Tuesday, October 11, 2011: 11:58:35 AM

TJCD Guest Column

Indian lighting system has a bright future, says Kumar Ramesh of Frost & Sullivan

The domestic lighting system market is poised for growth, driven by investments in varied infrastructure segments, setting up of new industries and energy efficient lighting replacements

The Indian lighting system market is reaching a mature growth phase, as competition is highly intense, based on price as a prime aspect, with the presence of multinational brands and an unorganised sector. The market for lighting systems in India is estimated at Rs 78,000 million in 2010 and has grown at a CAGR of 12% during 2005-10. Although the market was hit by the economic recession in 2009-10, it is anticipated to reach Rs 165,000 million by 2017 at a CAGR of around 14%.

Currently, the Indian lighting system market accounts for 2% of the global market and 7% of the Asia-Pacific region.
Market dynamics
Incandescent technology remained a key lighting source till the late 1990s. Though only some of the state governments in India have replaced incandescent lamps with fluorescent and light-emitting diode (LED) lighting systems, incandescent lamps (ICL) are expected to become obsolete by 2020. Advancements in fluorescent technology led to the introduction of compact fluorescent lamps (CFLs) and highly energy-efficient T5 fluorescent lamps (T-FL) in the early 2000s and are expected to remain the most preferred lighting source until 2017.
LED lighting systems are yet to make asignificant penetration across end-user segments due to their high upfront cost and absence of standards, test and measurement and verification protocols.
Growth of the Indian lighting fixtures market is driven by investments in infrastructure, expansions, setting up of new industries and energy efficient lighting replacements. The uptake of green technologies and energy efficient lighting fixtures, driven by the energy conservation building code (ECBC) and measures of Bureau of Energy Efficiency (BEE), is expected to lead to a major transformation in lighting fixture design from 2011-17.
Competition is intense, primarily from low cost import traders with products from China. These traders have flooded the market with inexpensive products of inferior quality. Competition is expected to intensify throughout the forecast period. The “deep discount structure” helps drive sales but erodes the industry participants’ profit margins. Soaring opportunities and intense competition have led tier I companies to offer turn-key solutions. Turnkey solutions intend to provide the professional end-users (Commercial office segment) with the complete solutions that range from lighting design and audit, lighting equipment, installation of lighting equipment, energy consultancy, tele-management, maintenance and waste management.
Companies such as Asian electronics and Salzer electronics have started bundling energy saving performance contracting (ESPC) services, along with their lighting products and energy saving solutions. Bundling includes LED street lighting, integrated lighting management systems at the product front and ESPC at the services front.
Turnkey solutions are significant in the Indian street lighting segment, where business is of large volume, with high initial investments. Benefits of turn-key solutions include better street lighting management, carbon credits gained from using clean development mechanisms (CDM) and their aid in meeting India’s ambition of reducing carbon emission intensity levels.
Technology impact
Green technologies (CFL, Tubular Fluorescence based lamps, and fixtures with electronic control gears) are anticipated to disrupt the traditional technologies (incandescent, halogen based lamps, and fixtures and magnetic control gears) market, to become the largest lighting system market by 2017.
Global opportunities
The Government of India’s target to reduce 20-25% carbon dioxide emission intensity by 2020 creates growth opportunities for lighting system companies. Lighting systems contribute 18-20% of the power consumption in India as against 8-10% in developed countries.
Global lighting companies that have a presence in India, either through a subsidiary company or authorised distribution networks, are expected to translate the growth opportunities such as offering energy saving performance contracting with turn key solutions in the short term of 2-3 years. Lighting companies, which set up LED lighting manufacturing bases in India, are expected to have a competitive edge over traditional lighting system manufacturers. The competitive edge ranges from being able to cater to the domestic market to being a low-cost export hub for Europe, Middle East and South Asia.
Competitive analysis
Lighting per se, does not have alternative technologies, so the threat of substitutes is low. As the technology remains the same for all market players, product differentiation is minimal at the supply end. End users, therefore, have more control over the market, with price being the biggest differentiating factor. Due to the low entry barriers, the threat of new entrants is high.
Road ahead
The Indian lighting system market is poised for growth, fuelled by investments in the commercial, retail, hospitality and public infrastructure segments.
Market players are anticipated to bolster their market positions by strengthening their range of energy efficient products and increasing their sales force. Expanding market share by selling products in new geographical regions and to new end-users may be attractive, but not comprehensive. Generating revenues by product or solution sales is no longer an attractive business model in this price war market. Companies need to introduce turnkey solutions centered on energy efficiency and the perennial cash flow business model in order to keep abreast of competition.
Kumar Ramesh, industry manager (Building Technologies Practice - South Asia, Middle East and North Africa) at Frost & Sullivan

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