The current state of the industry
Transformer Industry is one of the key segments of the ‘Electrical’ capital goods industry. This industry is also considered as the bell weather industry for many other Electrical products markets such as Capacitors, Switchgears and Insulators etc. So, from an Electrical industry perspective, it is very important to assess the state of the Transformer industry for one to get a sense of the overall Electrical Products market.
The Transformer industry in India is a highly fragmented industry with over 250+ players and the industry estimates from various bodies and experts put this estimate to be around 300-400 players depending on who is one talking with. From, our research perspective of this industry, we consider over 250+ players to be active in this industry. It is estimated that the industry capacity in India is estimated to be over 1000 GVA.
This industry has been under a rough weather over the last 2 years with a demand stagnation in India. This industry is estimated to be stagnating between 250,000 to 280,000 MVA for the last 2 years and recently showing some signs of growth.
In terms of sales by products, the Power Transformers in MVA terms is clearly over 70% of this market while Distribution Transformers account for over 30% of the market in MVA terms but could show a reverse trend when we talk in terms of number of Units. The industry is governed by mostly the Oil Filled Transformer industry and Dry Type of transformers (only in DTR space) have not yet gained full acceptance due to their high costs. Copper windings still account for a major portion of the industry, while Aluminum windings are mostly limited to < 250 kVA levels.
As a nation our overall transformation norm stood at 7MVA/MW levels in 2008 and the policy makers had a plan to reach the levels of 11MVA/MW levels in the 12th plan. But, due to various factors and the state of DISCOMS largely, we are still hovering around the 8 to 8.5 MVA/MW levels.
Our research on this industry over the years shows that Utilities demand for Transformers is a highly important one and accounts for over 90% of the industry’s output. The remaining being the Industrial requirement of Transformers for their projects.
Over the last 2 years, the lack of new Transmission project orders, poor state of the DISCOMS and the tepid industrial activity had kept the industry in a low performing state with demand stagnation. This also led to an increased price pressure and smaller players losing out closing down operations.
New hope of revival in the Industry
The aggressive activities of the NDA 2 Government in the Energy sector and overall positive investment climate has led to most players feeling more hopeful on the industry prospects. Even though the actions have not led to a huge increase in order booking yet but most industry players are seeing signs of revival and expect this to open in the near future. Some key initiatives and actions that have led to this cautious optimism are:
- Existing and planned projects and orders from the RE projects in India – Solar Parks and Projects and Wind projects
- The opening up of new transmission projects and the de-bottlenecking of old stuck projects has led to order wins by many firms in the recent past for the Power Transformers.
- The upcoming new transmission projects and the Green Energy Corridors will see more uptick in the Power Transformer Segment going forward.
- The announcement of UDAY and the participation of 15 states already in the program has given many players some hope that the fiscal conditions of DISCOM’s would improve and this would lead to more aggressive DTR purchases in the next few years to reduce the losses.
- Even though the Government had announced 2 major schemes of Integrated Power Development Scheme (IPDS for the Urban areas) and Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY for the Rural areas), nothing of note till now has been seen on ground from these schemes. But now, with UDAY being implemented in many states, this will provide a framework for most utilities to absorb the additional investments in IPDS and DDYGJY programs and implement them on the ground more effectively.
- The revival of investment in manufacturing and new CAPEX investments due to ‘Make In India’ has not yet happened but most industry players are cautiously optimistic about the same.