Power: LED There Be Light
LED bulbs manufacturing and distribution has helped all stakeholders in the industry
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Enroute 'Prakash Path'! An election manifesto term coined by the government to accelerate India's energy efficiency journey, became a fortune well for India's domestic lighting companies. Light Emitting Diodes, LED, a nascent market four years back in India is today poised to take India to a leading spot in the global LED bulb market.
Now why is the LED bulb's journey and transition significant? It the hammering numbers that apprise the journey. The LED market in CY10 stood at Rs 5 billion in CY10 with an overall lighting market share of mere 6 per cent. Today the share stands tall at the tune of 15-20 per cent and is forcasted to jump to Rs 115 Billion by CY17, grabbing a share of whopping 45-50 per cent, according to Motilal Oswal Light Electrical Report 2016.
These flourishing numbers can be appended to the growth of any other growing industry and become more so obvious , given the momentum of government's push towards energy efficient LED, 77 crore LED bulbs target, to be precise. But what is appeasing is how the industry was able to catch hold of the same momentum and build up capacities to cash on the initiative. The pace of the whole transition is what catches the eye of the experts.
Quoting live numbers, at the time this story is being penned down, the government has been able to save a cost to the tune of Rs 11926 crore annually and reduce the carbon emission of 24150213 t CO2 per annum through this initiative. Running parallel to the this, the LED industry stands at a value of Rs 3395 crore today, with capacity utilisation shooting up to around 80-90 per cent. It was a big risk undertaken by the government, but it is commendable to witness how the industry was able to expand the spaces they contained, coming out from the price muddle.
Cashing On The Scheme
310, 149, 82, 65, 38! These are no poker bets, but the prices of the LED bulb sliding down in the Energy Efficiency Services Limited, EESL, tenders, since the first bidding in 2014. With the program bringing in huge tender demand, the companies were able to deploy the economies of scale and bring the price down.
But what came out as a catalyst was the declining prices of the electronic chip used in LED and majorly imported from abroad, which fuelled the transition and gave the scheme itself some additional fuel for growth.
"The atmosphere has been very favourable and the timing has been perfect with global transition and technology up gradation. The LED industry was itself going to transform in a big way", says Sunil Sikka, President, Havells India, one of the top players in the LED industry today, running at a rate of 2.5-3 million LED lamps.
Over 70 per cent of the total lighting revenue for the company is expected to come from LED business and the growth has been in excess of 20 per cent. The potential has been so high, that the company runs two separate dedicated plants for lighting, out of 15 total units across India.
"In last two years, the government has emerged as a big buyer constituting about 33 per cent of our business", says Harsh Chitale, VP & MD, Philips Lighting India, which witnesses a favourable transition from conventional to LED.
"The company holds about 25 per cent of the market share of LED lighting and has made a high double-digit growth in last two years and it is running at its full capacity in the country to match the surge in demand. We have seen a massive shift in market towards LED lighting in the last two years. In the consumer segment, about 30 per cent of the lights sold today are LED bulbs", says Harsh.
Like Philips, there are other global players like OSRAM and Crompton who have increased their base of LED production in the market, cashing big numbers, in the count of last few years.
New Players On The Block
The lighting fixtures industry was reserved for small scale 2010, until all the big players like Bajaj, Wipro, Philipis came into manufacturing, who were earlier procuring the material from the vendors.
During FY 2015-16, Bajaj Electrical Lighting business achieved a turnover of Rs 615 crore with growth of 20 per cent. This growth was credited to the steep increase in LED turnover to Rs 112 crore from Rs 18 crore the previous fiscal , which includes sales of Rs 61 crore to EESL.
The thrust of shifting from the vanilla bulbs to the LED was so high that the industry is witnessing heavy competition. Newer players have entered the market in the last few years sensing the large opportunity in the business, giving competition to the big guns. Syska LED, Eveready, Oreva have already established their channels and are on expansion mode. Eveready's lighting business doubled from Rs150 crore in 2014-15 to Rs300 crore in 2016-17 and has spent 25-30 crore in marketing its line of LED bulbs.
Advertise And Monetise
A key differentiator in the any new light Electrical segment is the advertising spends to gain consumer mind share and develop a "pull" factor for the company, as indicated by the Motilal Oswal report. Among the major players Crompton has spent 2 per cent of its sales on advertising over the past six years till 2016.
Havells has deftly used advertising spends (3-3.5 per cent of sales) to create a premium positioning. With most companies now eyeing market share in new product categories, advertising campaigns are becoming more important, which is evident from the famous Irfan Khan Syska LED jingle.
The Big Transition- CFL, GLS, LED
Owing to the technology disruption of LED, most of the companies are on the verge of almost completing shutting down the CFL production.
"We are now completely on LED with a total rule out of CFL, barring some replacements. But most of the new purchase orders are LEDs", says Rakesh Khanna, CEO, Orient Electric, a fairly new player on the block in comparison to its peers, but boost of high rural penetration with more than 1000 outlets and two manufacturing facility in Noida and Faridabad. The company has till date delivered more than 12 million bulbs to the government and is entering into new partnerships in street lights, apart from its regular trade distribution.
A vital point to note is that these companies didn't face hiccups in the transition as one can continuously and steadily ramp up production for LED. "It is not very high tech, when it comes to manufacturing LED, it is more of an electronic assembly unit. The production can be continuously ramped up in steps and the company need not put an extra plant for LED production. So for-seeing the demand in the market, we are quickly able to ramp up", explains Sunil.
Bright Future: Time To Let The Market Play
All packages of growth come with their own set of challenges. The LED industry got its imperative push from the government, however, now the industry calls for market forces to do the play. "The prices have substantially come down and its time the intervention that was required at one time as a necessity, but it is time for the market forces to survive. The companies today have the required distribution channel, even in the remotest part, to take this movement further", says Sunil
There is another big question raised- What would happen to the prices when the government takes an exit call, as it was the most vital component for LED industry's growth? With the recent LED tender quote of Rs 38, the industry will have to cut corners to cope up with the price difference, as explained by Shyam Sujan, Secretary General, ELCOMA, who is optimistic of the industry's push towards R&D and other companies joint effort with the government to bring down the cost for better margins.