While the UPS and inverter segment is facing several challenges, it is witnessing a slew of mergers and acquisitions. Are these really beneficial for the industry?
By Srabani Sen
Tuesday, July 10, 2012:The sudden rise in temperature and frequent power cuts have resulted in the sales of inverters and UPS systems shooting up in India. According to a report by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), about 70 per cent of the demand for inverters, batteries and gensets, particularly in the Delhi-National Capital Region (NCR), was generated at the beginning of summer.
On the other hand, the sales of internal battery UPS systems have slowed down because desktop sales were a sluggish 4 per cent, as against laptop and notebook sales that grew at a rate of 65 per cent. The market for external battery UPS systems that are used for extended backups in various applications is growing. There are various other factors that are instrumental in fuelling the UPS market’s growth. The server market is growing at a rate of 22 per cent, the industrial automation and process industry is witnessing a phenomenal
growth, and the small and medium businesses (SMBs) sector is actively upgrading technology.
How the market performed in 2011-12
Currently, the power backup market in India is worth about Rs 36 billion (Rs 3600 crore), which is a growth of around 9 per cent over the previous year. In this market, UPS systems have a major share, but some vendors often combine other constituents like cooling systems along with power back-up. “With India’s economy set to grow at a brisk pace and with the continued power deficit situation, the demand for backup power solutions in the form of generator sets, power inverters and UPS solutions is expected to witness a healthy growth in the coming years,” says Suhas Joshi, director, sales, UPS Systems, Delta Power Solutions.
While Suhas Joshi feels that with overall market pie increasing, a widespread shift took place from the unorganised to the organised sector, the overall market will be growing, the ASSOCHAM report points out that the growth ratio between the unorganised sector vis a vis the organised sector is 60:40. It also says that large players in the inverter and UPS segment will face tough competition in view of a price difference of Rs 2000-3000 per inverter, in the NCR. “Manufacturers are battling to keep prices of UPS systems and inverters stable owing to inflationary pressures, higher import duties and devaluation of the rupee against dollar. However, demand has not been affected yet,” explains B Venkat Rao, country manager for medium and large UPS systems, Emerson Network Power, India.
However, several positive developments took place in the last financial year (FY)—the power backup players had tapped many new markets in tier II and III cities, and new technologies were introduced in the UPS industry, which increased the efficiency of power products, helping to penetrate the market even further. The growing demand of power in data centres and for servers has increased the need for power backup solutions.
Expected growth in the coming years
While Sreekumar, director, sales and marketing, Convergence Power Systems Pvt Ltd, predicts a moderate growth for the UPS and inverter market in the FY 2012-13, B Venkat Rao says it is difficult to make accurate estimates for the next year, as many factors, besides the supply chain, are impacting the domestic UPS market. “The falling rupee and hiked customs duty have inflated import costs—in some cases by as much as 25 per cent. Economic pressures are not good for India’s manufacturing sector that is already struggling to catch up with other markets. At best, I expect growth to be stable,” he adds.
A Frost & Sullivan report, however, says that the Indian UPS market will grow at the rate of 13.4 per cent annually to reach a market size of US$ 1316.5 million by 2014. This growth will be driven by demand from major sectors such as banking financial services and insurance (BFSI), telecom, retail, IT/ITES, manufacturing and infrastructure.
However, Sandeep Agarwal, managing director, Volta Powerlink Pvt Ltd, feels that the future of the UPS and inverter market seems promising, as it finds application in varied industries, compelling the trend to remain positive in the next five years. “As this sector is crucial for business continuity of the corporate sector, it indicates the tremendous opportunity the market offers for UPS manufacturers to expand, particularly those who address the commercial and industrial segments,” he says.
With a huge growth expected in the ITeS and industrial sectors, the UPS industry will continue to grow at a steady pace. Also, rural India is yet to grow into its full potential which will add on to the expected growth positively. Another area of growth is the hospitality industry as well as educational institutions. This will also give a boost to the UPS and inverter industry.
Acquisitions: Are they beneficial?
Currently, there have been a slew of mergers and acquisitions in the power backup industry in India. Pune based UPS systems maker DB Power Electronics Pvt Ltd was acquired by British power giant Chloride, which, in turn, got acquired by American power giant Emerson. American power giant Schneider added Indian UPS company Luminous to its kitty. The latest on this front is France based Legrand’s acquisition of the UPS division of India’s Numeric Power Systems.
Are these mergers really beneficial to the industry? Going by the trend, these mergers help the companies involved in the deals, rather than the industry as a whole. Although the improvement in technology that occurs on account of these mergers helps the industry, sometimes these mergers shock the industry, affecting the sales and market growth.
If we assess the benefits to the companies involved, Sreekumar feels that these acquisitions help to expand the reach of technology through a pre-defined channel, which saves cost. On the other hand, Suhas Joshi, opines, “The aim behind such mergers is to attain competitive benefits in the industry, such as cutting expenses, acquiring greater market share, enhancing brand value, providing a wider array of products and services, a bigger client base, etc.”
Adds Sandeep Agarwal, “The mergers and acquisitions in the industry prove that mid-market entrepreneurs are willing to divest businesses at the right price point, taking a commercial call rather than an emotional one. An MNC’s interest in Indian firms is strong and large multinational companies are willing to pay good prices for quality assets that give them a substantial competitive advantage.”
Sudhir Kalla, president, sales of inverter and battery division, Luminous Power Technologies (P) Ltd, says that mergers and acquisitions usually happen for technological collaborations. “When two companies come together, they share technical expertise, methods and processes which lead to better product portfolio and help them in providing the market with products which are technically superior. Thus, they launch a product range which is superior to other products in the market,” he adds.
