As an integral part of power infrastructure, cables have an indispensable role in reaching power from generating stations to local consumption points. This special story by Venugopal Pillai, takes a closer look at two distinctive features of the cables industry—the muddle in the low-voltage segment and the exciting opportunities in store for extra high-voltage cables.

Like any other electrical equipment segment, the cables industry is very diverse in terms of its product range and level of quality. The cables industry covers the entire spectrum from low-voltage home wiring cables used at the final consumption point to extra high voltage (EHV) cables used in subtransmission and distribution lines. The market segmentation is inverted in that there is a plethora of small manufacturers at the lower end while the sophisticated EHV cables category is reserved only for the top-end class that typically include large domestic and multinational companies.

The electric cables industry is perhaps the most critical as it covers, in conjunction with conductors, the entire value chain from power generation plant to power socket. Apart from cables used in the power supply chain, specialty cables are also needed by the industrial sector for use in heavy machinery, automobiles, consumer goods, etc.

Growth in the cables industry is linked directly to the investment in the power sector. Further, the fortunes of the low-voltage cables segment are also governed by prospects in the consumption sectors, mainly domestic and commercial real estate. To a significant extent, the consumption of specialty cables also depends on patterns prevailing in the industrial (manufacturing) sector.

In this special story, we aim to discuss the two ends of the spectrum. On one, we have the low-voltage building wire segment that has always been an area of concern; and on the other is the fast-emerging EHV cables that is today the biggest business opportunity.

A. LOW-VOLTAGE CABLES
Also referred to as building wires, this is the largest segment in the electric cables industry, at least in terms of number of manufacturers and consumers. The estimated market size of the building wire industry is Rs.10,000 crore with annual growth pegged at 15 per cent. Unfortunately, this segment is grossly unregulated with anarchy prevailing rampantly. This segment is overcrowded with local players that pay no heed to quality or safety. Players in the unorganized sector are cognizant of the huge demand potential and can always serve this growing market, but competing with local players on the price front is impossible.

The obvious reason why local brands continue to flourish in the market is that there is a market for it. Consumers are indeed buying these wires, either inadvertently or willfully. Products made by a reputed manufacturer could be between 40 to 60 per cent higher than that of a local brand. Products made by marginal players in the unorganized sector obviously use inferior material - be it copper or the PVC insulation. The copper used is not oxygen-free, which results in poor conductivity. Worse is that the insulation is made from cheap polymer, which can pose a grave hazard to human lives, in case of accidental fire. Studies have shown casualties during a short-circuit induced fire are not because of the fire per se but due to the toxic fumes emanated during the burning of the insulation material. Flame retardant cables of the highest quality are produced only by organized sector players but they come at a price. Unorganized players simply cannot afford to produce quality material at prices that they offer.

It is encouraging to note that over the past decade, home owners and real estate developers are getting increasingly conscious of the safety element of building wires. Aggressive awareness campaigns launched by reputed manufacturers and trade associations are responsible for this change in mindset. It is estimated that in the four metropolitan and tier-1 cities, organized sector players have a market share of 90 per cent in the building wire segment. However, when one moves to tier-II and tier-III cities, this share drops sharply to 30 per cent. At a national level, the share of unorganized sector players is around 40 per cent.

As discussed above, the highest percolation of unorganized sector manufacturers is in tier-II and tier-III cities, and of course the rural markets. In these areas, when electrical wiring is done, the choice of wires is usually left to electricians and not property owners. Electricians would compromise on quality because it helps them tender an "affordable" and "reasonable" estimate to the property owners. Most importantly, the ill effects of using an inferior electrical cable are not felt immediately. For the property owner, the use of an inferior or superior cable makes no visible difference. It therefore comes as little surprise that electric cables of superior quality have a market share of only 30 per cent in semi-urban and rural areas.

Another reason why superior cables are not used in such areas is the sheer unavailability of these products. Local producers manufacture and sell within the state and hence have much lower distribution costs compared to that incurred by a large manufacturer that has to bring in the products from outside the state. This economic disadvantage coupled with the perceived "brand indifference" in non-urban areas in fact makes reputed manufacturers shun these markets. An industry source indicated that reputed brands tend to focus more on urban areas and it is economically unviable for them to compete with local players. Moreover, the business margins on 1.1kV electric cable industry are not very high as compared to higher value-added products like high voltage and specialty cables.

