I reached out to the MDs office seeking a response to a couple of questions on the T&D business and received the responses below. These answered some of the questions I had - specifically pertaining to the threat of lower cost Chinese imports and product differentiation.
- Threat from Chinese imports and localized manufacturing. In a recent article this was highlighted as a particular threat to the industry.
A: On the domestic front, the company does not face any pressure from the Chinese companies. Competition is largely between Indian players. PGCIL , a monopoly player till now in Indian T&D market sources its tower requirement indigenously (empanelled Players) and made out of primary steel rather than secondary steel, which are generally used by Chinese players.
Further Setting up a tower manufacturing capacity involves a long gestation period of say about 4-5 years and with tower being a QR and a critical substance, getting it em-paneled with PGCIL is a long term & tedious process. Moreover, it shall requires a lot of time to build repute & credibility specially in high voltage offerings for obtaining order of any sizable scale. Hence we don’t foresee any major threat in the near future from Chinese manufacturing set up in the country.
- Cost leadership through backward integration aside what are the advantages that you offer as a supplier.
A: ) Majority proportions of global tower supplies are concentrated in India and China. The recent currency depreciation along with low logistic cost and cost leadership has further increased the competitiveness of the Indian products and Skipper in particular.
The key advantage of the company enjoys over its global peers are as follows:
1.The conversion cost are generally higher in non -Asian countries
2.Raw material & Galvanizing cost are comparatively lower in Asian countries.
3.Global EPC player operating in high cost economic region, prefers to outsource their tower requirement from a low cost producer like India & China.
4. Developed & Emerging economies of Europe & America generally have strong environmental legislation and generally list the industry under Red Category.
The key advantage of the company enjoys over its Asian peers:
The Indian companies have an edge over the Chinese manufacturers since they are not preferred for long term orders. Since the execution period is well over 2-3 years since the initial order is been placed the Chinese players are generally not considered for lack of their commitment value in long term assignment.
The key advantage of the company enjoys over Indian peers:
- Most of the scale players are largely EPC players (like KEC, Kalpatru, etc…) We being the only player of its size focused on supplying transmission tower give us an great edge over the peers.
- Further, In India Skipper enjoys additional saving on margins over its peer due to its backward integration and location advantage.
Key Differentiator : The transmission tower is not commoditive in nature and requires very high engineering expertise, because each Transmission Line has a specific design requirement and the offerings are completely customized in accordance to the client requirement. Further the company mainly focuses on High Voltage line i.e 400 KV plus, which has far stringent criteria to meet, hence price is not only the deciding factor. Credibility, Capability, Capacity and track record of timely delivery of good quality products are the major differentiating factors.
Some of you maybe interested in this presentation - its a general overview of electrical machinery sector with some interesting numbers though slightly dated.
This is a more recent article (Feb 16) on the sector and its outlook.
Disc: Invested <5% of PF