UPS: Tough Road With Immense Opportunities

The Indian UPS market is viewed as a lucrative segment, but several factors

affect its growth. Creating product awareness is crucial not just among

customers, but among partners as well. Buyers expect prompt service, with

well-defined warranty policies while purchasing an UPS. This is where vendors

can create a differentiating presence for themselves, especially in upcountry

markets.

The rise in the PC penetration in India bodes wells for the UPS market as

well, because the two are often sold as a package. Local players are however

adopting a wait-and-watch stance, especially with the imminent roll out of the

zero-duty regime. But all said and done, the UPS has become an ubiquitous

product and therefore its sales are likely to go up in the future as well,

especially with prices coming down.

At

the same time, there is a serious concern about Chinese brands making a foray

into this segment and the competition it will herald with their low-cost

options. This is the time, when the largely unorganized and scattered players of

the UPS market need to come together and come out with common strategies to

safeguard their interests.

VENDORS GAMEPLAN



The UPS market has a very wide spectrum with vendors targeting almost every

sector. The major verticals are SMEs, corporates, government and education. But

very few of them specialize in niche markets and prefer to be omniscient in as

many verticals as possible. For instance, Pune-based Aar-Em Electronics said has

a range of UPS to suit the needs of standalone PCs as well as widespread

networks. "We also give customized solutions depending on configuration to

be powered and required back-up time," added Ranjit Mohite, MD of Aar-Em

Electronics.

While

Microtek has online UPS that can run up to 40KVA, Eaton Power Quality's

products ensure a high level of reliability for critical operations. Besides

offering a good quality product range, Bangalore-based American Power Conversion

(APC) India also makes it a point to educate its customers on the dangers

harmful voltage fluctuations pose to PCs.

Emerson Network Power has pioneered the concept of 'Network Uptime

Solutions'  right from demonstrating actual tangible solutions and

services to acting as an evangelist and promoting

it. "We believe that keeping the network up and running

requires capabilities, which can scale from 'grid' to 'chip' and

satisfy customers from enterprise to small businesses," said Hitesh

Prajapati, Corporate Champion - Uptime Solutions (Channel), Emerson Network

Power.

CRYSTAL GAZING INTO THE FUTURE



So what will be the flavor for UPS in the current year? Microtek is betting

on high-frequency UPS, while Eaton will introduce a new range of products in

both Single Phase and Three Phase segments. "These machines will

incorporate reduced sizes, close to Unity Input Power factor and Low Harmonics.

These advances will ensure highly efficient performance from UPS," said

Deepak Sharma, MD, Eaton Power Quality.

APC's Marketing Manager, Subodh Tagare believes that customers today demand

good quality products with prompt and timely service support and comprehensive

warranty all at an affordable price. "Only a few players will be able to

live up to the customer expectations and deliver clear value," he added,

noting that this is the thumb rule that APC India.

“The buying trend in 2005 would be in favour of high frequency UPS, which is much sought by customers. This will give an added fillip to UPS sales” -Vivek Jain, Marketing Director, Microtech

Talking about upcoming trends, Hitesh said, "The first and foremost

trend is the growing need to understand power quality and conduct site audits

before going for power related decisions." He added that the second is the

focus on deciding and grouping of mission critical and non-critical loads. While

proven truths like customers in near future will appreciate 1+1 redundancy more.

Sunil

Bhalla, Director of Luminous stated that demands are changing as new

requirements come from the market. "Customer needs like long backup

requirements, low pricing and attractive appearance will attract customers in

2005," he added.

S Srinivasan of Numeric opined that newer technologies like Green UPS with

less power consumption, lesser harmonics and products with remote manageable

features will dominate the market. "There are good indications that UPS',

which are compact and modular with high reliability would attract the

market," he noted.

Channel Factor



All vendors share the conviction that the channel is the best and the most

important conduit in this business. Ranjit felt that since buyers prefer to have

a single point of interface for all their IT purchases, the channel's

importance is all the more underlined. Especially as product recommendation

based on its performance and after sales support from a partner plays a major

role in the purchase decision made by the buyer. This is why vendors devise

lucrative back-end schemes to incentivize the channel to push their products.

