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Cable industry: Opportunities well laid out - Views on News from Equitymaster
 
 
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  • Sep 26, 2008

    Cable industry: Opportunities well laid out

    Cables play a small but significant part in infrastructure activities. With strong investments proposed across sectors such as power,realty, industrial and telecom, the cable industry in India is slated for a strong growth going forward. In this article we will cite the opportunities across these segments.

    Power
    With the government recognising the power sector to be the backbone of sustained industrial growth, robust investments have been proposed towards building up capacities. For India to sustain its GDP growth at over 8%, it is estimated that the power sector should grow atleast 1.8 to 2 times of the GDP, translating to an addition of generation capacity by nearly 18,000 to 20,000 MW (megawatts) each year.

    Power cables play a crucial part in all the three aspects of the power sector - generation, transmission and distribution. The power sector in India is characterised by shortages on account of various factors such as pilferage, theft, equipment defaults (due to poor quality), amongst others. Increasing amounts of power deficits has increased the demand for quality equipment and higher voltage power generation. As such, the major cable manufacturers have ventured into manufacturing extra high voltage (EHV) cables along with expanding capacities to meet the demand rising demand.

    It is estimated that nearly 3% to 3.5% of investment per MW goes towards power cables. Therefore, with an approximate investment of Rs 40 m per MW, the demand for cables will be in the range of Rs 1.2 m to 1.4 m.

    Approximate opportunities for power cable industry
    SegmentEstimated cost RangeOpportunity
    Generation3,4303%-3.5%103-120
    Transmission1,2931.5%-2%19-26
    Distribution1,44310%144
    Total6,166-266-290

    Source: PCI; All figures in Rs bn

    Strong capacity addition plans have been proposed for power generation during the eleventh and twelfth five-year plans. The Planning Commission of India (PCI) has proposed capacity addition of almost 78,000 MW (although the actual addition is likely to be lower) during the eleventh plan (2007-2012), translating as opportunities in the range of 103 bn to Rs 120 bn. Further, on a conservative basis, it is estimated that nearly 1.5% to 2% total project cost in the transmission segment goes towards power cables. Power distribution on the other hand generates the highest demand for cables, approximating to nearly 10% of the total project cost.

    Industrial
    Investments in the industrial sector, comprising of buildings, factories, and industrial units across various sectors such as steel, power, fertilisers, oil & refinery, aluminum, cement, mining, among others, also generate demand for power cables (both low and high tension cables). It is estimated that nearly 2% to 2.5% of the total capex plans goes towards power cables. With Indian corporates estimated to spend around US$ 150 to US$ 200 bn as capex over the next few years, the demand for cables from the sector is expected to be high.

    Communication
    Cables are the backbone of the communication sector. Favourable demographics and increased discretionary spending drive the growth of this sector. As we all know, India is the fastest growing telecom market in the world adding nearly 8 m to 9 m subscribers every month. In addition, the telecom companies are aggressively making inroads into rural markets. In addition, with the government estimated to contribute nearly Rs 18 bn towards the Universal Service Obligations (USO) fund on an annual basis, the demand for telecom infrastructure, including cables is expected to remain strong.

    Realty
    According to the eleventh five-year plan document, there is a shortage of 24 m homes in the country. While there has been a significant slowdown in real estate demand in the recent past, the above-mentioned fact still stands intact. As such, this sector is scheduled to create strong demand for commodities (including cables) going forward. Growth across segments such as residential, commercial and retail will be the major factor for this segment going forward.

    Key concerns of cable companies
    While the market opportunities remain vast, being a manufacturing industry, cable players will continue to face input cost pressures. With copper, steel and nickel being the major materials consumed, volatility in prices will have an adverse impact on the companies going forward. Passing on the costs to the customers may not be an easy task considering that most of the orders are small sized. Strong competitive environment, currency fluctuations and shortage of manpower are other factors that this sector needs to address in the long run. Also the fact that operations are working-capital intensive makes companies' balance sheet sometimes stretched.

     

     

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    2 Responses to "Cable industry: Opportunities well laid out"

    Rishabh

    Jan 17, 2012

    Project report & market

    Like 

    RAVIKUMAR S

    Oct 5, 2009

    Interested in project reports and MAarket scenerio for HT Cable industry in Indian market conditions

    Addl General Manageer
    New Products
    BHEL-EPD
    BANGALORE

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