Sanjay Aggarwal, Chairman & CEO, Paramount Communications Ltd, in an earlier interaction with Electrical Monitor, agreed that the Indian consumer market as a whole is generally low on technical awareness, especially for products as commoditized as wires. What is recommended by the dealer or the electrician is generally accepted, and the dealers and electricians in turn promote those products with which they get greater financial incentives, rather than on the basis of safety and quality. Most contractors and builders too are more concerned with keeping their costs minimal, and they have a wide array of cheap, low quality brands to choose from, Aggarwal noted.

It is also worth noting that RGGVY has resulted in a sharp increase in the number of electrified households, necessitating building wires and wiring devices. This growth in the rural demand for electric cables has further spawned local players in the market. The semi-urban and rural market will tilt in favour of quality products only with growing awareness. It is only when the buyer insists on safe and quality products-and is willing to pay for the quality-will there be sustainable demand for products by organized sector players. Currently, the situation is not encouraging but could improve with time. As of now, an estimated Rs.3,000 crore of spurious building wires are sold to gullible customers every year, an industry player noted.

Building wires, especially in the residential segment, is a "low involvement" product as far as decision-making is concerned. During home renovation or construction, details like the colour the paint of the type of switches might get more attention that a crucial input like electric wires. Builders might want to willfully compromise on the quality of wires as an act of cost-cutting, and with a view to maximizing their profits.

While it must be admitted that India has had a tough time with the low-end building wire segment, thanks to the overwhelming presence of the unorganized sector, there is still some reason to cheer. As mentioned earlier, awareness of quality cables is on the rise thanks to widespread promotional activities by large manufacturers and also trade associations. The share of marginal players in the building wire segment is likely to plummet in the coming years. In a recent interaction with Electrical Monitor, R. Ramakrishnan, CEO, Polycab Group, estimated that in the next three years the share of unorganized sector players should recede to 25 per cent and settling to 15 per cent in the long term.

The declining share of the unorganized sector would obviously mean that the market for building wires will be controlled by reputed manufacturers. This should also result in big names in the cables industry that have shunned the building wire business-finding it non-remunerative to compete with local marginal players wanting to return to it. In earlier interactions by Electrical Monitor with leading cable manufacturers, it was learnt that KEI Industries was keen to scale up production of low-voltage cables, while Lapp India, a multinational specializing in specialty cables, was keen to enter the building wire segment.

The low-voltage cable industry is admittedly in a mess at the moment, but the coming years should progressively see positive change.

PART B: EHV CABLES
EHV or extra high-voltage cables represent an emerging area of opportunity in the Indian cables industry. EHV cables are those that are designed to carry very large amount of electric current, several times higher than high-, medium- or lowvoltage cables. Although there is no standard definition available for EHV cables, in the Indian context, cables with a rating of over 220kV (for alternating current or AC) are classified as EHV cables. An industry player pointed out that the classification of EHV cables has evolved over time and reflects the progress of technology worldwide. Some years ago, even cables of 132kV rating were considered EHV cables and earlier, even 66kV cables merited the classification of EHV.

EHV cables fit perfectly into India's current power scenario and given the intrinsic value offered by EHV cables, the market is expected to grow substantially. Extra high voltage cables are normally used during bulk power transfer, which is in sub-transmission and distribution lines. EHV is used in areas where it is difficult or unfeasible to install overhead power conductors. EHV cables however involve higher initial costs. They cost more and also their laying, which is done underground, can be cumbersome. All the same, the life-cycle cost of EHV cables is strikingly low.

The obvious advantage of underground EHV cables is that they are invisible and hence there is no physical hindrance whatsoever. Secondly, EHV cables have very long operating life and are virtually maintenance free. EHV cables also can play a very important part in reducing commercial power losses. Unlike in the case of bare overhead conductors from which electricity can be tapped (stolen), no power theft is possible with EHV cables. Also, India's cities are rapidly expanding. Urbanization in India that stood at 26 per cent in 1991 touched 31 per cent in 2011. By 2020, as reliable forecasts indicate, around 40 per cent of the country's population will dwell in urban centres.

Urbanization leads to not only additional load from existing demand centres, but also the creation of new load centres. All this warrants augmentation of transmission lines capacity and even creation of new T&D infrastructure. These days, securing right-of-way is becoming increasingly difficult not only in metropolitan and tier-I cities but also in tier-II and tier-III cities. Power distribution through EHV cables is becoming the first priority wherever aerial cables are impossible to install. It must also be noted that power utilities, with a clear goal of obviating power theft, are nowadays unconditionally insisting on underground EHV cables.

