It’s virtually unknown in the consumer lighting market. But NTL, the ₹700-crore company Arun Gupta created with his brother Praveen, can safely claim to be at the heart of most fluorescent tubes and CFL lamps made in India, a position it holds as the largest maker of electronic drivers and ballasts that run modern lights. To the uninitiated, a ballast regulates the current in a fluorescent lighting system. With around 5,000 employees, NTL, which also contract manufactures CFLs for Indian lighting brands, now aims to strike out on its own in the emerging LED business.
If this appears a tad too ambitious, Gupta’s entrepreneurial journey offers some clues. A mechanical engineer from the 1982 batch at BIT Mesra, Ranchi, Gupta held jobs for eight years before starting out on his own, choosing to work in small companies to learn the ropes. “I’ve been a sales and marketing person from day one,” he says. “It helped me connect with other business processes in a company.” Gupta’s brush with electronics happened when he set out to market PCBs (printed circuit boards) in northern India on behalf of Indal, which had set up a high-end PCB manufacturing facility at Mysore.
In 1992, he launched Northern Telelinks to cater to the under-served demand for power filters required in C-DoT designed EPABX (exchanges) when India’s telecom revolution was unfolding. A critical component in the power supply of an EPABX, these needed C-DoT approval as the exchanges had to work in difficult weather and operating conditions across India. It was an altogether new challenge, and Gupta says he could learn about systems and processes needed to produce to high reliability standards. His next round of learning came about when HCL-HP signed up NTL as a vendor for wiring harnesses, transferring some of its process orientation and knowledge to Gupta’s team.
Around 1996, when cheaper imports from Taiwan and China threatened to put the electronics components industry out of business, Gupta found himself struggling to survive on PCBs alone, and explored new areas, before finally deciding to switch to making electronic transformers and ballasts for OEMs in CFLs and fluorescent lamps. “It was a natural progression for us as a company,” he says. The company was rebranded as NTL Electronics India with Osram as its first customer in 2002.
From making 150,000 ballasts in the first year, NTL now makes 15-16 million of them in a month. “Outside China, we are the largest manufacturer in the world,” says Gupta. “We are not only strong on design, but also on the components such as transistors, resistors and semiconductors that go into it. We have very stringent specifications — we don’t go by what is available. This is where we have created a difference.”
The burning point
Gupta likes to call NTL “a challenger company”, a phrase that keeps cropping up in our conversations with him. One of the company’s decisions that gave it a distinct edge was to enter manufacturing even though at the time, the option of sourcing components and assembling was a more attractive one. “Others shied away from manufacturing because it had too many issues. We said we’ll do it,” he says. The turning point came in 2009 when NTL was contracted to make the first batch of LED lamps in the country for the Netherlands-based Lemnis Lighting, which three years earlier had introduced the world’s first LED light bulb as a replacement for incandescent lamps, under the Pharox brand.
Fluorescent lamps dominate the
Indian lighting market
Lemnis was among the start-ups incubated at Tendris Holding BV, a Dutch sustainable technology solutions company. It had the technology but not the manufacturing capabilities. To produce and distribute its LED light bulbs in India, Lemnis signed an MoU with Crompton Greaves and, as its existing vendor, NTL ended up making the first LED lamp that could work in Indian conditions.
Gupta recalls how the Pharox samples made to European standards, failed in Noida’s notoriously bad power conditions. “Within a minute and a half all five burned out,” he says. It was clear that the power supply circuitry — known as the driver — had to be redone if the lamps were to work, let alone last, in India. Gupta’s team redesigned and then produced a version of the LED driver that Crompton Greaves could sell. But priced at ₹1,200-odd a piece, the LED lamps were an idea ahead of its time, at least in India.
Two years later in 2011, when Lemnis bagged an order from IKEA for its European stores, it directly got in touch with NTL. But there was a hitch. IKEA wasn’t convinced of the capabilities of this unknown ballast and CFL maker. “IKEA has one of the most difficult compliance systems in the world,” says Gupta. Its India sourcing arm checked and found the company was indeed a heavyweight when it came to ballasts and drivers. In June 2011, NTL bagged the order for making 4.3 million LED lamps for IKEA’s in-store brand. “It was the largest such order in the world at the time,” says Gupta. Perhaps it was that stamp of confidence that prompted Lemnis to suggest a deeper partnership. Last April, the two companies entered into a 50:50 joint venture, NTL Lemnis, to design, produce and sell LED lighting systems for India and the global market as well.
