Mumbai: Generator sales have been declining this year as the growth of mobile phone towers powered by them has slowed, with telecom operators opting to share towers to pare costs.
Major generator makers such as Mahindra Powerol, the engine and generator business of Mahindra and Mahindra Ltd (M&M), Kirloskar Oil Engines Ltd and Ashok Leyland Ltd’s Leypower unit, have reported a 30-50% fall in volumes in the current fiscal.
They are now pinning their growth hopes on the roll out of third-generation (3G) mobile services, besides making their generators more fuel-efficient and environment friendly to boost sales.
India has nearly 350,000 telecom towers, of which about one-third are in rural areas, where power supply is erratic. These depend on generators to ensure that mobile phone services are not disrupted.
But fewer towers are being built now, as telecom firms—hit by slipping tariffs and a combined expense of Rs 67,000 crore on acquiring 3G licences—have started sharing them. Analysts estimate the number of towers will grow at a weak 7% until 2014 as sharing replaces the need to set up new towers.
The tenancy ratio, or the average number of telecom firms using a tower, is 1.5x nationwide.
Viom Networks, formerly Quippo WTTIL, has some 37,000 towers with a tenancy ratio of 2.2x. A company spokesperson said Viom plans to roll out 20,000-25,000 new towers in the next few years. But in the same period, the company also plans to raise tenancy to 2.5x.
A spokesperson for GTL Ltd, another telecom tower company, said towers at a good location—depending on altitude and other operational parameters—can have up to seven tenants.
“The Indian tower space has moved from a build phase to tenancy focus. We believe the focus of tower companies will be on tenancy enhancement and this in turn will drive profitability,” Rajiv Sharma and Harbhajan Singh, analysts with HSBC Securities and Capital Markets Pvt. Ltd, said in a 1 September research note on the Indian telecom tower sector.
But multiple tenancy has hurt the demand for generators, which was earlier growing at 50-60% annually until mid-2009, said Ashok Sharma, executive vice-president at M&M. “The industry couldn’t have grown at such a healthy pace and a correction was bound to happen.”
Mahindra Powerol is a Rs 1,000 crore company that leads the generator market, supplying 45% of the units that power telecom towers.
According to its estimates, the overall market for generators in India shrunk to 54,000 units in the six months to September against 80,000 in the year-ago period. The share of the telecom segment in the overall business dropped from 60% to 24% in the same period.
Mahindra Powerol’s volumes fell 30% to 35,000 units from 50,000 a year ago. Kirloskar Oil Engines, which supplies the second-largest number of generators to telecom towers, saw a 40% decline in volumes in the same period to 5,000 units. At Leypower, sales dwindled to 932 units in the three months ended 30 September from 2,000 units a year ago.
After spending substantially on 3G licensing, telecom companies are cash strapped and are looking at ways to pare operational expenses, said Dilip Joshi, associate vice-president, telecom business, at Pune-based Kirloskar Oil Engines.
Moreover, with urban markets reaching a saturation point, the operators are focusing on the rural and semi-urban regions. “They have to be cost competitive in rural markets,” said Joshi.
Tower operators are also tilting towards environment-friendly energy sources to cost cuts, further driving down the sales of generators, which typically run on diesel.
“We are engineering energy management solutions that aim to reduce energy consumption by up to 20%, contributing towards reducing carbon emissions,” said S.K. Roy, whole time director and chief operating officer at GTL. “We wish to convert all the towers in the portfolio of GTL Infra into green (ones).”
“Viom has made sizeable investments in R&D (research and development) activities to tap alternate energy sources such as solar energy, fuel-saver catalysts, fuel cells, CNG (compressed natural gas) and energy storage platforms, to save energy, at the same time offer energy related cost benefits to our (telecom) operator partners,” a Viom spokesperson said in an emailed statement.
Sharma of M&M said the 3G roll out will help Mahindra Powerol recover at least partially in the second half of the fiscal. Large telecom operators such as Bharti Airtel Ltd, Vodafone Essar Ltd, Tata Teleservices Ltd and Idea Cellular Ltd plan to roll out 3G services by December or January.
M&M is also hoping to tap into new segments, such as home uninterrupted power supply (UPS) systems, retail and services, Sharma said.
Kirloskar Oil Engines is working on developing more efficient engines and alternate fuel options, such as CNG and bio-diesel, said Joshi. He declined to elaborate. In a 20 September earnings call with analysts, K. Sridharan, chief financial officer at Ashok Leyland, said the firm is capping supplies to telecom firms as many of them have overshot the credit period. Typically, the window for such commercial transactions is 90 days. An Ashok Leyland spokesman declined to give details.
Sharma and Joshi said their firms are not facing payment-related problems.