Business opportunities brewing for LED system integrators

With the LED sector growing at a fast pace in India, system integrators are exposed to a vast number of business opportunities

By Kartiki Negi

Wednesday, August 20, 2014: With the LED lighting industry growing at a fast pace, all stakeholders, including system integrators, are poised to reap benefits. According to the Association of Electrical Lighting Manufacturers in India (ELCOMA), the lighting industry in the country has been growing at nearly 17-18 per cent annually over the past two-three years. The Indian LED industry is expected to touch US$ 500 million by 2015.

LED system integrators procure all the component subsystems from different OEMs and assemble them, ensuring that these subsystems function well together. They are the people end users are in contact with and, at the same time, they are the coordinators for OEMs. They offer support to customers at all stages, right up to the successful completion of their projects. In fact, system integrators make it easier for the end users to use pioneering LED technology for various lighting solutions. “They are the interface between the customer and the application. They focus specifically on customer requirements, and bring together the appropriate partners from the optics, thermal management and electronics sectors to achieve the desired results,” says Ajay Goel, CEO, Goldwyn Ltd.

Business opportunities

System integrators are available for a wide variety of LED lighting solutions, such as those for architectural applications, for the signage industry and for the design of LED luminaires. Factors such as a flourishing real estate market, higher investments in green buildings, mandatory energy efficiency regulations for new buildings and facilities, and government incentives for energy efficient projects are driving this sector forward. Besides which, there is demand from the healthcare, hospitality, retail, IT and ITeS sectors; as well as from LED streetlight projects, industrial and corporate houses, institutions, government-aided projects, upcoming residential projects and the exports market.

“The growth of the LED sector in India over the last few years has the potential to provide system integrators with a whole new line of revenue,” says Ramadas Patil, head-SSL business, Moser Baer.

Though the percentage of buyers for LED lighting products is still low due to the high cost of these products, this scenario is changing fast and integrators are making reasonable profits. With the increasing popularity of these products, more and more system integrators are entering the industry to exploit the untapped potential of this market. With the absence of a manufacturing ecosystem in the country, integrators can source as per the demand and can afford to maintain lean operations, without the risk of delayed deliveries. Most of the big projects in the country today are government driven and are being bagged by these system integrators.

“With the LED sector growing manifold, system integrators are also being exposed to a good number of opportunities. The growth of the LED sector in India is huge. The entire sector is growing at a CAGR of over 40 per cent, and is expected to be close to the Rs 40,000 million level by 2015. Integrators have, therefore, lots of opportunities during the initial growth phase of the next four to five years,” says Ramadas Patil.

As there are very few LED manufacturers in India today, system integrators have the advantage of becoming suppliers for the renowned brands. “With the growth of the LED sector in India, LED system integrators have the opportunity to become OEM suppliers to brands like Philips, Osram, Havells, etc,” says Ajay Goel.

G Gururaja, managing director, Avni Energy Solutions Pvt Ltd, says, “Opportunities are emerging from all sectors. It may be LED displays, architectural lighting, general lighting, solar lighting, automobiles or back lighting.” More recently, opportunities for LED lighting in residential and commercial buildings have also emerged. This is currently a niche segment, but has significant potential for market transformation.

According to a Frost & Sullivan estimate, by 2018, demand for LED lighting products from central and state government departments will be about 40 per cent, and that from streetlights, railways and industries will be 42 per cent, 62 per cent and 48 per cent, respectively. Commercial, automotive and residential verticals will see 39 per cent, 38 per cent and 82 per cent demand, respectively.

Government projects

The government is playing a very crucial part in driving demand for LED lighting in India. It has been planning on bulk orders for the railways, airports, urban housing, highways and other large development projects to encourage the industry to expand. The system integrators can take advantage of these projects as they hold immense business potential. A few good sources for information about these projects are the Bureau of Energy Efficiency (BEE) and NGOs that are working in the field of energy efficiency like the Tata Energy Research Institute (TERI), etc.

Commenting on how LED integrators can participate in these projects, Ajay Goel informs that government agencies, like municipal corporations, float tenders for the projects they undertake. Different companies bid for these tenders, and the ‘best’ bid, taking into account technical and financial parameters, is selected.

The nationwide LED Village Campaign by the BEE has come as a blessing to the LED industry. Under the campaign, LED-based streetlights are being installed in villages. Streetlights come under the purview of city corporations, municipalities or development authorities (wherever they have been set up). System integrators can get in touch with these bodies for detailed project information. Contracts will be given by the corporations or any other implementing agency for such projects. The nature of contracts may vary from organisation to organisation.

