Consolidation seems to be the name of the game for incumbents to position themselves firmly in India’s LV Switchgear space – ABB acquired GE’s Industrial Solutions business globally in late 2017, Schneider Electric acquired L&T’s Electrical and Automation Business in mid-2018, and very recently, Siemens India has proposed to acquire C&S Electric’s select businesses, which involves a significant LV Switchgear portfolio.
The Competition Commission of India (CCI) which approved the Schneider Electric – L&T acquisition in mid-2019, is likely to take up Siemens – C&S Electric acquisition for careful consideration. As in the case of former, CCI found that due to the large market share of involved entities, a significant capacity/distribution channel, the combined entity would end up dominating the market leading to unfair competitive practices. As a means to reduce competition concerns, CCI had asked the acquirer to set aside a part of L&T’s manufacturing capacity to offer white labeling services to other companies in the market. It has been suggested that C&S Electric was among multiple local manufacturers who were in conversation with Schneider Electric – L&T to avail the white labeling services, which provided L&T’s products at reasonable rates to market and sell under respective brand names, for a period of five years. Subsequently, one could get access to the technology of white-labeled products to manufacture for the next five years. It is important to note that Siemens and ABB are not eligible for availing the white labeling services since their market share has already attained a competitive significance as per CCI guidelines. It will be interesting to see how CCI will deal with this latest development by Siemens India, which is among the top 3 domestic participants (considering L&T and Schneider Electric as separate entities). In 2018, the cumulative market share of Siemens and C&S Electric in Indian LV Switchgear Market as per Frost & Sullivan estimates was 16%, of which 10% was held by Siemens. From a market perspective, Siemens India is well-positioned to tap into huge electrification opportunities in India with the proposed acquisition of C&S Electric’s LV Switchgear components and panels, LV & MV power busbars as well as protection and metering device businesses. The Siemens India – C&S Electric combined entity would potentially jump to the second position in the pecking order of the Indian LV switchgear market, trailing behind Schneider Electric – L&T, once both the acquisitions are completed.
Frost & Sullivan believes given the inherent characteristics of the LV switchgear business in India – mature, highly competitive and price-sensitive, this market could witness interesting times ahead, possibly with more consolidation in the future (companies joining hands or striking an alliance). It will also create a scale that can give a boost to already growing LV switchgear exports from India. In L&T – Schneider Electric transaction, CCI has made a provision for Schneider Electric to further encourage exports from the L&T plants by allowing a proportionate reduction in the capacity allotted for white labeling services. Both Siemens and C&S Electric already have a significant export business for LV Switchgear.
LV Switchgear market’s changing dynamics are expected to transform India into one of the few countries that will manufacture LV Switchgear for global markets. Exports will get significant thrust in the coming years as a result of consolidation in the industry.
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