The ‘Power’ struggle amongst UPS vendors

Uninterrupted power supply (UPS) product makers are set to feel the heat this summer as frequent price hikes followed by the continuous increase in USD rates, recent changes in import duties and several other cost escalation factors like increase in raw material prices, transportation, warehousing, etc, has made it almost mandatory to do a price book review. Additionally, hike in pricing is hitting the demand for these products and most of the partners are expecting a fall in sales.
Most leading MNC players have already hiked prices of their UPS by almost 15% since January. Other home grown players, have all announced that they will hike prices by around 3-4% from this month onwards.
So, why is this happening? In addition to the most obvious reason-that the battery pricing has gone up by almost 30%, other factors are now coming into play, both strategic and psychological.
The market lull just might be enough of a breather to give the UPS market enough time to fully recover without extending the impact of global economy as initially predicted. The market was slow to respond to the disruption, as existing inventory was enough to fulfill short-term demand. However, many vendors soon realized that price hikes brought by shortages required them to pass cost on to partners and customers.
Commenting on the recent price hike, Suhas Joshi, director, sales UPS, Delta Power Solutions said, "Due to an increase in the raw material cost, depreciating value of Indian Rupee, increase of excise duty from government side, the overall input cost has increased. Considering the above facts, we have announced an increment in the prices of our products."
The vendor has increased the prices of its all its UPS range of products by 10-15% and this has not gone down well with partners. "This year is not going to be good for UPS market. While there will be no impact on high-end UPS who were looking to upgrade their IT infrastructure, but home users will postpone their decision," said Delhi based Sharad Srivastava of Sab Computech.
According to Ghaziabad based Rajeev Garg of Aarohi Infotech, "This is not a right move by the company as it will directly impact our bottomline. This price hike will reduce the overall sales by at least 50% and this will affect our overall revenue."
The partner further added that recently other competitors were offering better discounts and this price hike will only worsen the condition. "This move is only beneficial for the vendor and not for the partners. Even the discounts that were offered on different slabs have now changed," Garg added.
Same views were expressed by others as well. Mumbai based Rajeev Parekh, director, Binary Engineering said, "Overall, the economy is very sluggish. This is certainly not a very good opening for the industry as sentiments of partners are low. Certainly, it is going to affect sales of products."
The price hike has also hit sales in rural and semi-urban markets, which account for about 35% of total sales. On the flip side, Arvind Mittal, CEO, RANS Electronics said, "Overall the market of UPS in Dehradun has been growing, but we are afraid the price may dampen the spirit of customers. So far, we have not seen any major impact on our sales. The price rise is not helping our business to grow, though the product quality of Uniline and APC products rules the market."
Kolkata based Gaurav Goel of Eastern Logica Infoway said, "UPS prices have gone up and the demand has stagnated in Kolkata so I don't expect much of a market pull in this product category. However, upcountry markets are still open and the traction can be seen in these markets."

ROSY STORY
Despite the price hike, the overall market has been witnessing a strong growth as compared to the past, particularly, in FY10 the segment saw a marginal de-growth of 1%. However, in the current year, the growth of Indian UPS market witnessed a healthy growth. The power backup market in India is about Rs 3,600 crore which has seen a growth of around 9% over the previous year. In this market, UPS holds a major share but some vendors would often combine other constituents like cooling along with power backup. With India's economy set to grow at a brisk pace and with the continued power deficit situation, the demand for alternate or backup power solutions in the form of generator sets, power inverters and UPS solution is expected to witness a healthy growth in the coming years.
According to recent Frost and Sullivan report the total Indian UPS market was estimated at $528.5 mn in 2010-11. The growth rate in 2010-11 over 2009-10 was 10.6% and it is projected to exhibit a significant growth rate upto 2017-18. The expected growth rate at a CAGR of 6.6% will touch $828.2 mn by 2017-18.

