Electrical Machinery: Industry Report, March 2013

Electrical Machinery
MARCH
2013
For updated information, please visit www.ibef.org
Contents
Advantage India Market overview and trends Growth drivers Success stories: BHEL, L&T Opportunities Useful information
MARCH
2013
Advantage India
MARCH
2013
2013E
Growing demand
Opportunities
Power demand is estimated to reach 3 lakh MW by 2021 Government programmes aimed at providing electricity to over one lakh rural areas and 22.6 million households below poverty line will also boost demand for power
Planned power capacity addition of around 1 lakh MW by 2017 will provide significant opportunities Replacement or brownfield expansion could provide significant opportunities as well
BTG manufacturing capacity: 36 GW
Advantage India
Increasing investments

Policy support
Electrical machinery sector is delicensed; 100 per cent FDI is permitted Significant number of SEZs have been approved for the sector Due to policy support, cumulative FDI of USD3.1 billion (1.7 per cent of total FDI inflows) has flown into the country between April 2000 to November 2012
Source: Edelweiss estimates, Ministry of Power, Aranca Research
The sector has witnessed increasing entry of global players through the JV route Existing players are planning huge capacity expansion over the next few years
2011
BTG manufacturing capacity: 19 GW
Notes: BTG - Boiler, Turbine & Generator, GW - Giga Watt E - Estimate, FDI - Foreign Direct Investment, JV - Joint Venture, SEZ - Special Economic Zone
ADVANTAGE INDIA
Contents
MARCH
2013
Electrical machinery has three major segments
MARCH
2013
Electrical machinery
Generation machinery
Transmission machinery
Distribution machinery
Boilers
Transformers
Switch gears
Turbines
Control gears
Generators
MARKET OVERVIEW AND TRENDS
BTG market is experiencing strong growth in the country (1/2)
MARCH
2013
The generation equipment segment garnered revenues of USD7.6 billion in FY12 The market expanded at a CAGR of 28.4 per cent over FY08-12
Market size of generation machinery (USD billion)

7.6
CAGR 28.4%
Note: CAGR - Compound Annual Growth Rate 2.8 4.2
5.5
3.4
FY08
FY09
FY10
FY11
FY12
Source: Department of Heavy Industry Annual

report 2011-12, Aranca Research
BTG market is experiencing strong growth in the country (2/2)
MARCH
2013
Boilers is the major segment, accounting for 67.9 per cent of the total revenues in FY12 Turbines accounted for 21.3 per cent, while generators accounted for the remaining 10.8 per cent
Generation machinery market breakup (FY12)
10.8%
21.3%
Boilers Turbines Generators 67.9%
Source: Department of Heavy Industry Annual report

2011-12, Aranca Research Notes: DHI - Department of Heavy Industries, BTG - Boiler, Turbine & Generator
Other major segments - transmission and distribution machinery (1/2)
MARCH
2013
Production of transformers rise at a CAGR of 9.6 per cent during FY08-11 By Feb FY12, production of transformers stood at 105.4 million KVA Domestic transformer industry has the capability to manufacture the whole range of power and distribution transformers including transformers used for HVDC transmission upto 500 KV
Production of transformers (million KVA)

105.4
CAGR 9.6%
85.2 73.3 71.9
96.6
Notes : HVDC - High Voltage Direct Current KVA - Kilo Volt Ampere FY08 FY09 FY10 FY11 FY12*

report 2011-12, SIA, Aranca Research Note: * - Data for FY12 is up to Feb 2012
Other major segments - transmission and distribution machinery (2/2)
MARCH
2013
The production of switch and control gears has expanded at a CAGR of 6.9 per cent during FY08-11 The switch gear industry in India manufactures entire voltage range from 240 KV to 800 KV Significant advances have been made in control gears due to major developments in the field of technology
Production of switch & control gears (million units)

23.1 18.9 17.8 18.1
FY08
FY09
FY10
FY11

report 2011-12, Aranca Research
Electrical machinery exports on a rise (1/2)
MARCH
2013
Exports of electrical machinery increased to USD2.4 billion in FY11 from USD2.0 billion in FY08 Transformers and generators were the primary drivers of the increase in exports
Exports of electrical machinery (USD billion)

