Power Cables Industry: Light At The End Of The Tunnel

The growth is mainly attributed to demand from user sectors like state electricity boards (SEBs), power generation and construction sectors.

As many as 194 private sector proposals for setting up power plants with a total capacity of 75,296 MW may go on stream in the near future. Thereafter, the future growth demand for power cables may rise by 25 per cent annually aided by the demand from the replacement market of about 20 per cent of the total indigenous demand.

During the ninth plan period, the demand for power cables from new power projects alone is estimated at about 45,000 km per annum.

 

Low growth in power generation during the last three years and a substantial decline in the generating capacity in 1995-96 have not deterred the demand for power cables from rising to 30,788 km in 1995-96 (Apr-Jan) from 18,247 km in 1991-92.

According to industry sources, the current installed capacity of power cables - paper insulated lead cables (PILCs), polyvinyl chloride (PVC) cables and cross linked polyethylene (XLPE) cables - is around 70,000 km.

On the present installed capacity of 70,000 km of power cables, production for 1995-96 is estimated at 43,092 km, a capacity utilisation of 62 per cent. Yet, this is a vast improvement over 1992-93 and 1993-94 when it was just 29 per cent and 33 per cent respectively.

In the past, the industry overstated capacity to avail of higher raw material (aluminium and copper) allocation from the government. However, the actual capacity was less than disclosed.

At present, the power cable industry in India is capable of meeting the entire demand of the country for power cables, even for extra high voltage of 220 KV. Prices of power cables in the international market are around 15 per cent lower than the domestic varieties.

The present duty structure does not make imports economical. The import duty on power cable is 50 per cent with an additional countervailing duty of 25 per cent.

The industry has had a good track in updating its technology base. Manufacturing is concentrated in PVC cables, followed by XLPE cables.

The PILC (Paper Insulated Lead Covered Cables) cables are now substituted by XLPE cables. However, cable manufacturers have retained some capacity to cater for exports.

Many cable manufacturers have technology collaboration with international manufacturers. This has helped the power cable industry to keep up with technological changes and global quality standards.

This is perhaps the reason why the range and quality of indigenously manufactured cables is finding increasing acceptance in export markets.

The nine power cable companies reported an impressive performance in the year to March 1996. Their sales income rose by 42.5 per cent to Rs 1,351.5 crore (Rs 948.2 crore).

Overseas Cables and Uniflex Cables showed an excellent performance with an increase of 196.6 per cent and 139.2 per cent respectively in their sales income. Operating profit of the nine companies rose to Rs 183.2 crore (Rs 114.4 crore) - up 60.2 per cent. Cable Corporation, Delton Cables, Kei Industries, Overseas Cables, Universal Cables and Uniflex Cables exceeded the average growth in operating profit, while Asian Cables, Nicco Corporation and Torrent Cables did not fare well.

Gross profit of the companies increased by 82 per cent to Rs 110.2 crore (Rs 60.6 crore). The net profit of the companies increased by 128.2 per cent to Rs 64.1 crore (Rs 28.1 crore). Cable Corporation of India showed an increase of 3061.5 per cent in the net profit (before considering extraordinary items).

Most of the power cable companies did well, thanks mainly to subdued prices of key inputs such as aluminium, copper and PVC during a greater part of the year.

This has helped an improvement in profit margins in the year to March 1996. The operating profit margin of the nine companies improved to 13.6 per cent (12.1 per cent), gross profit margin to 8.2 per cent (6.4 per cent) and net profit margin to 4.7 per cent (3 per cent).

Cables link power utilities on one side and users on the other. High voltage cables are used mainly in power stations, large switchyards and major industrial complexes.

Medium voltage cables are used for power distribution in metropolitan cities. Low voltage cables have a variety of applications from power distribution to controls. India has indigenously developed 230 KV power cables with XPLE insulation as XLPE cables have better insulation and greater voltage carrying capacity. At present, only Cable Corporation of India manufactures 230 KV cables.

The power cable industry has two segments - high voltage and speciality cables and low voltage wires and domestic cables.

The first segment is dominated almost wholly by the organised sector as it needs higher investments and scientific technology, while the second segment is dominated totally by the unorganised sector.

The output of the organised sector in low voltage wires and domestic cables is very small compared to the large output from the unorganised sector.

There are about 25 players in the organised sector and 500 small manufacturers in the unorganised sector.

The organised sector mostly turns out low-tension (LT) power cables. Only six companies manufacture high tension (HT) power cables.

The major buyers of power cables are SEBs and public sector power utilities.

SEBs account for 80 per cent of the total demand for power cables.

Bids influence orders and usually the lowest bids win the order nullifying the marketing and distribution skills.

Large power shortages have forced medium-sized companies to set up their own captive power plants to reduce loss in production. The country has a captive generation capacity of 10,000 MW. Demand for power cables from captive power plants is limited by its requirement. Since power is mostly consumed by plants avoiding distribution of power, this leads to a decline in demand for power cables. Ironically captive power plants dampen demand.

The power cable industry is raw-material intensive. The share of raw materials in net sales of the select five companies stands at 55.1 per cent ( 59.1 per cent) in 1995-96.

In absolute terms, raw materials consumption increased from Rs 394.9 crore to Rs 502.8 crore. Raw materials used for the manufacture of cable include aluminium, copper, PVC and XLPE compounds.

In India, power cables mostly use aluminium as the major raw material as it is economical though copper has better conductive properties than aluminium.

The power cable manufacturers, too, face a host of problems. Delayed payments by SEBs add to the cash flow problems for the industry.

The high excise duty has also put pressure on increasing working capital requirements. In spite of strong representations and follow-up action by the Indian Electrical and Electronics Manufacturers Association, the government only marginally reduced the excise duty on cables by 5 per cent in the 1995-96 budget.

The industry is optimistic that the situation would improve with the private sector entry on a big scale in the power generation field.

The national economy depends on power for its growth. The government has liberalised the policy inviting power projects with foreign participation.

The power cable industry is hopeful that with this liberalisation there would be a quantum jump in the demand for power cables.

However, there are some doubts whether the present uncertain political scenario will help to sustain the projected demand of the industry.

Factors like a few dominant buyers, high raw material content, increasing working capital and high dependence on growth of power generation may determine the market for power cables.