The bigger question now is: can NTL Lemnis create a successful business in the LED space? Gupta, who is also the global chief executive officer for NTL Lemnis, believes so. In India, the impetus for LED growth has largely come about because of increasing government support. “When the CFL light was introduced in the Indian market, Chinese products were selling at ₹15, whereas the price back then was ₹150. Eventually, the government brought in standards for CFL lights and today India is the No.2 CFL-producing country after China. That happened because of the awareness about CFL lights and I see this repeating with LED lights as well,” says Gupta. That’s happened.
‘LED’ by a promise
In 2009, the rapidly-growing influx of inexpensive China-manufactured LED products saw the National Manufacturing Competitive Council convening a core committee to look into the adoption of LED lighting in the country. The panel submitted a report in 2010 where it made a case for LEDs to reduce electricity demand for lighting, which consumes 22-25% of the national load. The report singled out residential electricity demand as a significant potential market for LED lamps. There are 400 million lamps in Indian households, mostly incandescent bulbs, consuming 70 million MWh annually and the penetration of LEDs in this sector is expected to reduce household electricity by 30%. Even as policy makers are realising the benefits of LED, the rush has already begun with traditional lighting players, consumer electronics companies and emerging players jostling for a share of the business. Gupta says the stiffest challenge the LED industry faces today is to have reliable electronics inside the LED product, where NTL scores better due to its experience. “We are extremely strong in component engineering,” he says.
“The IP in LED is the chip and the power electronics,” says Deepa Doraiswamy, industry manager, electronics and security, Frost & Sullivan India. “The electronic circuit is the control mechanism. It determines longevity, durability and performance of the LED lamp.” Frost & Sullivan estimates the Indian LED lighting market at $143 million, less than 4% of the overall lighting market. The business is expected to grow at a CAGR of 47.3% between 2011 and 2018, to touch $1.3 billion by 2018, or 15-20% of overall lighting (see: Shining through). “The proportion of the organised LED market will change by 2018. Its share will go up to 75%, because by then LED standards will be set.”
The LED business in India is expected
to grow at a CAGR of 47.3%
Currently, the LED market comprises bulbs, displays, signals, key pad lighting, camera flashlights, decorative lighting, street lighting and so on. “Five years from now, the lighting market in India will be completely dominated by LED lights. LED lights currently cost four to five times that of CFL, but when this multiple reduces to one or two, LED will win over CFL,” says Sunil Sikka, president, Havells India. NTL is also counting on this to increase NTL-Lemnis’ share to 5% of the Indian LED business in the next five years, by when things could change significantly.
In fact, LED lighting is already growing at four times the 10-12% rate of the overall lighting market. Currently, Philips has the largest market share at 17%, followed by Osram. “If we take 2012 as base year, Philips is the largest player, with a 17% market share. Some of the other companies such as MIC Electronics, Instapower, Promptec, form the tier two part, with 10-15% market share,” says Doraiswamy. But bagging government projects changed companies’ ranking every year. Driven by this trend, the top 10 companies in recent years include MIC Electronics, Goldwyn LED, Sanarti Group, Bajaj Electricals, Gautam Polymers etc. “In India, the public sector, street lighting, commercial and industrial segments, contribute to 95% of the overall LED segment. Commercial will take off in a big manner, considering the number of hotels coming up and the fact that they are converting to more energy-efficient lighting technology,” she adds.
NTL’s experiences in the OEM space could be of some use here, and so will its networks. But bagging large orders, especially in the large government lighting segment, where energy service companies play a crucial role, could be a challenge. Further, while the company plans a retail foray to address the consumer market, nothing’s finalised yet. NTL’s test will be in creating a robust distribution network, building sales force competencies and brand recall even as more familiar names in lighting are also ramping up their LED businesses. “You need to have appropriate channel partnerships with architects, lighting contractors, electrical consultants and so on, and this takes a couple of years,” says Doraiswamy.
NTL Lemnis currently reaches out to institutional buyers through its presence in the North and South. It has around 128 products aimed at segments such as retail, offices, commercial, outdoor and hospitality, with plans to double this portfolio in the current year. Given the energy-intensive nature of the business, savings accrue much earlier in large installations in the institutional segment than in the consumer space. Priced at ₹600 to ₹1,000 compared with a CFL that comes for ₹80 to ₹250, the ROI on an LED lamp’s usage in the institutional segment is two to 2.5 years while for a consumer it could be as much as five to six years.
