New Delhi: The boom in demand for telecom services in India is ringing the till in an unlikely quarter: makers of diesel-powered electricity generators. As phone firms here expand networks, adding record number of customers every month—in March, more than 10 million new connections were sold, equivalent to the population of Paris or Shanghai—they find they can’t buy enough generators to power their cellular towers.
The demand for generator sets, called gensets in short, that can juice up the equipment and electronics at cellular base station towers, is estimated by analysts at more than 200,000 last year and is predicted to expand at between 15% and 20% a year in the years ahead. Telecom towers have radio antennas planted on them, which transmit signals for enabling wireless communication between mobile handsets.
This new demand for gensets, expanding at just around 10% until last year, is driven by expansion of telecom infrastructure in rural areas, where constant and consistent electricity supply is a rarity. “The extensive roll-out of telecom towers in rural and interior areas is the main reason, as power availability is either inadequate or non-existent in these areas,” said Ajay Madan, chief executive (telecom), Essar Telecom Infrastructure Pvt. Ltd (ETIPL). “In 2006, about 55,000 towers were set up and in 2007, the number doubled to 100,000.”
In fiscal 2009, as market leaders such as Bharti Airtel Ltd and Reliance Communications Ltd (RCom), vie for new customers, their network expansions are leading them to India’s small towns and villages. Already for Bharti Airtel, India’s No. 1 mobile phone services firm, one in three new customers is from what it calls rural areas.
“We are adding almost 3,000 towers every month,” said Manoj Kohli, joint managing director?of?Bharti?Airtel, recently. “That is, 100 a day.” Most of these towers, as also most among the more than 60,000 towers that Indian phone firms and tower firms such as GTL Infrastructure Ltd and ETIPL will set up this financial year, are going to be in rural places.
With around 150,000 telecom towers currently standing in the country, and another 200,000 to be added over the next three-four years, the demand for ancillaries that go with each tower, which include gensets for back-up electric supply, air conditioners and equipment for tower shelter, is seeing significant growth.
For instance, GTL, which plans to have almost 25,000 towers by 2011, up from around 4,000 currently, says it will invest 70% of the planned $2 billion (around Rs8,300 crore) capital outlay in procuring ancillary products such as portable generators and air conditioners. “We already have around 2,800 generators, and by April this year, we plan to procure another 2,100,” Prakash Ranjalkar, chief operating officer (COO) of GTL, had said in a February interview.
According to analysts, more than 200,000 industrial-grade gensets are sold in India every year and the market is worth between Rs6,000 crore and Rs7,000 crore. With demand surging, there is interest from manufacturers engaged in similar businesses. The country’s three top tractor makers and independent engine manufacturers such as Cummins India Ltd are looking to cash in on the opportunity. Mahindra and Mahindra Ltd (M&M) and Tractors and Farm Equipment Ltd already have divisions that use engines to make gensets, while New Delhi-based Escorts Ltd is in the process of setting up one. Cummins, which makes engines for some of the country’s truck makers, built a new factory for this business earlier this year.
Phone firms agree that the current genset engine manufacturing capacity will lag demand for a few years and that is music to ears of people such as Gautam Nagwekar, COO of M&M’s farm equipment division. “Each telecom tower needs back-up and in our country, the power situation is such that supply lags demand,” he said. M&M, which sells its gensets under the Mahindra Powerol brand, sold gensets worth Rs560 crore in 2007-08, which amounted to around 14% of revenues at its farm equipment division.
While M&M entered this market as early as 2001 when tractors sales were last in a slump, others are entering this market now—when demand for tractors has softened again. Tractor sales stagnated last fiscal year after three years of double-digit growth as six-year high lending rates and higher delinquency rates kept creditors away from this market. Nine out of 10 tractors are bought on credit, according to industry estimates.
Escorts, which is looking to boost profitability, plans to use its excess engine capacity for the genset business, after making losses in the fiscal year ended September. The company, which has a capacity for making 98,000 engines per annum, uses about 55,000-60,000 for its tractors. It plans to use the rest for entering the genset business, again eyeing business from telcos.
“Apart from their use in tractors, there is a large demand for these engines in gensets and in the telecom business for BTSs (base transmission stations, the electronics installed towers),” said Nikhil Nanda, joint managing director of the company, who expects better profit margins from the gensets line of business. “In terms of Ebitda to sales, it (will fetch us) 15-16%.” Ebitda (earnings before interest, taxes, depreciation and amortization) to sales ratio, or the operating margins, measure how much profit is left after deducting basic expenses of running a business. Escorts had Ebitda margins of 8.2% in its second quarter ended March.
“The major driver for this business is the power shortage—close to 10%...that’s the demand-supply gap,” said Amol Kotwal, industry manager (energy and power systems) for research firm Frost and Sullivan. “The rapid growth in other sectors such as retail, captive power generation and infrastructure will (also) drive this business going forward.”
According to GTL’s Ranjalkar, the 200,000 towers to be added by 2011 will need almost 140,000 gensets. “We need 24x7 back-up, and as the companies expand into more remote, rural areas, the demand will only go up,” he said.
India has a power generation capacity of more than 141,000MW, which is 8.4% short of demand in the country, estimates the Union power ministry. This situation is unlikely to be redressed before 2012, when demand will be fully met, the ministry added in its annual report.
In parts of Bihar, for instance, it is not uncommon for power “to be pulled in from about a kilometre,” said ETIPL’s Madan. In 2007, Essar bought more than 2,500 gensets, up from 600 in the year before. Given the shortage of gensets in the market, phone and tower companies have begun to place advance orders for gensets. “We also looked at importing from China, which is being done by a couple of players right now.”
The tight supply situation of gensets has even set off interest in alternative technology and energy solutions for telecom towers. From cooling solutions for telecom equipment to using solar panels and maybe even fuel cells for energy, which reduce greenhouse gas emissions, telecom operators and infrastructure providers are increasingly exploring new options.
“Companies such as Bharti and Reliance are investing in solar energy as an alternative and it makes sense for them to do so. We are also encouraging these moves,” said Ajit K. Gupta, an adviser in the Union ministry of new and renewable energy. A spokesperson for RCom confirmed the firm was looking at such deployments, while a spokesman for Bharti Airtel did not respond to phone calls and emails.
Though some telecom operators are experimenting with alternative energy sources, most say that the break-even period for such equipment (such as solar panels) is still high. “We are using renewable energy at a few trial sites, but not everywhere. We started a few months back and are testing a few prototypes. But break-even for alternative energy still remains at three-four years,” said ETIPL’s Madan.
Still, along with being more eco-friendly and lowering the carbon footprint of these towers, savings on energy usage also mean higher savings for the companies in the longer run. “Even minor changes in thermal management and air conditioning technologies greatly improve efficiencies as well as reduce energy usage by as much as 30-40% at telecom sites. They reduce carbon emissions and also ensure a faster RoI (return on investment) for the telecom operators,” said Barun Banerji, head of corporate affairs, Acme Tele Power Ltd (ATPL), which provides green solutions for the wireless telecom industry.
Phone network equipment maker Nokia Siemens Networks and ATPL agreed to jointly establish a development lab in India to examine future opportunities, specifically around remote energy monitoring solutions. The effort will explore new ways to drive environmental sustainability and reduce costs for customers, said Ashish Chowdhary, head of managed services, Nokia Siemens Networks.