The US recession and the global meltdown have engulfed the complete world economy with a varying degree of impact. Worldwide this impact can be observed from the very fact of falling stock market, recession in job availability, companies downsizing their workforce and cutting down on perks and salaries. India too has been entangled in the tentacles of the global recession and is struggling to maintain its rapid economic growth. In the globalised market scenario, the impact of recession at one place, industry or sector, percolates down to all the linked industries and this has been the case with the Indian electronics sector as well, which is facing the recession since last November and the situation is still grim despite various measures taken to fight back. Surprisingly, despite being a small sector and dependent on many other sectors, the UPS and inverter sector seems to be one of the few recession-proof, inflation-proof industries. In fact, the sector is seeing a growth rate of about 35 per cent and going by the growth pattern of this sector, it doesn’t seem that it has been affected in any way by the global recession. Areas where continuity of power is essential are rising by the day and hence the demand for UPS and inverters is always on the rise.
By Srabani Sen
Thursday, March 19, 2009:
Players untouched by recession
It was unanimously echoed by most players in this sector that although there is a general feeling of recession in the industry, there seems to be no such recession as far as UPS and inverter segment is concerned. None of the majors like BPE India, Microtek International, Uniline, Parker Power, Purevolt Products, G S Enterprises and many others, have felt the intensity of recession on their organisations. Neither their sales have gone down nor product prices have been cut. Most of them are going as per their expansion plans with no revenue loss so far. “So far the downturn didn’t affect our organisation and we are growing at a healthy speed of about 25 per cent. The credit for this growth goes to the hard work we have put in during the last six months by increasing our distribution network and sales volumes,” observes R K Bansal, managing director, Uniline Energy Systems, which manufactures line interactive UPS systems up to 2 KVA and online UPS systems up to 100 KVA.
Amitansu Sathpati, director, Best Power Equipment India (BPE India) also believes that there is no downtrend in the UPS and inverter market. “This sector has survived the recession and is, in fact, growing at its usual pace. However, there is some slowdown in the requirements of UPS in the financial private sector, but it will be compensated by other industries.” According to Bansal, recession has no impact on companies manufacturing UPS systems up to 50 KVA, but those producing above 50 KVA UPS have been hit partially as these UPS are sold mainly in industrial segments where there is a reduction in demand.
Manoj Jain, vice-president (marketing), Microtek International, echoed the sentiments that the blow of the recession is not much on the UPS and inverter sector “as these products do not cater to the luxury segment, which is highly hit by the recession. In fact, we have maintained our growth momentum as always,” says Jain. “Demand for our products in the Asian and African countries has substantially increased,” he adds. Microtek International has hardly felt the pinch and has neither stalled any expansion plans nor reduced any promotions and campaigns. “In the coming years, the growth of this segment is expected to be 25-60 per cent, adds Jain.
“Global recession has not affected us,” says Naresh Goel, CEO, G S Enterprises. “Recession may had started since November 2008 and this trend may continue for a while, but as far as we are concerned, we are still growing.”
Speaking on the overall scenario of the industry, Sumit Gupta, director, Purevolt Products, believes the economic meltdown will not have any major impact on this segment, “as requirement for UPS and inverters is mandatory and users buying PCs will definitely buy UPS for protection of their systems. Hence, there is less impact on this sector.”
The UPS penetration is now taking place in cities and towns outside the major cities. Therefore, the sector is witnessing a speedy growth and this development has been viewed seriously by the concerned agencies and authorities. If at all this sector has been affected by the economic slowdown, it is expected that this essential sector will be able to tide over the crisis, no matter how minimal. In fact, the players can take advantage of this meltdown to do a market correction and once the market recovers from the recession, the market would do better as past experience shows. Sathpati feels, “ePower segment falls under essential categories, hence, no downtrend can touch this industry. The world cannot ignore an emerging economy like India and soon things will settle down for the better,” he observes.
Players marginally hit
Market analysts, however, observe that it would be erroneous to imagine that a recession felt in India would have no impact on the power electronics sector. The slowdown is bound to have reverberations on every industry, big or small. They are of the opinion that markets for UPS and inverters face an uncertain short-term future as they attempt to withstand the current economic downturn.
Going by the present situation, downfall in one sector may lead to a negative impact on all other related sectors, thus altogether everyone may feel the impact of the recession. Nevertheless, the impact varies from industry to industry and segment to segment.
Telecommunications and IT markets are the main end-user industries for UPS systems and these markets have been affected by the slowdown. Surveys show consumers, whose buying capacity affects the UPS and inverter sector, are spending less and staying away from buying new products during this period of recession. So, will that have an effect on this sector?
