How will the Indian PCB industry grow?

Is it possible for the Indian PCB industry to grow? What will drive its growth and what will hinder it? While trying to figure out answers to these questions, we got some insights from leading veterans in the Indian PCB industry. Electronics Bazaar presents their views, along with the opinions of others in the Indian PCB industry

By Sudeshna Das (with inputs from Sneha Ambastha)

Printed circuit boards (PCBs) are the backbone of the electronics industry. These are deployed in almost all electronic products, ranging from consumer gadgets such as PCs, tablets, smartphones and gaming consoles to industrial and even high-tech products in the strategic and medical electronics domains.
Considering the importance of the PCB industry in the electronics manufacturing ecosystem, the October 2015 issue of Electronics Bazaar had published an article titled, ‘An Outlook for the PCB Industry in 2015-16: The Indian Perspective’, covering the views of various stakeholders from within the industry.
However, given the evolution of the electronics industry’s ecosystem over the last six months with respect to the implementation of government policies, the investment climate and consumer demand, we decided to take a fresh look at the Indian PCB industry to understand how it has been shaping up. In this edition, however, rather than merely presenting perspectives shared by industry thought leaders, we also thought of sharing industry trends through a mini-survey of a sample group of 15 senior level industry members.

Signs of growth
Survey participants unanimously stated that they feel the industry is poised for growth during FY 2016-17. They feel the Indian electronics industry will touch US$ 400 billion by 2020, and will in turn fuel a high demand for PCBs. “The Indian PCB industry is showing signs of growth, at last. I can confidently say that one of the primary reasons would be the Make in India initiative. There are other reasons as well, such as policy changes by the government, combined with incentive schemes, which have created a very encouraging environment for the growth of this industry,” says Anil Kumar Muniswamy, director, SLN Technologies.
However, there are mixed opinions about the percentage of expected growth (Figure 1).

Growth drivers
In the past, most of the growth in the PCB market was driven by the consumer electronics segment, followed by requirements from the strategic and medical electronics segments.
According to survey participants, during FY 2016-17, LED lighting, automotive industry and industrial electronics will be the major growth drivers (Figure 2). Miniaturisation of semiconductor devices and enhanced functionality in electronic products is expected to drive the demand for more complex PCBs with higher number of layers, in large volumes.
In recent years, consumer demand and regulations aiming for low carbon emissions, energy savings and environmental protection have made LED lighting more attractive. The LED manufacturing segment in the country is poised to grow at a very high rate. This, in turn, will generate huge demand for PCBs. Presently, one of the best bets for Indian PCB manufacturers is in the area of energy meters, UPS systems and the automotive industry.  “Given that the automotive industry in India is growing steadily and every car needs two to 15 PCBs, depending on the features and functionality requirements, the demand for PCBs from this segment is bound to grow,” opines Paresh Vasani, MD, PCB Power.
Abhay B. Doshi, MD, Fine-Line Circuits Ltd, explains the category-wise growth of the PCB industry. According to Doshi, PCB manufacturers in the country mostly fall into the following segments:

• Large-volume manufacturers (mostly double-sided PCB makers, and a few who produce a good amount of multi-layered PCBs)
• Small-volume manufacturers (both double-sided PCB makers and a few who produce multi-layered PCBs)
• Small-volume fast-delivery manufacturers (both double-sided PCB makers and a few who produce multi-layered PCBs)
• Small-volume complex-design PCB manufacturers

Doshi specifically expects growth in the second, third and fourth categories.
Some of the survey participants indicated the possibility of demand arising out of advances in technology such as high density interconnection (HDI). This enables more interconnection functions per unit area, which will positively impact the market for advanced-level applications. According to Muniswamy, Internet access in remote areas, changing lifestyles with the increased purchasing power of the middle class and rapid growth of the e-commerce industry is expected to generate demand for PCBs required in mobile and portable devices, cloud computing servers and networking devices.
“Mobile computing, cloud computing and the Internet of Things (IoT) are the latest fads in the electronics industry, and we are seeing the emergence of local brands in mobile computing, which includes smartphones, tablets and laptops, among others. Policy changes are forcing local companies to start manufacturing in India and this should help the local PCB manufacturing ecosystem,” Muniswamy adds.
In addition, the recent thrust towards indigenisation in strategic electronics manufacturing is likely to fuel the demand for high-grade multi-layered PCBs.

The demand-supply gap
Among the survey respondents (Figure 3), 87 per cent feel that there is a demand-supply gap in the ecosystem as imports play a significant role in meeting local demand for PCBs. This does not bode well for the economic health of the industry in the long-term. According to an IPCA report, there is a gap of around US$ 950 million between the demand and supply of PCBs in the Indian market, which indicates that there are enough opportunities for new manufacturing plants to come up in India.

