Big orders bring back the spark in electricals sector

Infrastructure major Larsen & Toubro on Wednesday bagged its single largest order in the power transmission and distribution sector.

The Rs 2,935-crore order for engineering, procurement and construction (EPC) was given by Qatar General Electricity & Water Corporation to build extra-high voltage sub-stations and cabling.

Companies like L&T, which have traditionally been strong in the Middle Eastern markets, have already gained from their strategy to bag more global orders.

“Exports have been the lifeline for many Indian companies as domestic orders have dried up in the last few years. Also, Indian capital goods companies have been expanding and upgrading their capacities, gaining more access to international markets,” said Raj Eswaran, president, Indian Electrical and Electronics Manufacturers’ Association (IEEMA).

However, experts said Indian share in exports should increase. It is currently at around $5 billion per annum.

“There is potential for it to increase to $25 billion, especially in markets like Africa and Middle East,” said Easwaran. The sector has been seeing a dry spell for almost two years.

The built-up capacity in the sector across the industry has a lot of under-utilised capacity, which experts feel will be able to fill with more export orders. The sector had also been battling cash crunch, as a lot payments from Indian power utilities were stuck, adding to lack of credit availability, which in turn led to project delays. The sector is also being troubled by rupee depreciation, as it imports copper, plastic and insulation which is dollar-denominated.

IEEMA said most companies were forced to absorb the increased costs due to high competition. In the first quarter, the electricals sector started its turnaround, as it posted growth of around

two per cent. This was an improvement as it was showing negative growth for four quarters before that.

In 2012-13, the industry showed a negative growth of 7.8 per cent, according to IEEMA. The second quarter has improved with a 9.8 per cent growth, as domestic orders also started showing improvement.

“Cash flow of utilities has started improving and inquiries for orders are also huge now. If we bag enough orders now, the industry will be able to wipe out the losses it had made in the last two-three years,” said Easwaran.

While domestic orders from construction and real estate have also been picking up, it is orders from power transmission projects which are helping the sector more. Renewable power generation projects as well as sub-station projects from Re-structured Accelerated Power Development and Reform Programme (R-APDRP). This has already started to show. It showed a growth of 18.7 per cent as compared a negative growth of 4.5 per cent in the last quarter. Prices, however, remain to be subdued due to high competition and fewer orders. But experts hope as more orders will come for bid in a bulk at once.