“Like every segment, recession has also affected the UPS and inverter segment and has slowed down its progress. This segment also faces a sharp impact due to the volatile nature of recession,” says Arun Ghosh, managing director and chief executive officer, HiTA Technology, Kolkata. HiTA has not shelved any expansion plan, but postponed them. “We are not faced with less business but problems related to payments stare us in the face. Payments have become very slow. We mainly concentrate on corporate sectors, where even big names are not been able to keep their payment commitments. Majority of our business comes from banking, financial services and insurance segment, where flow of business is not yet reduced. So we are safe,” says Ghosh.
“Our sale has gone down by 15-20 per cent and our export has been affected by 20-25 per cent. However, cost of importing technology and components have not been affected. Rather we’ve negotiated better by taking advantage of the effects of recession. We are also apprehensive about the negative effect of the segment in the coming months,” adds Ghosh.
“It is a well accepted fact that India and China have not been affected by the global recession as much as other parts of the world, especially the US and Europe. However, there are signs of recession in India as well and many companies will suffer losses because of their trade links,” clarifies Kapil Sood, proprietor, Fusion Power. Last few years the growth rate in the UPS and inverter market has been encouraging and the UPS market, taking a cue from the PC market, has also witnessed significant growth. But due to the slowdown things have been tough, feels Sood. “Expansion plans and new projects of many companies have been temporarily put on hold which is affecting the UPS market. As for the inverter market, which is primarily a consumer market, it has been affected as consumers are now prudent about spending money as they are aware that the coming months will be hard-bitten and are saving for the rainy reason,” he adds.
“Fortunately, our turnover is going as per the projections and there is no effect as such as far as our company is concerned. There is no loss in revenues as yet and we have not cut down on workforce and salary of employees. In fact, we have recruited new staff and salaries are being increased by 8-10 per cent from next month. Our promotions and campaigns are being carried out without any changes. Although we have not been touched by the recession, in the coming months the growth of this segment will be somewhat stagnant,” laments Sood.
Adds Sathpati, “Costs of technology and components have seen a marginal hike due to USD appreciation.” Jain counters this by saying, “Costs of components and technologies have not been increased much because it has been offset by rupee depreciation against dollar.” While Microtek International imports components, it develops technologies in its dedicated in-house R&D division.
Adds Bansal, “We do import UPS systems and components and due to sharp increase in dollar price, import prices have shot up. But due to decrease in excise duty (around 4 per cent), the impact is partial. Fusion Power imports batteries used in UPS systems and “costs of batteries have, in fact, gone down due to fall in metal prices and reduction in excise duty,” says Sood.
M R Rajesh, director, Powerone Micro Systems, Bangalore, feels that business of the sector has gone down marginally along with other private segments like software, textile and automobiles. “Our company had started feeling the pinch since last November. However, the intensity of the impact is not severe as we are executing some pending orders and government projects have been going on successfully. But we may face tough times in the next financial year. We had to remove some of the non-performing employees and a new team replaced them. Our expansion plans are still on but we had to cut down on promotions and campaigns. We have lost some revenue on imports due to USD variations. Business would be quite challenging in the coming months as requirements will be less but competition will be more. This year we may not grow, but hope to reach last year’s target,” observes Rajesh.
The electronic industry is a big market with huge potential in terms of growth segregated in organised and unorganised sector. According to Samant Choudhary, director, Samtek Electronics, the UPS and inverter segment has been affected by the economic conditions. “But we have not been affected much as our company is focusing on government sectors and there is no reduction in government procurement; in fact, it has increased. However, our sales had fallen marginally due to hike in raw materials in battery, but now the prices of inverters will come down as battery price has gone down from Rs 15,000 to Rs 10,000. This is because lead and copper prices have gone down in the international market,” says Choudhary. “We have not hiked product prices, but have postponed manufacturing higher capacity UPS,” he says.
Says Yogesh Dua, managing director, UTL India, “As UPS has markets in telecom sector, BPOs and direct industrial sectors, the market has been directly affected due to reduction in expansion plans of these industries. Though not that severe, inverter sector has been affected indirectly due to slowdown in funds movements. Sales of both the commodities have not grown to the expected level and the margins have been reduced to unexpected level, while expenses are more or less similar. For UTL, growth has been delayed as players in this industry are looking for diversions from the power segment.”
UTL manufactures its own designed products and never import technology, though it imports components. Instead, it exports its R&D services to the US. “Importing components are costing higher than usual due to higher USD-rupee relationship. The only silver lining seems to be that we did not cut down on workforce or salary of employees. We have, in fact, increased the number of employees and hiked the salary of the old staff. We have not cut down on promotions but are looking for the best yielding time for launching campaigns.” UTL takes the opportunity of this slowdown to give momentum to its expansion plans as it feels that since its competitors have stalled their growth plans, it will have an edge over them.