DIFFICULT TIMES FOR VENDORS
It had been a very good year in terms of growth for the UPS industry. According to Jerome Rodriguez, MD, Socomec UPS, "The company enjoys very good market share in higher rating UPS systems. Its current market share is around 15% and the company is expecting to increase to 20% in the next couple of years."
Apparently, most of the vendors have increased their pricing of UPS, wherein there are few vendor like Socomec, who are also pondering upon the price hike. The power critical equipment is growing significantly and UPS business is also growing along with that.
Speaking on this Rodriguez said, "We have not yet revised the 2011 channel price book; we have put every effort to sustain the global impacts and are still managing to extend the price support to customers and channel partners despite the instability of INR against USD. The price book review has become inevitable now. Hence, we are going to release the new price book to channel this month and we will be accommodating few price escalations in line with the cost escalations due to the factors beyond our direct control."
Vikram Kalia, GM, product management, Intex Technologies mentioned, "Our costs are going up every day because of many factors. Due to rupee becoming weaker to dollar and the ocean freight just doubling up in recent months, our cost price has shot up by almost 10% - 12%. This has forced us to increase the price. We have increased prices of our UPS by 5-6%."
Echoing similar sentiments, Rupesh Kumar, senior GM, sales and communication, Best Power Equipments (BPE) India said, "Due to steep hike in USD prices, and increasing input costs, we are forced to hike the prices in the same manner. Although the total hike due to these factors have been more than 20%, we have sacrificed our margins and our prices have gone up by a moderate 10-12% only."
But for players like Su-Kam, who are planning to invest this increase in price into R&D, Kanav Sachdeva, OSD to MD, SU-Kam said, "We did a price hike because we wanted to invest more in improving our R&D that will make our products even better."
Putting another perspective, Gurudutt M, director for home and business networks division in India APC by Schneider Electric added, "Our products are priced competitively. The pricing in the UPS sector is a function of various inputs like the upfront product price, running cost of the UPS with reference to the efficiency, cost of batteries, in warranty costs etc. Considering the various parameters, and weighing them against the reliability and technologically advanced features, coupled with the best-in-class service levels and the brand equity, we offer the best price performance equation and overall experience to the customers.
Confirming this price increase and explaining the rationale, Gyan Prakash, GM, Elnova said, "There has been a price hike but this has been rolled out in October 2011. The price in UPS can be attributed to surge in battery prices, which in result has disturbed the demand and supply cycle. As a vendor, we have cut down our procurement from China and other countries up to 30%. We have shifted to Indian battery players to control the pricing. Having said that, we don't see any respite on rupee depreciation. Even we expect the pricing to further go up."
Prakash also poin­ted, "We don't think this is a bad move, however, it will be a bit early to comment on its impact. The fallout of raw material shortage is now raining down on consumers. The most immediate impact is rising prices and falling inventory."
Srivastava of Sab Computech added, "The immediate thing we are seeing is a price spike based on an actual shortage but also combined with partners buying more than they actually need. Uncertainty leads to more uncertainty that leads to people trying to take preventive measures to try to protect themselves. It is a natural human reaction. However, when the vendor took our feedback, we had recommended to not implement it till the coming March."
Besides reacting heavily on the price hike Prakash said, "We are keeping our customers actively informed about the dynamics and strongly advising them not to speculate in the market, or they might get their fingers burnt. We are also advising them to take stock as they need it on a daily basis. The company is passing on all price increases or reductions from our suppliers, and we ensure we are competitive against worldwide competition and pricing."

SHIFT FROM CONVENTIONAL TO
MODULAR SOLUTION
Though many partners are disappointed with the vendors move of increase the price, on the contrary, partner like ALGORT Technologies are transforming their business from conventional IT infrastructure to modular solutions. Arun Kumar Arya of ALGORT Technologies, said, "Increase in pricing is common phenomenon in the IT market. Therefore, we are offering our customers, a cost effective modular solutions, which offers 35% OPEX in the long run. This trend has been picking up and we have sold more than 380 units of 600 kVA in last 4 years. Our focus is to educate our customers on this highly flexible solution."

CONCLUSION
Summer and monsoon season being the time of the year when maximum power fluctuations are observed, the UPS market has not been affected and sales are moving just as before. As it is indispensable to ensure the security of PC in a country like India, where power is far from being stable, the end-user is left with very little option but to accept the hike.