Management discussion and analysis Global economy The year 2014 was marked by a modest 3.4% global growth. While advanced economies reflected pickup in growth over the brvious year, emerging markets and developing economies reflected a slowdown even as they accounted for 75% of global growth. Global growth is projected at 3.5% in 2015 and 3.8% in 2016. (Source: <https://www.imf.org>) Indian economy The Indian economy retained its position as one of the largest and fastest growing economies, its promising outlook based around controlled inflation, rise in domestic demand, increasing investments, decline in oil prices and policy reforms. After the recent base year revision for GDP calculation (from 2004-05 earlier to 2011-12 now), the country's GDP for the year 2014-15 stood at 7.4% as against 6.9% in the brvious year. Inflation averaged 5.17% in March 2015. Factors like the steep decline in oil prices, increased global investments, reform initiatives and infrastructure growth augur well for prospects. The projected GDP growth for 2015-16 is 8.5%; current account deficit is estimated at 1% of GDP. (Source: <http://indiabudget.nic.in>) Global pump industry A rising demand for water pumps is an outcome of rapid urbanisation and industrialisation. According to Population Action International, by 2025, more than 2.8 billion of the global population in 48 countries is expected to face water scarcity. Water scarcity is a key factor driving water pumps demand as governments encourage industries to recycle and reuse. Pump manufacturers are developing energy-efficient pump variants. According to Global Water Pumps Market Forecast & Opportunities, 2019, the market is highly fragmented in Asia-Pacific with small unorganised manufacturers dominating the market as opposed to the consolidated market in developed nations. However, even in countries in Asia-Pacific, there is a clear shift towards organised pump manufacturers. Indian pump industry Indian water pumps market is segmented into two categories -positive displacement and centrifugal pumps - where the latter is dominant. Nearly 95% of the demand for pumps in India is addressed by local producers. The new generation of water pumps comprises magnetic drive-based water pumps, EPC-based water pumps, mobile phone-induced remotely controlled water pumps and solar pumps. Agriculture sector: the largest user of pumps in India • 58% of the population in the country is dependent on agriculture for livelihood. (Source: IBEF) • Agriculture contributes 15% to the country's GDP. • Although India holds 53% of the world's arable land, irrigational challenges continue to hamper farm productivity. Agricultural growth largely depends on water, which is the prime input. However, with limited irrigation facilities, farmers depend on rainfall which is not brdictable. With increasing demand for food, competing use within the water sector, increasing costs, low productivity, the brssure is on realising 'more crop per drop'. In response to this, strategic decisions and interventions need to be made on a continuous basis. These decisions should cover the full spectrum of the irrigation water supply system down to on-farm application. As per a study conducted by KPMG, there are about 18 million pumps in the country which are connected with grid power. In addition, there are about 7 million pumps running on diesel. The agriculture sector uses almost 80% water in the country and nearly 20% of installed power generation capacity in the country. As a means to this end, state governments have historically provided cheap power to the farm community. However, the quality and reliability of this power is very poor, leading to sub-optimal irrigation of fields and overconsumption of power. More than 4 billion litres of diesel and 85 million tonnes of coal are thus consumed per annum to support water pumping for irrigation. Replacement of 1 million diesel pumps with solar pumps would result in diesel use mitigation of 9.4 billion litres over the life cycle of solar pumps which translates into diesel subsidy saving of H8,400 crore and CO2 emission abatement of 25.3 million tonnes. This also means forex savings of USD 300 million per annum on diesel import, translating into forex savings of USD 4.5 billion over pump life. Further, it also results in better crop yields that can improve agricultural output by H2,000 crore per annum or H30,000 crore over the pump life. Shakti's 5-star pumps (rated by the Bureau of Energy Efficiency) are ideal for meeting the needs of the farmer and alleviating the country's power deficit Industrial: Rising costs and social awareness have prompted several industries to adopt measures to reduce power consumption. Pumps are significant consumers of energy across a host of downstream sectors. Shakti's water management pumps are a handy solution for energy-conscious industrial clients. Residential and commercial: Commercial and residential buildings are a large and growing market opportunity. Booster pumps are the mainstay of this segment. Shakti's range of pumps can serve a wide range of requirements and offer a compelling value proposition compared with imported products. Sales channel: For the agriculture and domestic segment, small pumps are typically sold through a distributor network, where the lowest price was the most important factor influencing the purchase decision of the consumers; however, the scenario has been changing very fast due to various reasons for the past few years. The Star BEE rating for energy-efficiency is increasingly impacting customer brferences. Despite large players facing fierce price competition from SMEs, energy-efficient products delivered through an optimised supply chain are driving success. Sales are made either directly by manufacturers, dedicated dealer networks or clubbed with EPC packages. Outlook The pump industry growth is expected to be driven by the following realities: • Expansion in agriculture, infrastructure and real estate development • Shrinking conventional sources of irrigation like rivers and wells, among others • Replacement of existing inefficient pump sets with energy-efficient (BEE star labeled) pump sets would unlock the market for large scale investments in this area • Erratic monsoon and water scarcity, which have led to a greater focus on irrigation on the part of the government which, in turn, is expected to be a big domestic demand driver • Rising population and urbanisation; urbanisation is forecast to increase from 290 million in 2002 to 500 million by end-2017 • Economic growth • Shift from unorganised to organised players • Demand for pumps expected to grow substantially given that the municipal waste disposal facilities of the country need to modernised The result is that the Indian water pump market revenues are expected to grow at the CAGR of around 13% during 2013-18. (Source: <http://www>. techsciresearch.com/2321) |