Strategies applied
The UPS and inverter players may not have felt the squeeze so far but if the crisis persists for a longer duration, it may affect the small businesses as they have lower stability and require smooth flow of liquidity that is derived from the market. There is already a shift in business strategies of both big and small players in this field to overcome the period of slow economic growth. Hence, the solution to this problem has become the priority for all players. According to market analysts, players will have to adopt a multi-pronged strategy, which includes diversification of export markets, improving internal efficiencies to maintain cost competitiveness and moving the product portfolio up in the value chain to impart resilience.
Sathpathi is highly optimistic of BPE’s performance in the coming year. “We are well poised for a good year ahead as we have planned strategically. We are venturing into new segments and focusing on government requirements. A huge replacement market is coming up soon, where old UPS will be replaced and we are targeting those as well.”
“We are taking the opportunity of this slow period to design and be more innovative with our products,” says Kamal Gupta Kamal K Gupta, CEO, Parker Power. “We view the present market scenario as an opportunity to strengthen our presence in the market. We maintain our growth and are working towards maintaining it further,” he adds.
Fusion Power is going for better management of manpower, enhancing efficiency of workers, plugging wastages, following up with payments from customers to reduce bank interests and intensifying marketing to increase its customer base and have more market share. “We have our fingers crossed as tougher times are yet to come. We are also focusing on better customer management, aggressive marketing strategies, better pricing of products and launching of better products,” says Sood.
“In the past few months, the net material cost of all products has gone up and we are taking all the cost-cutting measures to control pricing. We are doing reverse engineering and research to check all possibilities of reducing cost without compromising on quality,” says Ghosh. “We also had to cut down on the non-performers. Although we did cut down on product price, promotions and campaigns, we have reduced our annual budget for promotions and are very selective about campaigns. We are trying to reduce our import costs by renegotiating the prices. Ensuring timely payments from customers, reducing costs of overheads, optimising manpower requirements are some of the measures we are adopting for cost reduction. By making paperless office work, restricting telephone and mobile expenses of the employees we have been able to do well,” Ghosh adds.
“We are taking care of this situation by venturing into new avenues and new markets, which will reduce the effect to almost negligible,” says Jain. According to Sumit Gupta, many players are reducing prices, increasing discounts and working on new schemes. “However, the peak season is approaching and we hope to compensate the loss. We have stalled all expansion plans for the time being.”
“In the past few months the net material cost of all products have gone up and we are taking all cost cutting measures to control pricing. We are doing reverse engineering and research to check all possibilities of reducing cost without compromising on quality,” says Ghosh. “We also had to cut down on the non-performers. Although we did cut down on product price, promotions and campaigns, we have reduced our annual budget for promotions and are very selective about campaigns. We are trying to reduce our import cost by renegotiating the prices. Ensuring timely payments from customers, reducing cost of overheads, optimising manpower requirements are some of the measures we are adopting for cost-reduction. By making paperless office work, restricting telephone and mobile expenses of the employees we have been able to do well,” Ghosh adds.
Yogesh Dua is highly optimistic and confident of UTL’s performance. “We are well positioned to face the recession with our new product Hi-Lite, a high-frequency home UPS, which costs less and is much more user-friendly as compared to the parallel conventional products. We have also restricted budgets for mass level advertising campaigns. UTL is trying to be more innovative, technically. Better products with lesser costs will re-capture the intended market growth. So we are confident that the recession will pass by without denting too much on our working style.”
Uniline is all set to garner the larger pie of the increasing UPS market with its modular UPS systems and three phase UPS systems with touchscreen operations. “But a period of painful adjustment is inevitable,” says Bansal.
Powerone is concentrating mainly on government business for this current year. “We are cutting down on our travelling costs. We are making efforts to retain the existing customers and trying to enter new segments by offering attractive prices. We are also concentrating on AMC revenue,” says Rajesh. “There is no quick fix solution, so we are making concrete plans to ensure that the value we provide to customers remain optimised.”
Microtek has taken larger initiatives with most modern manufacturing infrastructure to address the mass production requirements. “We need robust infrastructure to attract and retain customers. We are keeping our focus clear, which is on value for money range of products for the masses. We believe better channel motivation and good incentive schemes will take us out of the present situation. Next couple of months will be quite robust for us as the summer is approaching, which is the peak period for power backup products demand. Hopefully, we will be able to do good business during this period and overcome the slowdown.”
Naresh Goel believes that business would not be that easy in the coming months. “We are basically observing the policy of wait and watch and making efforts to do the things that are of most urgent in nature. But if the similar situation continues for the next two quarters of 2009, then the situation will be more tough.”
Recession or no recession, all players are unanimous in believing that the future is very bright for this sector keeping in mind the current power scenario of the country. So despite the recent economic meltdown, the ray of hope of the power electronic industry remains unperturbed. “It’s time to wake up to the fact and move on. Those who don’t move up will be left behind in the dust of the economic slowdown,” the players declare undisputedly.
Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine
