Demand for transformer surge despite setbacks

An in-depth exploration of Indian transformer industry: market status, demand-supply scenario and other challenges
The Indian power transformer market is well established, with significant sales being made to the utilities, industrial, and commercial segments within the country and a strong foothold in overseas market. It is an integral part of the country’s electrical equipment industry. This market has witnessed a compound annual growth rate (CAGR) of 8 per cent in the past five years.
Power transformer marketThe transformer industry is going through a sluggish phase and has been worst affected with lower capacity utilisation and price realisation. It continues to face tough competition from the Chinese manufacturers. However, with the continuous support from the government to promote the power transformer industry through investments, tax benefits, subsidies etc. will help the industry to grow over the coming years.
Anil Kumar Aggarwal, Chairman and Managing Director, PME Power Solutions (India) Ltd. says, “The year also witnessed the arrival of international competitors for setting up transformer manufacturing facility in India. Margins remained under pressure throughout the year and scenario is unlikely to change in short run. New projects announcements by corporate sector were very few in the previous year. Industry could continue with its business volume from carried forward orders of past years for uncompleted projects. Large-scale spending on CAPEX anticipated from PSUs is also not visible. With this reality, major players in industry continue facing margin and liquidity pressure.”
Growth driversThe power transformers market revenues in India are expected to grow at the CAGR of 14 per cent till 2018. Under the 12th five-year plan (2012-17), the government plans to spend $ 200 Billion on developing and strengthening power infrastructure in India. Similarly, IEEMA (Indian Electrical and Electronics Manufacturers Association) along with government framed a policy to limit the imports of transformers from China and Korea, along with changing government policies on import duty for CRGO steel, is likely to further promote the domestic transformers industry in India.
Government initiatives, new distribution technology and replacement market are among the key drivers of the transformer segment. Despite the global financial crisis, the industry has seen an increasing trend in transformer export, which contributes significantly to revenues. The evolution of the national grid requires the expansion of transmission infrastructure and has been one of the drivers of 765 KV and above voltage transformers.Darshan Shah, GM- Marketing, Transformer and Rectifiers (India) Ltd. says, “There are few factors pushing the transformer industry: replacement market, generation part, and inter-regional transport. Lately it seems things are shifting and now with the new government comes in, people are anticipating that there will be growth.”
Mr Aggarwal explains, “Huge generation capacity addition targets are among the key drivers of the transformer segment. Further, Restructured Accelerated Power Development and Reforms Programme (RAPDRP), the Rs. 515 billion union government flagship programme, aims to reduce Aggregate Technical and Commercial (AT&C) losses of state utilities to 15 per cent or below, which in turn has led to an increased demand for new equipment. Distribution reforms are also creating a market for new types of distribution transformers such as amorphous core transformers and dry type transformers.”
He further adds, “Renovation and modernisation of network assets that have completed their useful life creates a replacement demand for transformers. Now players in the transformer equipment market cater to domestic as well as international demand.”
Demand-Supply scenarioThough there is a perennial shortage of power in the country, the demand for transformers is increasing proportionately with the amplification of power generation, transmission or distribution networks. In India, the demand for equipment used in power sector is multiplying at a rapid rate because of social, economic and industrial development. Experts feel that the growth of the transformer industry depends largely on planned capacity addition to power generation, distribution network and transmission in the country.
Mr Aggarwal explains, “Despite all efforts, the govt has not been able to bridge the gap between demand and supply. The ministry of power is switching over to EHV/UHV system by adopting super-critical 800/600 MW generating unit in a bid to augment the power availability to meet declared goal of the govt of India for providing power to all at reasonable cost by 2017.”
The Indian government expects to add another 85,000 MW of power capacity during the 12th Five-Year Plan (2012-17) period. The demand for power transformers is also expected to go up as a direct consequence. “Govt’s attempt of attaining 100 per cent electrification across the country by 2017 would contribute to the demand for power transformers. However, power deficit across the country is likely to continue during the next decade,” Mr Aggarwal sensed.
According to Mr Shah, “Capacity utilisation is in the range of 60-65 per cent and should remain the same as of now, but with the kind of inquiry levels what we are seeing, next year we are expecting the order book would go up sharply as far as this financial year is concerned for everybody. The orders which we are going to book this year would be converted to sales next year.”