3 2.5 2.0 2 1.5 1 0.5 0 FY08 FY09 FY10 FY11 FY12*
2.6
2.4 2.3
1.2
Source: Ministry of Commerce, Aranca Research Notes: * - FY12 data is from April - September 2011
10
Electrical machinery exports on a rise (2/2)
MARCH
2013
According to EEPC, exports of electrical machinery and related items stood at USD4.5billion in FY11 Exports of electrical power equipment & parts, valued at USD3.9 billion in FY11, constituted the largest share
Break-up of exports of electrical machinery and related items by segment (FY11)
11%
3% Electric power equipment & parts Boilers & Parts Transmission line towers & parts 86%
Source: Engineering Exports Promotion Council ( EEPC), India, Aranca Research
11
Notable trends in the electrical machinery sector
MARCH
2013
Upgrading technology
Industry players are upgrading their transmission capacities to the next higher voltage system of 765 kilovolts (KV), and are gearing up to supply transformers and related equipment of this class
Increasing R&D expenditure
Indian manufacturers are becoming more competitive with respect to their product designs, manufacturing and testing facilities Investments in research & development (R&D) in the electrical machinery industry are amongst the largest in Indias corporate sector
Diversifying product portfolio
Increasing competitiveness in the industry and changing consumer demands have led to new versions of products being launched in the market Players are entering into strategic alliances and tie-ups with technology suppliers to upgrade capabilities
Adoption of super critical technology
Government of India is encouraging the adoption of super critical technology for thermal power plants due to its efficiency and reduced emissions During the 12th Five Year Plan, 60 per cent of the total additional power is expected to be generated by supercritical technology
Source: Department of Heavy Industries Annual Report 2008-09, Aranca Research
12
Key players
Company
MARCH
2013
Revenues (FY12)
Products
Engineering & Construction, Cement, Electrical & Electronics
Larsen & Toubro
USD11.1 billion
Bharat Heavy Electricals Ltd
USD10.4 billion
Power Generation, Transmission, Transportation
Siemens India Ltd
USD2.5 billion
Power Generation and Distribution equipment, Transportation Systems, Communication and Healthcare Products
ABB Ltd
USD1.6 billion
Transformers, Switch gears, Control gears
Crompton Greaves Ltd
USD2.3 billion
Power Generation and Transmission Equipment
Source: Company Annual Reports, Aranca Research
13
Key electrical manufacturing plants across India
NORTH: Delhi, Uttarakhand and Haryana are the main hubs for electrical manufacturing in North India
MARCH
2013
Central: Madhya Pradesh hosts manufacturing units for Crompton Greaves and BHEL
Major Electrical Manufacturing Plant WEST: Maharashtra and Gujarat host manufacturing units for major players SOUTH: Tamil Nadu and Karnataka are hubs for electrical manufacturing in South India
Source: Aranca Research
14
Contents
MARCH
2013
15
Growth drivers of electrical machinery sector
MARCH
2013
Capacity addition for power generation
Demand-side drivers
Growth drivers

Delicensing Reduction in Tariff and Customs
Entry of global majors
Hike in duty on foreign products
Policy
Investment
through Joint Venture

Increasing FDI inflow
GROWTH DRIVERS
16
Increasing power demand leading to capacity augmentation
MARCH
2013
Indias energy requirement expanded at a CAGR of 6.8 per cent over FY06-12 to 937.2 billion units The rising demand for energy has led to increasing capacity addition for power generation
Energy requirement (billion units)

937.2 777.0 830.6 861.6
CAGR: 6.8 %
690.6
631.8 739.3
FY06
FY07
FY08
FY09
FY10
FY11
FY12
Source: CEA Annual report 2011-12,

Aranca Research Note: CEA - Central Electrical Authority
GROWTH DRIVERS
17
Capacity augmentation resulting in increasing demand for electrical machinery
MARCH
2013
Increasing investments in capacity has resulted in rising demand for power generation and transmission equipment The increase in capacity during the 11th Five Year Plan (FY07-12) stood at 44.8 thousand MW by the end of 11th Five Year Plan The figure is more than five times the corresponding one in 1990 (8.1 MW)
Capacity addition for power generation in the recent Five Year Plans (000 MW)
44.8
22.3 17.1 8.1 12.1
FY90
FY97
FY02
FY07
FY12*
Source: Ministry of Power Annual report 2011-12,

