Indias largest transformer oils manufacturer, Apar Industries, expects that implementation of power policy reforms will significantly boost energy consumption, and thus demand for its products, in coming years.
A power distribution reform package in India allows state governments to opt into assuming 75 percent of the debt held by electricity distribution companies – which are owned by the state – by the end of the fiscal year 2017. Apar said the plan will result in a big jump in demand for products in two of its segments: conductors and transformer oils, especially in 2018.
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Launched in November under Prime Minister Narendra Modi, the scheme, known as Modi Ujwal Discom Assurance Yojana, or Uday, lets states that opt in repay lenders by selling bonds. Apar pointed out during a conference call about its 2015-2016 fiscal year that around a dozen states had so far agreed to the Uday program, and enrollment was extended to March 2017 to allow more states to do the same.
The second phase of the plan is still rolling out in the states that have adopted it, but the Mumbai-based firm said it has already seen big spikes in power companies projected energy output and the amount of tenders for power supply being floated in the market.
Apar said that despite achieving its highest-ever volumes for specialty oils and automotive lubricants during 2015-2016, it still faced many challenges resulting in its transformer oils revenue decreasing 14 percent year over year to Rs 437 crore.
The year witnessed slow progress on the ground, but there is a lot of pent-up demand that is likely to come through the implementation of these schemes, and we are already starting to see some movement on the ground in terms of tenders actually being floated, Apar Industries Chairman and Managing Director Kushal Desai said in a recent earnings report. It is still open to the jury in terms of which quarter we will see the revenues actually coming in to our business, but the future definitely looks brighter than it has been so far.
Apar also noted that it has also been growing its ability to serve high-efficiency conductors and high-voltage, direct current electric power transmission systems – being the only Indian transformer oil supplier approved to supply the latter. India is looking at increasing the footprint on HVDC because there are inherent advantages of HVDC over the [alternating current] systems, Desai continued. So as business grows, we stand to gain from it.
Although it still expects its main growth in fluid sales to come from new conductors and transformers, Apar also forecasted a spike in demand for replacement oils, which currently are 6 percent of pre-installed volumes.
As far as Uday is concerned, we will see a big uptick in demand once these tenders start getting finalized, Desai added. The physical quantity of transformers is going to be very high, and our sense is that the orders will started getting placed in the second half of this year, and you will see some demand in the second half of [2016-2017], but [there will be] a big jump in 2018 when the actual deliveries of the transformers take place.
Indian Express reported in March that Indias electricity distribution companies – or discoms – suffer a loss of over Rs 60,000 crore every year, and that Udays main objective is to get discoms out of a vicious circle of debt and enable them to purchase power to increase consumption in the country.As of June 23, 19 states had consented to adopt the plan according to Business Standard.