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BW Businessworld

A Power- Packed Performance

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When G. Bala Reddy spotted his big opportunity, he was written off by experts. It was 1998, way before the path-breaking Electricity Act of 2003. Reddy figured that there was money to be made in the AT&C (aggregate technical and commercial) loss control segment in the power sector. In short, Reddy, managing director of Hyderabad-based ICSA (India), planned to make smart meters and software to monitor power processes, including unexpected losses. The idea was ahead of its time.

Reddy, though, stuck to his guns, and was proved right. Initially, very few companies were interested in ICSA's products. But in 2005-06, when the government woke up to the problem of energy losses and urged the utilities to check them, demand for ICSA's products shot up. Prices for smart meters and software came down. Clearly, ICSA's early entry, thanks to Reddy's prescience, has given the company a big advantage over its peers. Over the past five years, its top line has been sprinting at an average growth rate of 122 per cent, and profits, 98.6 per cent, giving it second place (after Shree Ganesh Jewellery House) in the heavyweights category (sales in 2009-10: Rs 1,000-4,999 crore) of BW's listing of India's Fastest Growing Companies.

Today, ICSA operates under two broad verticals — technology and infrastructure. Under technology or the embedded solution and software business, the company makes SCADA (supervisory control and data acquisition) systems — a combination of hardware, controllers, networks, communications equipment and software used to remotely monitor data in, say, power, traffic signals and water management — and smart meters based on GSM and GPRS technology to monitor power distribution. The company develops these products at its Hyderabad R&D centre. It also provides AMR (automated meter reading) technology, which allows remote supervision of tampering.

Shubhranshu Patnaik, senior director at Deloitte Touche Tohmatsu India, says smart meters have become attractive recently due to reduction in prices. "All the meter manufacturers are already looking at acquiring something in the smart grid space," he says. "It is a major growing segment going forward." Patnaik expects costs to fall further with increasing demand.

Till two years ago, technology business was the bigger segment for ICSA, but because of changes in the macro level (such as state polls) and at the policy level, funding took a hit and affected its business model. As a result, ICSA had to depend more on its power infrastructure business, which provides lower margins than technology. Not surprisingly, even as it grew its top line and bottom line impressively, its profit after tax shrunk from Rs 153 crore in 2008-09 to Rs 122 crore in 2009-10.

Today, the power infrastructure business, which began just four years ago, contributes about 60 per cent to ICSA's revenues, and offers infrastructure such as transmission lines and substations. Naturally, the firm plans to focus more on its technology business to garner high margins. But while it expects a 50:50 balance between technology and infrastructure by fiscal 2013, ICSA is not in a great rush to redress the imbalance. "Until and unless we understand the power infrastructure business well, we are not thinking of growing one more than the other," says Reddy. "We have to monitor it remotely. We will take a call after a couple of years."

During 2009-10, ICSA's growth slowed compared to previous years, with its revenues growing by only 10 per cent and net profits falling by 20 per cent. According to Reddy, the fall was caused by factors such as delay in technology project approvals and implementation, general elections and the government's R-APDRP (restructured accelerated power development and reform programme) funding. Growing competition from players such as L&T, ABB, HCL Technologies, Honeywell and Areva across verticals has also hurt ICSA. R-APDRP is a flagship programme of the government with a total outlay of about Rs 51,000 crore. Under it, companies assist power utilities to strengthen and upgrade transmission and distribution networks from concept to commissioning in order to facilitate a reduction in AT&C losses.
And therein lies an opportunity for the firm to get back onto the growth track. "PFC (Power Finance Corp) is funding state electricity boards to implement SCADA system (as part of R-APDRP), for which PFC has empanelled about 15 companies globally; ICSA is one of them," says Reddy, adding that the scheme would help the company capitalise on orders to the extent of Rs 2,000-2,500 crore over three years for implementing SCADA in urban areas.

India currently ranks among the top countries that face a severe problem of AT&C losses. According to the Planning Commission, in 2010, AT&C losses were 25-35 per cent in most states. This figure is as low as 3-4 per cent in other parts of the world. Hence, to meet the challenges and bring down the level of these losses, the government initiated upgrading of its T&D infrastructure, leading to the proposed introduction of a smart grid and recommendation of R-APDRP to intensify IT use in distribution. "Losses are not acceptable and they need to be brought down to nil," says Reddy. "For that, you need to upgrade the infrastructure. So, naturally we will have a huge opportunity there."

No.2 Rs 1,000-5,000 cr

 Growth factors:

  •     Had the first mover advantage in power loss tracking

  •     New rules on AT&C losses created demand for its technology, tools


  •     New players; growing competition

  •     Managing working capital;availability of specialised manpower


  •     Implementation of SCADA system as part of R-APDRP by state electricity boards will fetch huge business


ICSA now has a presence in 14 states including Orissa, Andhra Pradesh, Maharashtra and Gujarat. It is now in the process of bidding in states where it does not have a presence. It expects to add another four to five states to its portfolio by March 2012. "This year onwards we are expecting the revenues to grow about 25 per cent year-on-year and the growth drivers would be SCADA business, high-end power infrastructure and the energy meter segment," according to Reddy.

The firm is also planning to enter the high-end segment of infrastructure by putting up a 755-KV substation from current levels of 400 KV. While competition will be intense against incumbents such as Siemens and ABB, better margins is the big lure in this segment.

Managing working capital is a big issue before Reddy. "Once you grow, it becomes a big challenge as you have to bring down the payment cycle," says Reddy, adding that the working capital cycle has come down to 150 days from 200. He expects it to come down to 90 days going forward. Availability of specialised manpower is another headache, and it is a challenge that will become bigger as the company grows. Well, hyper-growth does have its pangs.


(This story was published in Businessworld Issue Dated 23-05-2011)