Aranca Research, Central Electricity Authority Note: FY12* - Figures from April 2011 - November 2011
GROWTH DRIVERS
18
Favourable policies have aided the sector
MARCH
2013
Delicensing
The electrical machinery industry has been delicensed; 100 per cent FDI is allowed in the sector This facilitated the entry of global majors into the electrical machinery industry in India
Tariffs & custom duties
Government has removed tariff protection on capital goods Government has lowered custom duties on a range of equipments
Initiatives to increase power generation
The government has an ambitious mission of Power for all by 2012 and a planned capacity addition of 120 GW in the 12th Five Year Plan Through the Accelerated Power Development Reform Programme, the government plans to provide reliable, affordable and quality power The government has cleared significant number of SEZs for the engineering sector across the country; electrical machinery is a part of the sector Delhi Mumbai Industrial Corridor being developed across seven states could boost engineering sector
Source: Ministry of power Annual report 2010-11, Aranca Research Notes: SEZ - Special Economic Zone, FDI - Foreign Direct Investment
SEZ
GROWTH DRIVERS
19
Special Economic Zones (SEZs) will promote exports
Developer
M/s Essar Hazira SEZ Gujarat Industrial Development Corporation Ltd (GIDC) N.G. Realty Pvt Ltd E. Complex Pvt Ltd Dishman Infrastructure Ltd Ansal Properties and Infrastructure Ltd
MARCH
2013
Location
Hazira, Gujarat Gandhinagar, Gujarat Ahmedabad, Gujarat Amreli, Gujarat Ahmedabad, Gujarat Sonepat, Haryana
Product
Engineering Electronic products Engineering Engineering Engineering Engineering
Raheja Haryana SEZ Developers Pvt Ltd

Ansal Kamdhenu Engineering SEZ Ltd Karnataka Industrial Areas Development Board Suzlon Infrastructure Ltd Maharashtra Industrial Development Corporation (MIDC)
Gurgaon, Haryana
Sonepat, Haryana Shimoga, Karnataka Mangalore, Karnataka Satara, Maharashtra
Engineering
Engineering Engineering Port-based for high-tech engineering products Engineering
Township Developers India Pvt Ltd

Vividha Infrastructure Pvt Ltd New Chennai Township Pvt Ltd Perundurai Engineering SEZ by SIPCOT Uttar Pradesh State Industrial Development Corporation (UPSIDC) For updated information, please visit www.ibef.org
Pune, Maharashtra
Patiala, Punjab Kanchipuram, Tamil Nadu Erode, Tamil Nadu Kanpur, Uttar Pradesh
Engineering
Engineering Engineering Engineering Engineering
Source: SEZ India, Aranca Research
GROWTH DRIVERS
20
Foreign investments flowing in; rise in M&A activity (1/2)
MARCH
2013
Cumulative FDI inflows over FY00 - 1H FY13 stood at USD3.1 billion FDI inflows more than doubled over FY08-12 and expanded at a CAGR of almost 28.5 per cent
Cumulative FDI inflows from Apr 2000 (USD billion) CAGR 28.5%
2.4 2.2 1.5 1.1 3.0 3.1
FY08
FY09
FY10
FY11
FY12
H1FY13
Source: Department of Industrial Policy & Promotion,

Aranca Research Note: FY08 - Cumulative from April 2000 to March 2008 and so on
GROWTH DRIVERS
21
Foreign investments flowing in; rise in M&A activity (2/2)
MARCH
2013
Legrand has acquired the switch gear business of Indo Asian Fusegear at a price of USD127.6 million Target
ZIV Group Schneider Electric Infra ltd
M&A deals
Acquirer
Crompton Greaves Energy Grid Automation Ltd.
Type
Acquisition Acquisition
Year
2012 2012
Alstom T&D India Grid Equipments Ltd Ltd Indian Hume Pipe Co Ltd Esab India Ltd ECE Industries Ltd.
Acquisition
2012
Acquisition
2012
Colfax Corporation
Acquisition
2012
Source: Grant Thornton, Aranca Research
GROWTH DRIVERS
22
Bright prospects lure global majors
Global majors entering through JV
MARCH
2013
Boiler capacities planned through JV
Companies in JV
Joint Venture Indian Partner Foreign Partner
L&T - MHI BGR - Hitachi
Capacity (MW)
4,000 4,000 3,000 2,000
L&T - MHI
51%
49%
Thermax - Babcock
BGR - Hitachi
70/74%
30/26%
Bharat Forge - Alstom
Thermax - Babcock
51%
49%
Turbine capacities planned through JV Companies in JV Capacity (MW)