Technology: Local technology for producing EHV cables (above 220kV) did not exist in India, primarily because there was no perceived need for such cables. According to information available with Electrical Monitor, the tilt towards EHV cables began surfacing in the mid-1990s. In 1994, Cable Corporation of India Ltd (CCI) produced 220kV cables for the first time in the country. This was then the highest rating cable produced in the country and defined a new paradigm. Till then, cables of 132kV were normally considered to be of the EHV type. CCI continued upgrading its technology and began producing 230kV cables. Currently CCI is upgrading its technical competency to produce 440kV cables.

Foreign players: Over the past five years or so, the Indian EHV cable segment has seen enormous interest from large multinational names. Foreign names like Nexans, Prysmian, LS Cable, Brugg Kabel, etc have identified India's EHV cable industry as a huge business opportunity. These multinationals have entered India through strategic joint ventures with leading Indian names like Polycab, Finolex, Ravin Cables, etc. Although India permits 100 per cent FDI for manufacture of cables, most foreign entities have preferred the joint venture route. The Indian market for HV and EHV cables though very large is still represented by government utilities. Marketing and distribution of cables is therefore a skill that is acquired only by sustained presence in the industry. It is perhaps with this in mind that strategic JVs are being formed with the foreign partner bringing in the technology and the Indian partner providing the local expertise. Apart from these, there are cases where the foreign partner will only provide technical expertise without any financial (equity) participation. In all this, there are even Indian companies that are producing EHV cables without any formal technical collaboration. There is also at least one instance where Indian entities are undertaking dealerships to source and distribute EHV cables manufactured by overseas companies.

Here is a brief description of emerging entrants in the EHV cables segment, largely relating to cables exceeding 220kV. While some companies have begun production, others are in the process.

Finolex J-Power: In early 2008, Finolex Cables Ltd, amongst India's largest player in the power and telecom cables industry, entered into a joint venture agreement with J-Power Systems Corporation of Japan for setting up a greenfield manufacturing facility in India for EHV cables up to 500kV. Named Finolex J-Power Systems Pvt Ltd, the JV would also undertake "connectorization" of complete circuits and supply of jointing kits. In September 2011, the greenfield plant at Shirwal near Pune in Maharashtra was commissioned. The JV has also started participating in the tenders invited by government utilities. The copper rods required in the manufacture of EHV cables are being supplied by Finolex Cables Ltd, it is learnt. JPower Systems represents a conglomeration of two Japanese cable giants Hitachi Cable and Sumitomo Electric Industries.

Polycab-Nexans: In March 2009, global cable manufacturing company Nexans, headquartered in France teamed up with Polycab Wires Pvt Ltd to set up a greenfield manufacturing unit at Vadodara in Gujarat.

However, it is now reliably learnt that Nexans has decided to pull out of the joint venture following considerable delays in setting up of the manufacturing plant. In an email exchange with Electrical Monitor, a Nexans spokesperson confirmed that the decision to terminate the joint venture in India was made due to "several issues that could not be solved in a decent period of time." Elaborating on some of the reasons, the official cited that the JV faced major difficulties to get authorizations to build the facility and start operations. The JV is no longer in force, the official reaffirmed.

The two partners had planned to invest Rs.400 crore in the facility to make EHV cables apart from manufacturing and marketing special cables for the shipbuilding, material handling, railway and wind power industries. Nexans was to hold 50 per cent equity capital plus one equity share and was to manage the joint venture company in close cooperation with Polycab.

Nexans has commercial operations in India but no manufacturing facility as yet. The Nexans official further explained, "Nexans will consider any opportunities that may arise in the future to develop its operations in India."

KEI-Brugg Kabel: In November 2010, KEI Industries inaugurated its EHV cable manufacturing plant at Chopanki in Rajasthan. The unit is currently capable of producing cables from 66kV to 220kV. The facility was set up with technical collaboration (without financial participation) with Brugg Kabel AG of Switzerland, a global manufacturer of EHV cables, jointing kits and cable accessories.

