Most of the firms that are dependent on government contracts are looking at a dry pipeline in the near term.
“The liquidity issue which was already there with power distribution companies
(discoms) has aggravated now. Our working capital employed is high as typically we have project orders with long lead times and payment cycles. Liquidity will be a major challenge and needs policy level intervention,” said Vipul Ray, managing director, Elmex Controls Pvt Ltd, a Vadodara-based leading terminal control manufacturer.
State-owned discoms, which are financially beleaguered, owe close to Rs 7,500 crore to electrical equipment manufacturers. This is apart from the Rs 90,000 crore that is due to power-generating companies.
“The profitable revenue of discoms
has stopped. So the financial situation of discoms
will further deteriorate. Discoms
will buy only what is needed to run the system and are unlikely to invest in new technologies or new systems,” said a leading electronic meter manufacturer. It will be a long-term impact of 18 months to two years for the industry to bounce back to normal.
Close to 70 per cent of the electric equipment sector comprises micro, small, and medium enterprises. The fear is that a lot of their loans will become non-performing assets in a few months.
“While on the one hand the electrical industry has no operations and new orders have no cash inflows, on the other hand, there are many statutory liabilities with cash outflows and a severe liquidity crunch,” the Indian Electricals and Electronics Manufacturing Association (IEEMA) said in a letter to the Ministry of Finance.
are, however, unperturbed by the current slowdown. Vimal Kejriwal, MD & CEO, KEC International, a leading power transmission company said, while their domestic operations have been hit due to lockdown, overseas projects continue to operate.
"As we have an order book/L1 position of more than Rs 20,000 core, we do not see any major issues. For us the lockdown
has only resulted in deferral of revenue and not loss of revenues like others," said Kejriwal. Sterlite Power, which owns and operates transmission lines and also is a leading EPC (engineering, procurement, construction) player in the transmission and distribution segment, said there was not much liquidity concern.
R K Chugh, head, digital grid, South Asia, Energy Management Division, Siemens, is hopeful. “We might see some recovery if there is no rebound of the virus from October onwards.”
However, companies say the ticket size of projects offered by states would be reduced. “Power consumption is growing by close to 15 per cent in the cities, so discoms will have to continue to add more capacities in their existing system. However, it would mostly be capacity enhancement, which is comparatively smaller contracts,” Pratik Agarwal, chief executive officer, Sterlite Power, told Business Standard.
He said the company had orders of close to Rs 1,000 crore for capacity upgrade by the discoms in sub-urban areas.
“The brownfield market in the T&D segment, under which the existing system is enhanced, totals up to Rs 3-4 crore annually. Though it is a niche market, the states would need to keep investing,” said Agarwal.
He is also betting on the growth of renewable energy projects in the country. “The entire revenue will come from the existing orders in the medium term. Temporary slowdown is fine as long as the renewable projects pipeline continues. If renewable capacity addition continues, there will be natural requirement of equipment,” said Agarwal.
The Centre runs an ambitious programme for upgrading power systems in urban areas under the Integrated Power Development Scheme (IPDS). Of the sanctioned cost of Rs 28,259 crore, the amount to states stands at half of that, indicating low progress.
States are also yet to issue their target trajectories for smart and/or prepaid meter installations. In the last meeting held with the states, the Ministry of Power asked the states to enhance their focus on the IT infrastructure of discoms.
Chugh said digitisation and automation would be the newer trends to emerge and drive demand in the electrical sector.
“We have seen in lockdown
the great role automation plays. So this is an opportunity to capitalise on that. We have to be vigilant and focus on new trends in the domestic and export markets. We are expanding into high-technology areas such as digitalisation, automation, internet of things,” he said.
Ray, however, says demand will drop from non-utility sectors such as real estate and private industries, along with power. “Equipment makers will have to look for other opportunities such capacity expansion in pharma, railways and low-voltage electrical solutions across sectors, including exporting products. We are basically engineering companies so we should modify our product range offering to meet the needs for these new sectors and geographies,” he said.