UPS: In the Limelight

The power sector in India is synonymous with erratic supply and increasing deficit. These factors have given a lift to the UPS market in India since times immemorial as they are essential for the business continuity of any commercial or industrial organization. According to Netscribes, during 2011 the market was worth approximately `40.7 bn and is estimated to be around `46 bn in 2012. According to market research, the UPS market has been growing at 12-13% on a y-o-y basis.

Grabbing the Pulse

All critical equipment are essentially required to have a clean and uninterrupted power supply if they need to operate competently. Poor quality of grid power puts the organizations in a susceptible situation and results in hours of downtime; in turn amounting to huge losses. These factors have affected the industry and made UPS systems an integral part of any organizational infrastructure.

The UPS market is slowly getting replaced with transformer-less UPS and modular UPS based on market requirements of cost effective, energy efficient and innovative products. This shift towards modular UPS is mainly due to hot swapping features along with the flexibility that they offer in terms of redundancy. Modular UPS allows customers to invest based on their actual load, and to upgrade their systems while their business grows, without hampering uptime, availability and reliability. Since there has been considerable increase in energy costs over the years, UPS players are fast adopting the green method to reach out to customers. Currently with the rising energy costs, it is crucial to promote products that are energy efficient and lower the TCO.

The entry of tablets and laptops may intimidate the 600 VA market but the increased penetration of desktops in tier-2 and -3 cities is fueling the growth of the sub-1 kVA UPS systems. Even the growth of PC consumption in BFSI and government segments is driving the growth of the segment. Even though globally PC adoption has recorded single digit growth, in India it is approximately 15%, a good figure for the UPS segment to leverage. The Indian market has got a boost from the increased acceptance of cloud servers, as they now pack greater power within lesser space. Due to this increased demand for cloud computing, manufacturers are gearing up to provide data center UPS with greater efficiency, lesser TCO, and are investing in coming up with better technology.

Segment Boosters

It is imperative to study and understand customers' needs, and then provide the most suitable solution comprising different products. And this necessitates in-depth knowledge of the application. Currently, the focus should be on server closets; server room; and small, medium and large data center applications. With the ever-changing demands from power, it has now become very important to develop customized solutions for channel partners. It becomes essential to enable channel partners to competently handle the technology upgrades and adeptly propose the best solutions to their key customers.

The banking and financial sector is one of the prominent end-user segments for the UPS industry. With 63,000 ATMs setting up, it means a huge scope for the UPS segment. The 3-5 kVA UPS are generally used in bank ATMs, and with RBI allowing third party ATM networks to be set up, this segment is expected to see some grave competition. According to Frost & Sullivan, the third party ATM network providers may opt for 1 or 2 kVA UPSs instead of UPSs between 3-5 kVA, which is expected to hit the margins of 3-5 kVA UPS suppliers. 1-2 kVA UPSs falls under ‘less than 3 kVA' subcategory of UPS which is mostly imported in the country. A supplier offering a very competitive price with flexible payment terms, wide spread distribution and service reach is most likely to find favor with the third party ATM network providers. This is expected to be a game changer for the 1-2 kVA UPS suppliers, bringing in huge scope and intense competition.

Even the SMB and government segments are not to be left out of the race. Demand for the IT/ITeS sector, which is growing by 15-20% y-o-y, is one of the major drivers for this market, especially in the more than 20 kVA power range. The IT/ITeS sector comprises approximately 70% of the total market share. The non-IT segments like manufacturing, electro-medical, banking, healthcare, telecom, transportation and logistics, security, etc, garner the remaining 30% of the market share. The growing needs of e-commerce, the evolution of data centers, and increase in the number of servers have increased the need for deploying UPSs. The importance of these segments is evident from Swelect Energy Systems' major contracts which included branch automation orders from Syndicate Bank, SBI and its associate banks, Corporation Bank, and UCO Bank. Swelect Energy Systems powers over 80% of the ATM installations in the country. BPCL, NIC Equitas, IIT-Madras, Inspector General of Stamps and Registration, ELCOT, and Hospira were few of its major wins.

Quick Snapshot

FY12 witnessed some major acquisitions, namely Numeric Power Systems by Legrand (consequently it was rechristened as Swelect Energy Systems); Hi-Rel Electronics by Hitachi; Luminous (74%) by APC by Schneider Electric. Players like Emerson, post its acquisition of DB Chloride and Eaton, are also aggressively etching ahead in the market. The segment is expected to witness some more acquisitions in the days to come. Currently, the segment which is witness to the presence of local, regional and MNCs is expected to become a highly competitive market with the entry of MNCs like ABB and the likes, and consolidation in the market.

Rising raw material prices, increase in import prices of approximately 8-10%, and depreciation of the Indian currency in relation to the US dollar were key factors affecting players in the segment. The rupee depreciation (around 20%) affected the importers of UPS systems the most. Suppliers owning manufacturing units and also importing were insulated from this impact to a certain degree. This led to most players passing on the discomfort to the end users through price hikes. This segment also did not remain unaffected by the Thailand floods, which impacted the availability of hard disks for 5-6 months, affecting the low-end UPS segment.

Even on the technology front, there has been a need for higher and effective offerings that cater to India-specific needs. Hence, keeping in mind customer demand, many companies have earmarked investments. APC by Schneider Electric has dedicated an R&D center in Bengaluru that caters to this demand. The segment witnessed substantial growth but companies cannot continue to sell UPS alone. Owing to commoditization, players now need to sell other services along with the traditional UPS-leading to them offering end-to-end solutions. Players are now starting to starting to offer managed services, software, etc, that could prove to be a big growth push for the segmant.

Road Ahead

The healthy demand for power is driving innovation in the power back-up industry to improve performance while reducing overall costs. With the ever rising demand from numerous sectors, the power back-up market is looking at a huge opportunity ahead. While thin clients, virtualization and cloud computing may threaten UPSs' territory, there will be lots of other opportunities to reap benefits from.

(Note- Emerson has refrained from participating in the survey and the data carried in the tables and article are based on inputs received from secondary sources.)