Ravin-Prysmian: In February 2010, Ravin Cables Ltd signed a joint venture with The Prysmian Group, Italy, a global leader in the energy and telecommunications cables industry for manufacture of all kinds of LV, MV, HV, EHV and other specialty cables. Prysmian Group will take a 51 per cent stake in Ravin Cables, with the other 49 per cent stake remaining in the hands of the current promoters, with Vijay Karia being the Chairman & Managing Director. Prysmian manufactures EHV cables up to 500kV at its global manufacturing facilities.

KEC International: In July 2012, KEC International Ltd announced that it completed the first phase of its hightension cable unit at Vadodara. The greenfield unit will currently produce cables up to 33kV at an annual capacity of 1,800 km. In the second phase, KEC will start producing EHV cables (up to 220kV) at the Vadodara unit. It will also produce cables in the 400kV class in a phased manner. On completion of both phases, the total cable production capacity of the Vadodara unit will be around 4,000 km per year. It may be recalled that RPG Cables Ltd, part of the RP Goenka Group, was merged with KEC International in October 2009.

Cable Corporation of India: As discussed earlier, Cable Corporation of India (CCI) has been the traditional leader of EHV cables in India. It began production of 220kV cables way back in 1994 and subsequently started production of 230kV cables. CCI does not have a technical collaboration for its EHV cables. The company recently upgraded its manufacturing facilities for production of 400kV EHV cables. Production of 400kV cables has started and testing is underway.

Diamond Power: Gujarat-based Diamond Power Infrastructure Ltd, formerly Diamond Cables Ltd, currently produces India's highest-rating EHV cables. In June 2011, DPIL set up a modern EHV cable factory at an outlay of Rs.85 crore with technical support from Malliefer of France. The plant has a capacity to produce EHV cables up to 500kV, making Diamond Power among the only seven manufacturers in the world to have such range of extra high voltage cables.

Shree NM Electricals: Shree NM Electricals, amongst India's largest distributor of electrical equipment, has tied up with China-based Chongqing Yuneng Tai Shan Cable & Wire Company Ltd for supply of EHV cables in India. Chongqing Yuneng Tai Shan is believed to be the largest manufacturer of EHV cables in China and markets its cables under the "Taishan" brand. It produces cables up to 500kV and also aluminium conductors. Its 500kV cable capacity alone is said to be 1,000 km per year.

EHV IS THE WAY FORWARD
The Indian EHV cables market is yet nascent and the collective indigenous capability to produce cables of above 220kV is still embryonic. The first known instance of deploying EHV cables exceeding 220kV in India was somewhere in the mid-1990s. Over the past five years, reputed domestic players are extending their competency to cover EHV cables. The demand potential, as universally agreed, is vast. Transmission and distribution utilities are showing a marked preference to EHV cables, in cognizance of their advantages over conventional overhead conductors.

Currently, there are around six Indian companies that are acquiring the capability of manufacturing EHV cables of rating 220kV and above. In the coming years, more companies would enter the fray to capitalize on the business opportunities. While Indian companies would rely on the technology available in the developed world, the tie-ups would not necessarily be financial. As one local cable manufacturer explained, EHV cable technology is also available with cable machinery manufacturers. As such, one need not always go in for financial collaborations with cable producing companies. Diamond Power Infrastructure, for instance, entered into an agreement with Malliefer of France, a reputed machinery manufacturer. Diamond is perhaps the only Indian company, competent to produce EHV cables even up to 550kV. Hence, Indian companies could have technical (non-financial) collaborations with either cable producing companies or cable machinery manufacturers.

On the other hand, foreign cable producing companies are only too keen on enter India; they have established timetested technology but do not have a local market as big as India's. In European countries, the demand for conventional EHV cables is drying up and technology is idling. Multinational cable manufacturers are seen to be more inclined on equity-backed joint ventures as it gives them better returns, even in the face of higher risks. As observed earlier, even through 100 per cent FDI is allowed, multinationals are keen to tying up with local manufacturers to ensure that global technology is complemented by local marketing expertise. The coming years will see a large flow of foreign technology into the Indian EHV cable market, including pure technical agreements and financial collaborations.The EHV cable market potential during the past five years was around 300 km per year and during the current fiscal year ending March 2013, this is expected to reach 500 km. Experts believe that widespread investment in the power T&D sector will lead to EHV cables recording a growth of even 25 per cent per year in the medium term. Over the next five years, the annual Indian EHV market could well be in the region of 1,500-2,000 km.

EHV cables is clearly the next big story, and most likely the next growth story,in India's power cable market.