Import-export statusThe transformer industry is heavily depends on imports especially in the extra high-voltage (EHV) segment. Also, the industry growth is increasingly coming under pressure due to the growing competition from foreign manufacturers and the investment slowdown. However, several international players who already have base in India are looking forward to make their Indian setups as manufacturing base for supplying to other countries.
“The Indian transformer industry is gradually gaining prominence in developed markets on the basis of its quality and pricing. The domestic transformer industry, which is fairly well established developing all type of transformers up to the 800 KV and 1,200 KV levels, has the potential of becoming the manufacturing hub for the supply of transformers in foreign markets,” comments Mr Aggarwal.
Talking about export Mr Shah says, “There is not much movement. When it comes to import there has been no changes but it is facing few issues because power grid is still sourcing most of the transformers. Most of the global bidders are getting qualified when it comes to 765 KV tenders.”
Experts feel domestic demand for next 9 years (Mission Plan Period) may provide the CAGR growth of 3.5 per cent to power transformers and 5 per cent to distribution transformers. However, imports may continue to take a cut out of the domestic demand. In addition, Indian transformer industry is currently exporting about 10 per cent of their production. If this additional exports share continues at 8-10 per cent level, it may only add 2 per cent to CAGR growth. Hence, increasing the export market share is important for a substantial growth.
Impact of cheap importsIn recent years, a surge in imports of cheap and inferior quality electrical equipment from abroad is significantly impacting the Indian electrical equipment industry with under-utilisation of recently enhanced capacities across several products. The commercial viability of the industry is getting dented and can have severe long term consequences, leading to a situation of unnecessary dependence on imports at the cost of domestic manufacturing.
Mr Aggarwal points out, “Today the situation is that the expected demand has not materialised leading to overcapacity, adversely impacting the transformer industry. In addition cheaper imports from China and Korea have also majorly impacted. Many orders have been lost by Indian manufacturers due to low price of imported equipment. We hope initiative of Indian Electrical Equipment Industry Mission Plan 2012-2022 by all stakeholders will help in Indian electrical industry gear up to be important global player.”
“As far as power transformers are concerned, it is always a tender based purchase. In most of the tenders they are being evaluated technically and once it is determined that everybody is at level playing field, then only the cost is compared. Side levels are also fairly same as what indigenous people are offering to clients,” says Mr Shah.
Dealing with cheap importsIt is necessary for Indian govt to take a look at industry’s issues and come out with policy changes to enhance competitiveness of domestic industry. Under international trade law, solutions are available that intend to take action against imports which are causing injury to local industries.
Mr Shah says, “Through IEEMA, we are in dialogues with the concerned ministry and definitely trying to take some measures. We are just suggesting increasing import duties on these transformers.”
Mr Aggarwal suggests, “Govt needs to conduct research through R&D schemes as well as prioritise the promotion of domestic brands. It must always weigh the economic benefits of allowing cheap imports against their negative effects. It is crucial, however, government simultaneously take advantage of technology transfer agreements, and negotiate new ones in order to benefit from the technical know-how and skills from China necessary to efficiently develop and run the ailing industries.”
Other challenges The Indian transformer industry is facing some key challenges which restrict it from growing to its full potential and targets. Some of the challenges include inadequate testing facilities, CRG imports, and delay in payment release.Mr Aggarwal points out, “One of the major concerns for the industry is the growing imports from China and South Korea, which poses a major threat to local manufacturers. Inadequate testing facilities, especially for high voltage electrical equipment too is an issue.”
CRG import is a big challenge because they are demanding BIS certification for most of the grades which are to be consumed within India. Because of that availability has been an issue because CRG of the material, not all the grades of all the prime means are approved by BIS. Mr Shah says, “If we are going for a different grade which is not certified by BIS then it becomes an issue. So availability has definitely been a problem and there has been a price increase when it comes to CRG in last one quarter or so.”
Mr Aggarwal further adds, “Cold Rolled Grain Oriented laminated silicon steel (CRGO), which is one of the major raw materials for transformer is not being manufactured in India. Long overdue demand of transformer industry to government is to pursue companies like SAIL or TATA to set up manufacturing plant in India which would save considerable forex outflow. Delay in release of payments by power utilities adversely effects top line and bottom line of the industry.”
Govt’s attempt of attaining 100 per cent electrification across the country by 2017 would contribute to the demand for power transformers. However, power deficit across the country is likely to continue during the next decade

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