“With the reduction in prices, increase in volumes could be as high as 40% over 2003. In 2005, the market will increase by 10% in value and 30% in volume” -Deepak Sharma, MD, Eaton Power Quality

Having a robust channel network also helps, according to Subodh. "We

currently have about 2,700 partners across 200 cities, of which 450 are systems

integrators. We want to recruit more partners in the near future, if it results

in better distribution and easy availability to customers," he added.

Emerson Network Power too shares this ideology, which is why it launched the

'Reach Out Plan' for B- and C-class cities to recruit more partners. It

developed an Uptime Solutions Value Network in each of these cities in

conjunction with the newly appointed city branch managers.

"This

network comprises of business partners, SIs and other influencers such as

architects and facility managers in each city. Emerson has been working towards

educating and supporting its channel partners and customers through various

training programs," said Hitesh. "This includes training business

partners, the distributor team and sales team, which form the channel

workforce."

Trainings are conducted in either classroom style or hands on or in simulated

situations in their Design and Testing facilities. Many first-level training

programs are done with partners in their offices. New channel members and their

teams normally undergo orientation and awareness trainings and move up gradually

for next levels. For all VARs and their teams, Emerson has a module called 'Power

Solutions Training', which is an ongoing training process.

“To understand the growing need of power, quality and conduct, site audits is vital and so is the focus on deciding and grouping of mission critical and non-critical loads” -Hitesh Prajapati, Corporate Champion, Uptime Solutions, Emerson

S Srinivasan also agreed that Chennai-based Numeric too recognizes the

channel as an important link in the value chain and considers training as

the best way to empower them. With 118 direct service locations across India, it

would like to leverage the strength of the channel partner for product

fulfillment. "We have a process to evaluate partners, train them on the

fundamentals on power through our Numeric Academy and empower them to represent

us so that they can suggest the right solutions to customers," he said.

Though Luminous takes care of all after-sales service issues, it still

provides training and knowledge to the partners. Sunil explined, "This is

to ensure that they understand the product's quality and make the customer

understand it as well."

Though Delhi-based Uniline sells 50% of its products directly, it still

considers the channel a very important aspect of its business. Said the company's

Director, RK Bansal, "Since we have DGS&D rate contract, it becomes a

value-add from our side to the partner to explore our market. We provide all the

pre-sale support and after-sales, but train partners to deal with the basic

product problems."

FRAGMENTED MARKET A MAJOR THREAT



One of the biggest challenges that the UPS market faces is its fragmented

nature with the presence of several small regional players. However, big

companies like Emerson are not affected by this phenomenon. Srinivasan said,

"Emerson comes out with new product ranges with highest efficiency and

lowest running cost providing highest uptime to our customers, so we don't

really encounter many problems." This is also because Emerson's mantra is

to be close to its customers and offer prompt, efficient services, nationally

and globally.

Subodh too conceded that the market is flooded with a plethora of cheap,

inferior UPS. "Customers unaware of the dangers to their PCs from voltage

fluctuations get swayed by low prices and ended up buying an inferior UPS.

Dealing with this is our biggest challenge," he stated. "Efforts for

increasing customer awareness about our technology have helped us retain our

leadership in the UPS segment. The trend is shifting with more and more

customers now choosing reliable, branded UPS over local makes," he further

added.

Looking from the other side of the fence, Ranjit believes that local brands

are finding it difficult to continue as the business has become a volume game.

"Since there is a slender margin between national brands like Aar-Em and

local players, the latter either shut shop or shift product lines," he

mentioned.

“Since there is a slender margin differential between branded UPS' and local players, the latter either shut shop or shift product lines” -Ranjit Mohite, Director, Aar-em Electronics

Anil Daryani of Mumbai-based Kunhar Peripherals felt that the import of good

quality batteries is not permitted freely. "If the government can

liberalize the import of sealed maintenance batteries for a longer backup, it

will be a godsend," he claimed.

GROWING AT A STEADY PACE



The UPS market in India is growing in volume terms, but when the graph does

not demonstrate the same upswing when it comes to value growth. While Microtek's

Vivek believes that the market is growing at 30% annually, Deepak pegs it at

40%. "In 2004, the UPS market size was Rs 1,100 crore, marking a 20%

increase in value over 2003. With the reduction in prices, increase in volumes

could be as high as 40% over 2003. In 2005, as per our estimates, the market

will increase by 10% in value and 30% in volume. Part of decrease in value is

because of zero duty customs regime for IT products," he added.