B Venkat Rao feels that as IT dependencies are on the rise, companies are consolidating their IT assets to manage them more
efficiently. In tune with this trend, vendors are also preparing themselves to address a wider set of demands in an agile manner. This means developing or acquiring expertise that cuts across mission and business critical infrastructure needs, albeit without compromising on the speed of execution. “By virtue of acquisitions such as Avocent, Aperture, Knurr and Chloride, we are able to deliver software, hardware and services to maximise the availability, capacity and efficiency of IT setups across verticals,” he adds.
Through these mergers and acquisitions, while the biggies have found solutions to their shrinking margins and a means for further growth, their impact on the channel ecosystem is not too good. Industry gurus feel that these mergers have not proved beneficial for the vendors or the partners. For example, Emerson, Schneider APC, DB Power, Luminous and Numeric all have strong channel networks, but unfortunately, one strong channel joining another strong channel does not necessarily enhance the benefits. If the channel partners are to be believed, they are not happy with the acquisitions that are taking place.
The battle for survival
Despite the growth of the power backup market in India, it faces its own share of challenges—fluctuating commodity prices, low cost imports from China and Taiwan, competition from the unorganised sector, etc. As a result, SMEs as well as the giants are all in a battle for survival. While many small, local manufacturers have ceased to exist, big local players have been bought over by multinational companies. Also, the Indian power backup industry that caters to the lowest range (less than 600 VA) is highly unorganised, resulting in inferior products entering the market. India also does not have a sound manufacturing base for power electronics components that are required in the manufacture of UPS systems and inverters.
“It’s a tough market, with the organised segment aggressively pushing their products at a reasonable price and with advanced technology. Consequently, the local companies are unable to cope and are losing ground. The limited reach of small companies is also a reason for their closure,” opines Sreekumar.
Adds Sandeep Agarwal, “Many small and local companies are closing down due to the huge imports of cheap and high end Chinese made UPS systems. Also, today, the market and the users are driven more towards branded UPS systems. Finding and retaining qualified and skilled workers is a major challenge. This affects the growth of a company significantly. Another major challenge is to keep up with the rapid technology advancements and access to adequate capital,” says Sandeep Agarwal.
According to Manoj Jain, vice president, Microtek International Pvt Ltd, small companies selling unbranded products are closing down because they fail to compete on pricing and service support, which is very important for the UPS and inverter segment. “Today, companies face the challenge of developing product ranges that are user friendly and offer value for money. Lack of expertise in advanced technologies is also a limitation for many companies,” he adds.
Sudhir Kalla believes that smaller players are not been able to sustain themselves in the competition due to their inability to service customers with effective after sales service.
B Venkat Rao, on the other hand, believes that the challenge lies in being able to offer a better product at competitive prices. “On the buyers’ side, IT dependencies have increased manifold. At the same time, vendors are investing huge amounts in consolidating their capabilities to service a broader set of requirements. It is, therefore, imperative to have the best cost position to survive in this kind of market scenario,” he adds.
Suhas Joshi is of the opinion that going by the current market trend, a UPS manufacturer needs to be a complete power solutions provider. “The trend today is moving towards more compact systems and rack solutions to minimise the use of space. As networks are becoming more complex, far flung, and being managed from remote sites, UPS systems need to be equipped with heterogeneous network management protocols, and be flexible enough to incorporate diagnostics and predictive failure analysis. Hence, a player that can offer the latest technology would survive in this competition,” he adds.
B Venkat Rao opines that backward integration is the key towards a mature electronics industry in India. “China and Taiwan are global manufacturing hubs and the sheer capacity and scale of production keeps their costs low. It is important to note that investment in local manufacturing that can fulfill domestic needs and also create opportunities for export, can lead to enormous economic benefits for the Indian industry.”
Latest market trends
Today, customers are more well informed and demand the latest technologies. Manufacturers, therefore, keep their requirements in mind while developing a product. Customers are increasingly looking for higher backup time with the need to be increasingly connected for a longer period. They also look for small sized UPS systems with high efficiency, power saving and user friendly features. The challenges of flexible capacity enhancements and lowest MTTR (mean time to repair) demands are best addressed by modular and scalable UPS systems. Remote monitoring is also becoming the need of the hour for critical applications.
Space optimisation has permeated organisations of all sizes, generating demand for compact, high density UPS systems. Further, monitoring solutions are increasingly being bundled with UPS systems.
The market is moving towards ‘intelligent integrated infrastructure’ solutions. Intelligent solutions can, for example, alert users if a battery cell is damaging an entire string, or if a single dirty solar panel is reducing the output of an entire array. They can also adjust cooling operations if the load or temperatures vary, change maintenance dispatch schedules if a generator is operating below optimum levels, and notify users if fuel quality degrades.
Sustainability is another need among customers. Today, manufacturers provide solutions, which include efficient use and conservation of global resources, developing energy efficient products, reducing emissions, and protecting the environment.
Another current trend is to manufacture products keeping future needs in mind. Also, the market now expects customised solutions rather than standard UPS products to meet the specific needs of applications. Today preference is given to vendors who can integrate UPS systems with batteries, an alternate source like a DG set and a static/automatic transfer switch to provide complete power protection. The use of digital signal processors (DSPs) for optimised real time processing, contributing to total harmonic management, is catching up.
Most innovations that are happening are focused on increasing efficiency. This helps in saving power and the environment as well. Conventionally, UPS in small offices offer efficiency up to 85 per cent. But today, UPS are more sophisticated with LCD display, and clean sine wave output. These systems offer efficiency as high as 94 per cent in sub 10 kVA range.
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