FREE

MOSL: CAPITAL GOODS (THEMATIC)-Diesel Gensets – Firing up-Period of volume decline over-expect 10% CAGR over FY17-20

​Capital Goods (Thematic): Diesel Gensets – Firing up; Period of volume decline over; expect 10% CAGR over FY17-20

• Diesel Generator (DG) industry to grow at 10% CAGR over FY17-20: After a subdued FY13-17, when industry volumes declined at a compounded annual rate of 5% (primarily due to a sharp fall in sales for telecom towers), we expect the industry to grow at a CAGR of 10% over FY17-20. (Over FY04-08, the industry had grown at a CAGR of 10%).Growth would be driven by higher volumes in the mid/high horse power (HP) segment; demand for low HP products is likely to remain subdued. Key end markets that are seeing a revival are Infrastructure (Roads, Metro Rail, Railways), Commercial (IT/ITES, Data Centers, Hotels, Hospitals, Educational Institutions), and Manufacturing (Pharmaceuticals, Automotive). We highlight that less than 15% of the demand for DG sets is for prime power and 85-90% of the DG market is for backup power – this implies that despite low power deficits, the need for DG sets would continue.
• Brand, distribution, service network, product portfolio, and reliability key differentiators: In our view, pricing alone would not lead to market share gains for any player in the DG industry. Given that DG sets are primarily used for backup and typically last for 10 years or longer, the decisive factors go beyond price. Brand positioning, dealer network/distribution, service centers, product portfolio, and reliability are some of the key decisive factors. This is all the more important in case of the MHP (375-750kva) and HHP (>750kva) ranges, where timely availability of backup power is crucial.