But quoting authentic data from being released by MAIT, Subodh of APC said

that as per MAIT, the total UPS market in India is estimated at Rs 1,400 crore

for 2003-04. The Indian UPS market is estimated to have close to 800 players.

While there are no specific reports available on the future scenario, logic

dictates that not all of them will be able to sustain and survive.

S

Srinivasan of Numeric said, "The power solution market being a fragmented

one is always guesstimated rather than estimated figures being given at Rs 1,300

crore last year. It will probably grow at around 10% of growth rate this

year."

The channel too is optimistic about the prospects in the market and Hyderabad's

S Pulla Reddy, MD, SP Software, says, "While increasing the IT penetration

in various remote locations of the country, we anticipate a fairly good business

opportunity. It is because these places have usually long power cuts and

customers of such places suffer a lot because of low power supply."

R Srinivasan, CEO of Chennai's Trust Marketing noted that the power

solution market is growing at an average of around 20%. "The need for 24/7

computing has gone up tremendously. Today a customer cannot afford to take very

long to respond to any information that is sought from him. This in our view is

driving the power solution market as the most suspect component in this entire

exercise is to manage the available erratic power as well as to backup when

there is no power," he noted. Director of Pune-based Ankita Sales,

Vishawanath Hunachagi also expressed that due to power scheduling, the

requirement for UPS' has increased.

“Import of sealed maintenance batteries for longer backup is not permitted freely. If the government can liberalize this, it will be a godsend” - Anil Daryani, MD, Kunhar Peripherals

Anil Saxena, CEO of New Delhi-based, Infinity Power said that the UPS market

is moving ahead at about 30% annually because of the growth in the financial

sector, increased ITES investments, corporate networks getting revamped for

better disaster recovery plans and data centers, ERP implementations in SME

segment and overall good economic growth in the country and companies opening up

investment decisions.

RECEDING MARGINS



While business is doing well, partners lament that margins are on the

decline. Said Srinivasan of Trust Marketing, "Though margins are

undoubtedly shrinking, with consolidation taking place, we believe there will be

place only for those vendors who provide decent support to customers. With the

customer service requirements having gone up, there is plenty of scope for

vendors with a track record of delivering what they commit to deliver."

Bringing

a new aspect altogether into discussion, Anil Saxena stated, "For every 100

computers sold, there is a 20 KVA UPS and hence UPS volumes are 1/20th of the PC

volumes. Today most UPS' are being sold and bought by vendors and customers as

boxes till about 10 KVA capacity." When the product is traded, the margins

are in the range of 3% to 4% at gross level, leaving delivery, funds and

indirect costs aside.

So it becomes a game of volumes and volume buyers are not well informed

on the technology or the benefits at the stage of requirement

definitions. It is important that a UPS/ electrical association or forum

like NASSCOM be formed to educate customers and evolve UPS standards for

specific applications like the Cat5/Cat6 or layer II/Layer III standards in

networking scenario.

The UPS solutions segment shall continue to see an upward swing, as more ITES

investments take place. Customers are increasingly becoming brand and quality

conscious. The growth is expected to be over 30% and high-end solutions are

likely to gain momentum. The sub 1 KVA market shall continue to be driven by

mixed brands and low prices. However the winners shall be those who assure

uptime, right sized solutions and unmatched customer services and not the

cheapest price offering. If customer awareness is increased, then it will be

more lucrative for the channel community as well as vendors.

FAIZ ASKARI

With inputs from Nelson Johny in Mumbai, Goldie in Bangalore, S. Gopikrishna in

Chennai and Sunitha Natti in Hyderabad

MAJOR CHALLENGES FOR PARTNERS

• Increasing competition in the UPS market
• Falling prices of UPS and receding margins
• Low level of end-user awareness about product and technology
• Tender-based purchases keep major brands out of contention
• Service, provided directly by vendors, is key defining factor
• Absence of an industry association for lobbying

FORESEEABLE CUSTOMER TRENDS IN 2005

• Emphasis on better service with shorter turnaround time
• UPS sought with remote manageable features
• Seeking products with compact size, modular and high reliability
• Needed site monitoring compatible with most network management software
• Enterprise-level protection a key in small office solutions

KEY DRIVERS OF THE UPS MARKET

• Growth of ITES, telecom SMEs and SOHO segments
• E-governance initiatives by state governments
• Automation of banks and spread of ATMs
• Unreliable and poor quality of grid power in the various zones