Obstacles in the path of growth
Currently, the output of the Indian PCB industry is less than 1 per cent of the total global capacity. According to the survey participants, the top challenges (Figure 4) that PCB manufacturers in the country face are:

• Inefficient supply chain for raw materials
• High capex requirements
• Unfair playing field, since companies from competing countries have access to finance at much lower cost

Other challenges include:

• Non-availability of advanced manufacturing equipment
• Logistics inefficiencies  and infrastructural bottlenecks, resulting in greater turnaround time and costs
• Conflicting policies that are in operation across the various levels within the electronics industry, from the components segment to finished products
  An inefficient supply chain and non-availability of a significant percentage of critical raw materials increases inventory costs. Vasani says, “There is no domestic supply chain for the raw materials required in the PCB industry. In view of our huge dependence on imports, manufacturers have to keep over three months of inventory, which adds to the costs.” The large import content of raw materials during a period when the dollar is strong, significantly impacts margins and hinders growth.
  The capital costs go up due to the very high cost of finance in the country—both for capital investment, as well as for working capital. The very low capital-output ratio in the PCB industry entails the need for huge investments and high interest costs. Thus, profitability is an issue. Manufacturers are not able to invest in new equipment, most of which is imported.
  Infrastructural challenges such as insufficient clean water and uninterrupted power, only a limited number of developed industrial parks, and the lack of a raw-material ecosystem are some of the hindrances in the PCB industry. Vasani also mentions the need for huge investments associated with the creation and maintenance of effluent treatment facilities as one of the major challenges for this industry. In this regard, he emphasises the need for support from the government, and feels that this could enable India to exploit the opportunities created by the widespread shutting down of PCB manufacturing in the European Union due to stringent pollution-control laws.
  All these challenges lead to an increase in the price of the products, making Indian-manufactured PCBs less competitive than their Chinese counterparts. The life span of the typical PCB manufacturing equipment used today is a maximum of four years, after which these tend to become redundant.
  The survey participants also revealed that there are some capability constraints faced by the Indian PCB industry. At present, India does not manufacture PCBs for the high-growth segments such as mobile handsets, laptops or set-top boxes. The Indian industry manufactures PCBs only for consumer durables like televisions and power electronics products such as UPS systems and inverters. Even LCD/LED televisions require high-tech PCBs with a specification of 5mil x 5mil boards. This often results in high rejection of Indian PCBs in this segment.
  Most Indian PCB companies in the past catered to a small local market consisting primarily of public sector companies and, therefore, never felt the need for continual improvement. To grow in today’s competitive environment, however, PCB companies must focus on top-notch quality that can be sold in any market across the globe. Developing a global market for products will reduce reliance on local demand.

Growing inorganically
Almost two-thirds of the survey participants believe that inorganic growth can play a major role in this segment (Figure 5), either through mergers and acquisitions (M&As) or through joint ventures (JVs). Muniswamy states, “I strongly believe in M&As as these help companies to grow inorganically in a short span of time. Entrepreneurs often fail to grow beyond a certain point due to lack of vision and leadership. They begin to resist change. Most early starters restrict themselves to the domestic market, thereby limiting their exposure, unlike Chinese firms that set out to conquer the world markets. There are still many PCB companies that are running businesses like a lifestyle and these are good candidates for M&As. The founders of these firms need to let capable people run the company, sit back and enjoy the success.”
Since most manufacturers in the country will find it challenging to make the huge investments required to produce PCBs for high-tech products like set-top boxes and mobile handsets in large volumes, any kind of partnership with foreign companies could help Indian firms manufacture high-tech PCBs via technology transfer.

Advantages in India
In the last few months, campaigns like Make in India and Digital India have attracted huge FDI inflows to the country from across the globe. This has created more opportunities for outsourcing work by companies such as Foxconn. Besides, the exponential growth of the mobile phone market is fuelling the growth of electronics manufacturing units, and the day is not far when a large company will set up a local manufacturing facility for HDI boards to cater to the mobile phone industry. Survey participants identified the top three favourable initiatives as (Figure 6):

• Special incentive schemes such as MSIPS by DeitY
• Electronics manufacturing clusters by industry associations
• Special PCB manufacturing clusters by state governments

“For the first time in decades, venture capital (VC) funds are available at interest rates as low as 6 per cent to 8 per cent. Some companies are looking for JVs with foreign companies to bring cutting-edge technology to India. There are at least half a dozen companies in the pipeline for establishing greenfield PCB projects in India, which include two JVs. Therefore, right now is the best time to invest in the Indian PCB industry,” says Muniswamy.
Looking ahead
Despite limitations like an inefficient supply chain, the capital-intensive nature of the industry, a low investment-to-sales ratio, logistics and infrastructural issues, the Indian PCB industry should be able to witness sustainable growth if the government can provide a level playing field for the industry. As Vasani rightly comments, “We do not need nurturing or subsidies. Instead, the government should be a catalyst for growth. Take the case of the Indian automotive industry, for example; the government discourages automotive imports with its high duty structures and complicated registration process, compelling automotive companies to manufacture in India, resulting in a proper manufacturing ecosystem. The government should create a similar environment for PCBs and other electronic components as well.”
Given that there is a huge domestic demand for electronics products, it will help not just the PCB industry but the entire electronics ecosystem to achieve long-term sustainable growth in line with the Make in India initiative.