Real estate sector

The potential for lighting controls in green buildings is huge in India. Nearly 1,909 green buildings are registered with the Indian Green Building Council (IGBC), of which about 300 green building projects are certified and fully functional. Real estate investors are beginning to realise that even though the construction costs of a green building are higher than those of a conventional building, they can recover that expenditure within three to four years by using LED lights and incorporating energy saving measures. Mandatory energy efficiency regulations for new buildings and facilities have also led this sector to turn to LED lights. “LED system integrators have a good opportunity to supply to the real estate sector, where demand is high and is increasing,” says Ajay Goel.

Healthcare sector

The growing concern about the power sector and rising energy consciousness due to urbanisation are driving up the demand for LED lights in the healthcare, education and government sectors. Health institutions and hospitals are now adopting LED lighting as it reduces power consumption considerably. The government has already started replacing conventional lighting in its offices with efficient LED lights.

Hospitality sector

According to a study by ratings agency ICRA, the Indian hospitality industry contributes around 2.2 per cent of India’s GDP. The industry is expected to reach Rs 230 billion (US$ 5.2 billion) by 2015 and is likely to witness a revenue growth of about 7 per cent. This sector has specific requirements that are highly capital intensive, so ROIs are a major challenge. It has now turned to LED lighting, where the time taken to recover costs is much less. These lights offer quality lighting solutions, consume less energy, look good and have a long life.

Retail sector

This is one of the key sectors fuelling the demand for LED lighting in India. It is very important for retailers that their store is well illuminated to highlight the products on sale. Retail LED lights meet this requirement as they provide terrific advantages when illuminating mannequins and display cases. In commercial areas, lighting accounts for as much as 40 to 50 per cent of the energy consumed. Thus, LED lighting is a relatively simple and inexpensive solution for those who wish to slash their energy bills while minimising their capital expenditure.

Metropolitan & Tier II and III cities

The LED industry is witnessing a rise in demand from metropolitan cities as well as Tier II and III cities. While metros like Delhi, Mumbai, Bengaluru and Chennai have registered a rising demand, the market in cities like Hyderabad, Ahmedabad, Jaipur and Pune has grown even faster. Cities in Haryana, where BPO activities are high, have also seen growing demand. In Tier II and III cities, the continuous power shortages are driving demand from the hospitality and emergency lighting sectors.

“LED streetlighting is much in demand in Tier II and Tier III cities, followed by the demand for downlights and spotlights for shops and the hospitality sector. LED lights are now available with distributors and retailers in these cities; so, easy availability is also driving their adoption,” says G Gururaja.

Challenges faced by system integrators

Though an upward trend has been witnessed for LED lights, it is not entirely a cake walk for system integrators to operate in this segment. Many integrators lack technical knowledge, and are not sure whom to turn to in order to acquire this knowledge to grow in the sector.

There are other challenges as well. Most lighting supply houses don’t have traditional price sheets so price quotes are arbitrary; they tend not to stock the most innovative and more expensive LEDs; and the range in the quality of the bulbs they do stock is haphazard.

Product costing: One of the major challenges system integrators face is product costing. In order to supply a quality product, system integrators have to assemble components from renowned brands, which makes the end product quite expensive and reduces profit margins. Further investments in moulds, tools and testing equipment add to integration costs. “LED system integrators primarily have to depend upon standard light engines, standard LED drivers, standard optics and standard castings. So in many ways, the product costing is a big challenge for them,” says Ajay Goel. He adds, “The best way to overcome this challenge is to align with the OEMs as they have competitive procurement teams to ensure cost effectiveness, and to develop a technically superior system with quality components.”

Low quality products: In order to cut down on prices, these integrators often import low quality components from China. Since many of them are not technically qualified, they do not understand the importance of a quality product. Hence, the product they assemble may not be technically sound, points out Ramadas Patil.

Short lead times and stocking: The LED lighting market is technology driven, which makes it a very fast changing field. So, short lead times and inventory management are some of the major challenges for system integrators. “As lumens per watts per dollar is increasing, we need to change the design very fast. Changes in the number of LEDs in a lighting fixture will lead to changes in the heat sink, the driver, etc—all of which add to the cost,” says G Gururaja.

No standards: The Indian government has not yet finalised any standards for LED lights. Thus, it becomes very tough for system integrators to convince customers about the quality of the product and compare it with other products, says G Gururaja.

Heavy investments on advertising: Last but not the least, system integrators also have to invest in marketing their services and for creating awareness among Indian buyers as they are still not aware about the features and advantages of LED lighting.