5,000 3,000 4,000
Bharat Forge - Alstom
51%
49% Toshiba - JSW GB Engineering Ansaldo L&T - MHI
Toshiba - JSW
25%
75%
GB Engineering - Ansaldo
15%
85%
BGR - Hitachi
4,000
Source: Edelweiss Research, Aranca Research Notes: JV - Joint Venture, MHI - Mitsubishi Heavy Industries
GROWTH DRIVERS
23
Contents
MARCH
2013
24
BHEL - Mainstay of the electrical machinery industry (1/2)
MARCH
2013
Salient features
Net sales (USD billion)

10.4 9.0 7.1 5.8 3.9 4.5 3.95
One of the largest engineering and manufacturing companies with Navratna status
CAGR: 21.7%
One of the major integrated power plant equipment (IPPE) manufacturers in the world
Profit-making company since 1971-72 Installed base of more than 115,000 MW 15 manufacturing units, two subsidiaries and seven joint ventures Accounted for over 59 per cent of India's total installed generating capacity in FY12
FY07
FY08
FY09
FY10
FY11
FY12
H1FY13
Net sales increased by more than 2.5 x over FY07-12; this amounted to a CAGR of 21.7 per cent
Source: Company reports, Aranca Research Note: Navratna is the title given to nine Public Sector Enterprises by the Government of India having comparative advantages
During H1FY13, net sales stood at USD3.95 billion against USD3.68 billion in H1FY12
SUCCESS STORIES: BHEL, L&T
25
BHEL - Mainstay of the electrical machinery industry (2/2)
MARCH
2013
Recent Awards and Recognitions
Boiler efficiency
Golden Peacock Award 2011 for Occupational Health and Safety (2011)
Lower auxiliary power consumption
SCOPE Meritorious Award 2010-11 for Best Practices in
Key success factors
Lower design heat rate
Human Resource Management
Intellectual Property Award from the Government of India (2011)
Lower life cycle cost
Better PLF
Essar Steel Infrastructure Excellence Award (2011) DSIJ Gentle Giant Award from the Government of India (2011)
CII - Thompson Reuters Innovation Award (2010)
Notes: PLF - Plant Load Factor, Navratna is one of the designations given to public sector enterprises based on their profitability and there by granted certain autonomy
26
L&T - One of Indias leading players in the sector (1/2)
MARCH
2013
Salient features
Net sales (USD billion)

11.1
Indias largest E&C company, with interests in projects, infrastructure development, manufacturing, IT & financial services CAGR: 24.6%
9.1 7.6
Enjoys AAA rating with stable outlook from CRISIL and LAAA from ICRA
5.2 3.7
7.0
5.2
Turnover increased by three-fold over FY07-12, thereby registering a CAGR of 24.6 per cent
In H1FY13, net sales increased to USD5.2 billion as against USD4.3 billion in F1HY12
Notes: E&C - Engineering & Construction
FY07 FY08 FY09 FY10 FY11 FY12 H1FY13
Source: Company Reports, Aranca Research
27
L&T - One of Indias leading players in the sector (2/2)
MARCH
2013
Recent Awards and Recognitions
CNBC TV18 Infrastructure Leader of the Year Award
(2012)

100 bps 21%
20%
CNBC TV18 Infrastructure Excellence Award (2012) National Award for Export Excellence (2012) ICC Corporate Governance and Sustainability Vision Award 2012 (2012) 11%
EBITDA (E&C)
Recurring PAT
Sales
Order book
Green Business Leadership Award (2011)

