Tell us about your venture to set up a switchgear factory in China. How do you find the Chinese market when compared to India?

The Chinese market is six to eight times that of the Indian market in most of the products. One of the reasons is that the installed and additional power generation capacity is much higher. If India is adding, let's say, 5000 MW a year, China adds anywhere between 35,000-40,000 MW a year. The switchgear market is directly connected with installed and additional capacity of power generation. We felt that if there was so much demand in China, then we must find a niche for our products as well. After being in China for a couple of years and studying the market we found one, i.e. for our air circuit breakers. We initially decided to reduce the supply chain, improve its efficiency and then get the benefit of cost - input and labour. So, we decided to set up a manufacturing plant. The Chinese authorities have given us land for setting up a factory. Meanwhile, they had also given us a temporary factory where we started manufacturing air circuit breakers. We will invest $11 million on this venture in 4 to 5 years and within this period the factory will have the capacity to produce 40,000 air circuit breakers.

Tell us about the joint venture that L&T had formed with the Kanoo Group for offering intelligent architecture for the control and distribution of power. What is the type of product this JV company will offer?

One of the products we manufacture is switchboard and motor control centre. These products are in demand in various industries, especially the oil and gas industry. These products have a lot of intelligence built into them and that's why we are talking about intelligent products. To cater to the market in Saudi Arabia, we have decided to be present there. Therefore, we are building a factory to make switchboard and motor control centre with intelligent protection. For this business, we have formed a joint venture with a local company called Kanoo Group. We will have majority equity in this joint venture. We are the largest manufactures of switchboards and motor control centres in India. We have our units at Powai, Faridabad and Coimbatore. In addition to these, we will have one in Saudi Arabia.

For switchgear products your company is numero uno. What are the measures you adopt to stay in that position? How are your switchgear products when compared to foreign switchgears in quality and variety?

If we have to match the quality of foreign products, which we successfully do, it means putting in a lot of hard work in R&D, quality system, manufacturing and other processes of delivery to the customers. We try to do everything on world-class parameters. If an Indian customer has a choice to purchase foreign products and he chooses L&T products over foreign products, it is not because we are Indians or there is a love for Indian products. He is buying our products because L&T provides best value for his needs. And, the best value for his needs is the products' availability, quality and service. We provide products and services according to our customers' needs.

Do you face any threat from spurious products? How do you counter?

When you are numero uno, there is threat. We have various methods of countering the threat. We sell through our authorised stockists and our products can be differentiated. Sales promotion, dissuasion, differentiation and availability, all put together, are the only ways in which we can fight spurious products.

Which are the types of steel you use as raw material for your products? From where do you procure the various raw materials? With raw material prices on the rise what is the impact on the profit margins of the company?

We use CRCA and HR steel. However, silver, copper and plastic are the critical materials used in our products. But silver is the heart of switchgear. We procure the raw materials largely from India but do import copper and silver contacts. There is a continuous effort to neutralise input costs by improvements in productivity, value engineering, six sigma and other process improvements. So, our profitability continues to be there in spite of inflation. Some part of it is passed on to the customers. Overall, our profitability has either remained same or improved in the last few years.

How do you ensure that your metering and protection systems are tamper-proof?

It's a continuous struggle. We work on changes in the electronic circuit after knowing or anticipating what kind of tamper-proof mechanisms people are employing. That's why some sections of the people went ahead and talked about overcharging by electronic meters so that one does not install electronic meters. We had to conduct seminars to educate various authorities and people about how electronic meters give correct reading and do not overcharge. It is an issue. But continuous efforts are on to find out ways on how tampering is done and how to make meters tamper-proof. L&T is ahead of others and our meters are more tamper-proof than most others.

In the light of so many power projects being announced and reforms introduced in the power sector how will it affect the electrical industry?

We are all excited about these projects though there had been a delay in the addition of power generation capacity. There is the new Electricity Act and unbundling of SEBs and some states have been more aggressive. So, it seems that the projects will happen now. We are expecting a 25 per cent growth, whereas the electrical industry will see a growth of 20 per cent.

What are the difficulties you face in this industry? How do you think it can be overcome?

Inverted duties were causing problems. Earlier, the electrical industry had to pay more duty on importing raw materials than finished goods. Ideally, raw materials should have less duty than the finished goods. In the last five budgets, the government has taken necessary steps in this regard.

What are your views about the growth of the Indian electrical industry? What type of support do you think the government should give to boost the growth of the industry?

The electrical industry has grown because of government's thrust on it and also due to overall economic growth. It has also reached a stage where the industry has demonstrated its capabilities. The industry has seen a growth of 20 per cent and should continue at the same level for the next few years. We need to have less cumbersome procedures and better infrastructure. One of the reasons that people go to China is because it's easier to export from China to the rest of the world. The government, not just for the electrical industry, but in general, should work on improving the infrastructure. It should also create a good environment for public-private partnership. Labour laws need to be upgraded. The same Indian workers deliver more than 2 to 3 times in the Gulf. We need to work hard to increase productivity.

What are your plans for the next few years?

In the near future our aim is to make succeed in our China and Saudi Arabian ventures. In India, we are making efforts to continuously improve our products, process and services. We are not planning any foreign technical collaboration. We may employ Indian or foreign consultants to help us to improve our products, product process, new product development processes, improve our process of supply chain and manufacturing processes. We have been doing it ourselves, sometimes with others' help. We get help from Tata Motors, Mahindras, etc. There is no conflict of interest and we know they are doing a good job in some areas. We are in the process of acquiring Datar Switchgear and expanding our existing factories in India. In the last three years, we have grown at the rate of 22 per cent. So far, most of the growth has been achieved without adding space or major capital. Now, we are planning to grow at the rate of 25 per cent in the next four years. We are investing in the expansion of Ahmednagar, Coimbatore, Mysore and Navi Mumbai units. We are foraying into new markets and also adding new products like miniature circuit breakers. We are planning to increase out exports by 40 per cent a year and target Gulf.

[16-30 June 2006]