For now, new application segments such as industrial lighting, healthcare and outdoor are on NTL’s radar. However, retrofitting of high-pressure sodium vapour lamps used in street lights, is the big opportunity. “The lowest hanging fruit is street lighting; it constitutes over 65% of overall revenues in LED in India,” points out Doraiswamy. “There are roughly 100 million streetlights in India, which consume energy for 10-14 hours every day. This is where efficient LED lighting will make a difference.”
Incidentally, the Bureau of Energy Efficiency (BEE) is providing grants to municipalities to undertake pilot trials of LED street lamps, since public lighting in the country requires around 4,400 MW of connected load. Trials have been carried out in cities in Andhra Pradesh, Assam, Maharashtra and Nagaland. Given that there are 3,723 urban local bodies in India that have inadequate street lighting and spend huge sums on their operation and maintenance, the potential savings in energy by switching to LED is enormous.
The future is bright
NTL’s recognised capability in making electronic drivers may not be enough to give it a competitive edge as many players are getting into that. “It is easy because making of drivers is not a guarded technology and doesn’t cost much in terms of initial investment,” says Sikka. While most lighting companies source ballasts and drivers from electronic manufacturing services companies such as NTL, Havells also has a captive unit in Noida, which employs over 1,000 people. However, Sikka concedes that NTL’s focus on this segment makes it a leading player. “They do it more efficiently.” The real value in LED, though, is through fixtures or luminaires, which house the LEDs. While Gupta plans to get into these later, Havells has invested over ₹100 crore in its new fixtures plant in Neemrana, Rajasthan, the first in the country.
In August 2010, PE firm CX Advisors invested ₹90 crore for a 20% stake in NTL, when it was only manufacturing electronic ballasts at its Noida facility. “NTL has gone up the value chain since then,” says Ajay Relan, managing partner at CX Advisors. “It has evolved from a component manufacturer to a CFL producer to a branded LED maker. NTL has strong manufacturing expertise, which India lacks, especially when it comes to [lighting] electronics. It is the largest manufacturer and better in quality than most players.”
With over 450 companies estimated to be operating in the overall space in India, NTL could have an edge. A large chunk of LED companies are importers and traders, who bring no value addition to the product or the technology. What worked for NTL in its core business was a focus on in-house research, and developing its own electronics circuitry rather than buying off-the-shelf as many players do. It could be its trump card going forward, too. “Drivers is a specialised market; everybody who’s into LEDs needs drivers,” says Gupta.
Reliability promises to be one of the main planks on which serious players in LED lighting could build their brands, just like in CFLs. “Everybody is bringing products from China but they don’t know what’s going into the product. It takes at least a year to realise that,” Gupta says. In large-scale installations, servicing of LED lamps and fixtures is crucial to the value proposition, given the high investments involved. “You need serviceability. Replacement isn’t a solution.”
NTL’s technology research focus is evident from the 50 people-strong R&D team at its Noida headquarters. “They come from mechanical, thermal and optics backgrounds,” says Gupta. “We’re planning to add another 60-70 people over the next one year.” It’s a very limited talent pool and companies often pay four to five times the going rate to lure away technical professionals, he adds. “The talent pool in the power supply industry is limited worldwide. It is very core engineering; you also need good understanding of magnetics.” Retaining this kind of talent hasn’t been easy, he admits. “We focus a lot on organisation building,” points out Gupta.
NTL Lemnis might have some time to get its act together in this emerging business that promises fierce competition soon, though much of the action will continue to be in street lighting. Over the next five years, the company expects revenue contribution from this segment to double from the current 13% or ₹90 crore. “Revenue contribution from LED will grow faster than non-LED business as the LED industry is growing at 40-50% every year,” says Gupta. “We should be doubling our [overall] revenues to about ₹1,500 crore in the next five years,” he adds.
For a company that has grown at about 50% CAGR over the past five years, Gupta is now betting on LED to add that glow in his business. Having ploughed in ₹70 crore thus far into the joint venture, he knows there’s no margin for error, but he’s unflinching. He says confidently, “We believe LED is a business we can easily do here.”