Thought Leader Brands in India (2011) Golden Peacock Award for CSR (2011) Indias Most Respected Company in Infrastructure (2011) India Shining Star CSR Award (Wockhardt Foundation,
12% Order inflow
* FY 12 performance
2011
Notes: CRISIL - Credit Rating and Information Services of India Ltd ICRA - Investment information and credit rating agency of India CSR - Corporate Social Responsibility
28
Contents
MARCH
2013
29
Growth opportunities in electrical machinery industry
MARCH
2013
India currently operates 19 atomic reactors which produce 4,780 MW of electricity and has set an ambitious target of generating 63,000 MW nuclear power by 2032 With many bilateral nuclear agreements in place, India is expected to become a major hub for manufacturing nuclear reactors and associated components The Indian Government proposes to add 3,380 MW of nuclear power capacity by 2012 as part of its capacity addition programme in the 11th Five-Year Plan
Nuclear power generation
Power capacity addition
Market-oriented reforms (such as the target of Power for all by 2012 and plans to add 78 GW of capacity by 2012 and another 92 GW by 2017) provide high incentives for capacity addition in power generation, which would increase the demand for electrical machinery Foreign participation in the development and financing of generation and transmission assets, engineering services, equipment supply and technology collaboration in nuclear and clean coal technologies is expected to increase
Power transmission in India, which is currently carried out largely in the 220 KV and 400 KV range, is expected to move up to a higher range of 765 KV and high-voltage direct current This presents a significant opportunity to manufacturers with capabilities in high-voltage (HV) to develop technology that can handle the need of such high voltages in the country
Notes: KV - Kilo Volts
High-voltage technology
OPPORTUNITIES
30
Contents
MARCH
2013
31
Industry associations
MARCH
2013
Indian Electrical & Electronics Manufacturers Association ( IEEMA) 501, Kakad Chambers, 132, Dr Annie Besant Road, Worli, Mumbai - 400018. Tel: +91-22-2493 0532, +91-22-2493 0532 / 6528 / 6529 Fax: +91-22-2493 2705 mumbai@ieema.org Engineering Export Promotion Council (EEPC) Vanijya Bhawan, 1st Floor International Trade Facilitation Centre, 1/1, Wood Street, Kolkata, West Bengal - 700016. Phone: 91-33-22890651, 22890652 Fax: 91-33-22890654 E-mail: eepc@eepcindia.org
USEFUL INFORMATION
32
Glossary

MARCH
2013
BTG: Boilers, Turbines, Generators BHEL: Bharat Heavy Electricals Limited CAGR: Compounded Annual Growth Rate CEA: Central Electrical Authority DHI: Department of Heavy Industries E&C: Engineering & Construction EEPC: Engineering Export Promotion Council FDI: Foreign Direct Investment FY: Indian financial year (April to March) GW: Giga Watt HVDC: High Voltage Direct Current KV: Kilo Volts KVA: Kilo Volt Ampere L&T: Larsen and Toubro MHI: Mitsubishi Heavy Industries PLF: Plant Load Factor SEZ: Special Economic Zone USD: US Dollar; Conversion rate used: USD1= INR 48
Wherever applicable, numbers have been rounded off to one decimal

USEFUL INFORMATION
33
Disclaimer
MARCH
2013
India Brand Equity Foundation (IBEF) engaged Aranca to prepare this presentation and the same has been prepared by Aranca in consultation with IBEF. All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this
presentation to ensure that the information is accurate to the best of Aranca and IBEFs knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. Aranca and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation. Neither Aranca nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation.
DISCLAIMER
34

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Electrical Machinery

For updated information, please visit www.ibef.org

For updated information, please visit www.ibef.org

BTG manufacturing capacity: 36 GW

For updated information, please visit www.ibef.org

For updated information, please visit www.ibef.org

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Market size of generation machinery (USD billion)

Source: Department of Heavy Industry Annual

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Generation machinery market breakup (FY12)

Boilers Turbines Generators 67.9%

Source: Department of Heavy Industry Annual report

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Production of transformers (million KVA)

Source: Department of Heavy Industry Annual

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Production of switch & control gears (million units)

Source: Department of Heavy Industry Annual

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Exports of electrical machinery (USD billion)

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Break-up of exports of electrical machinery and related items by segment (FY11)

Source: Engineering Exports Promotion Council ( EEPC), India, Aranca Research

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Increasing R&D expenditure

Diversifying product portfolio

Adoption of super critical technology

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Larsen & Toubro

Bharat Heavy Electricals Ltd

Power Generation, Transmission, Transportation

Siemens India Ltd

Transformers, Switch gears, Control gears

Crompton Greaves Ltd

Power Generation and Transmission Equipment

Source: Company Annual Reports, Aranca Research

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

Source: Aranca Research

For updated information, please visit www.ibef.org

MARKET OVERVIEW AND TRENDS

For updated information, please visit www.ibef.org

Capacity addition for power generation

Delicensing Reduction in Tariff and Customs

Entry of global majors

Hike in duty on foreign products

through Joint Venture

Source: Aranca Research

For updated information, please visit www.ibef.org

Energy requirement (billion units)

Source: CEA Annual report 2011-12,

For updated information, please visit www.ibef.org

22.3 17.1 8.1 12.1

Source: Ministry of Power Annual report 2011-12,