitive space, has become even more of a jungle with the entry of the Korean and Chinese players. With the downturn in Indian industry having come to an end, however, suppliers of T&D equipment hope that order inflows will pick up and also that prices will stabilise. In a conversation with Shobhana Subramanian, Rathin Basu, MD of Areva T&D, says 2010 too could be a somewhat difficult year, though 2011 should be better.
How has business been over the last six months?
Last year, business for us was fairly good in terms of volumes and the future pipeline of orders that we have created. In the 765KV sub-station domain, we secured the maximum number of orders and the only major industrial order, which was from Hindalco, for Rs 500 crore. We also bagged an order from L&T Power. Compared to 2008, we had fewer export orders, but we made up for that with more domestic orders. However, during the year, the price level fell significantly because of the recession, which was fairly strong. Had prices remained at the levels of 2008, the order book would have been valued even higher.
How sharp has the fall in prices been?
In the transmission segment, prices have come off by 15-20% on average whereas in the distribution segment, the fall has been steeper at 25-30%. At Areva, we switched over to supplying transmission equipment to government utilities because ? fortunately for us ? they were relatively better off even during the recession and maintained their volumes. But the industrial infrastructure segment de-grew last year over 2008. Areva maintained its number one position in the industry for the second year in a row in 2009, with a market share of above 18%.
How do you read the market trends in 2010?
The total addressable market for T&D in India today is roughly 3.5 billion euro, but last year the growth was just 6% compared with a growth of 20% in 2008. This year, I don?t think the growth will be very much higher because, though the sentiment is good, it is yet to translate into genuine orders. We still see many projects being delayed, be it power plants or infrastructure projects. During the recession, it was problem of finance but now most companies have money. What they don?t get easily is the land, coal linkages and environment clearances. So they?re not moving at the right speed. Also, there is a lag between the electrical orders and the main plant order, the civil work is completed first.We believe that electrical orders will start coming in during the last quarter of 2010; so we?ll have a better 2011.
Has the entry of the Korean players disrupted the market?
Last year, the invasion of the Koreans and the Chinese hurt prices badly; they dropped prices to such levels that none of the Indian companies were able to match the prices of transformers. That was a major blow to Indian industry. Also Power Grid Corporation has a clause that for 765KV sub-stations, 70% of the equipment is imported because it involves high technology. This doesn?t help us, but hopefully that should change sometime soon. Companies like ours have fully localised, we have invested Rs 950 crore in three greenfield plants.
Areva has redesigned its business model to be a solutions provider. Is this working?
Yes, we do not want to remain just suppliers of equipment, we want to be able to provide complete solutions to our clients. The strategy seems to be working well and and has allowed us to capture a huge order for sub-stations, which are typically solutions. We built the first 765KV sub-station for NTPC. That has meant some amount of compression in our operating profit margins and thanks to the the price fall, our margins are under pressure.
When do you think your operating margins will stabilise?
We were expecting that the fall in prices would be arrested sometime in the first quarter this year but the signs are still not good. Apart from the Koreans coming in, suppliers to the infrastructure and civil space, have entered the electricity market since there are not enough orders from the infrastructructure sector. We have seen some very erratic pricing by some of these contractors and so prices are not stable. Unless volumes pick up, we will see some pressure. We hope we finish the year with double-digit margins.
What is the status of the sale of the Areva T&D globally to Alstom-Schneider?
The EU has cleared the acquisition and we need approvals from some other countries. This should take place by May 2010 after which globally, Areva T&D would be moved to the joint venture.The new owners would decide how to proceed in India and the issue of the open offer would be discussed.