COMPANY ABC

COMPANY ABC
BUSINESS DUE DILIGENCE REPORT

OUTLINE
Company ABC, a wholly owned subsidiary of China based Parent Company ABC has approached Mr XYZ
and Mr DEF for investment in the firm. Incorporated in 2005, Company ABC is engaged in manufacturing and
supply of electric meters. The manufacturing unit of the company is located at xxxxxxxx, xxxxxxxxxx.
The parent company Parent Company ABC has been engaged in the business of manufacturing energy meters
for over forty years. Being a major supplier to xxxxx utility companies and also exporting to over 60 other
countries, with current annual production capacity of more than 10 million pieces of meters, Parent Company
ABC is among one of the largest manufacturers in metering industry in the world.

Key Products
The company is primarily engaged in manufacture and supply of single phase residential consumer meters,
with variety of multifunction, multi-tariff, anti-tamper features, or for tropical area. It also has the capability
to manufacture three phase residential meters.

Key Employees
The company is currently manned by a 35-member team organized under five primary departments. The
organization structure of the company is as below:

Managing Director
Vice-President
GM Marketing
Mnaager
Marketing

GM Production

Manager F&A

Manager HR &
Admin

Manager QA &
Tech

Manager
Production

Manager QA

Equipment
Engineer

Manager
Technical

Manager
Purchase

Documentation &
ISO Executive

Manager
Planning

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COMPANY ABC

ELECTRONIC ENERGY METERS INDUSTRY OVERVIEW

Overview
is currently witnessing a revolution in the field of power sector with programs focusing on rural
electrification, smart grids, alternate energy sources and energy efficient solutions. Energy Metering
industry, a sub-sector of the Indian Electric Equipment Industry is poised for changes in products
being offered and its modus-operandi too. In terms of products, the electronic energy meters are fast
replacing the conventional Ferraris meters and the smart meters are making their presence felt too.
India

The key drivers for the growth in this sector are:

Rural electrification Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) conceived in 2005 has is
the spearhead program in the space of rural electrification. It has been in implementation during the X
and XI plan periods and is being continued in XII plan. The total planned outlay of the this program in
XII plan is 35,447crs
Power sector reforms: Deregularization in power sector is being implemented fervently by both
central and state governments. Formation of privately owned discoms with a mandate to improve
revenues and efficiency in system operations is another massive change. Restructured Accelerated
Power Development and Reforms Program (R-APDRP), a Govt. of India initiative to improve energy
accounting and lower the losses has improved the demand for electronic energy meters which have
higher efficiency in recording the power usage

Market Potential
With a total electricity consumption of 7,85,194 GWh during 2011-12 and projected growth to 8,52,902
GWh during 2012-13 (provisional), the highest demand for electricity is from Industry followed by Domestic
users.
Commercial Transport Others
& Public
5.3%
1.8%
Services
8.3%

Industry
44.9%

Agriculture /
Forestry
18.0%
Residential
21.8%

Source: Growth of Electricity Sector in India from 1947 2013, Central Electricity Authority, Govt. of India

The Indian electrical equipment sector which caters to the power sector and draws its major strength from the
same is estimated at 1,10,000crs in 2010-11. The industry can be broadly classified into two sectors
Generation Equipment and T&D equipment. Generation equipment segment consists of boilers, turbines and
generators while the T&D equipment segment consists of transformers, cables, transmission lines, switchgear,
energy meters, capacitor, etc. Energy Meters make up about 4% of the T&D market implying a market size of
3,000crs

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COMPANY ABC
Rotating
Machines
10%
Switchgears
15%

Energy
Capacitors
Meters
1%
4%

Cables
26%

Transmission
Lines &
Conductors
23%

Transformers
21%

Source: Indian Electrical & Electronics Manufacturers' Association, 2010-11

Key Varieties of Energy Meters

SL NO

TYPE

APPLICATION

CAPACITY

Single Phase Meter

Mainly deployed in domestic applications (homes,

shops, etc.)

5 60 A

3-Phase Meter

kWh and KVA measurement Mainly deployed in

agricultural sector

10 80 A

3-Phase Meter

kWh, KW, KVA, V/ph, I/ph, pf, frequency

measurement Mainly deployed for light
industrial and commercial applications

10 80 A

3-Phase Meter

kWh, KW, KVA, V/ph, I/ph, pf, frequency

measurement, load survey, multi tariff, time of use
features used in heavy industrial applications

10 80 A

The market demand is currently inclined towards single phase meters due to the higher use in residential
areas. The RGGVY program demands single phase meters and hence the demand for the same is expected
to go up. According to a recent report of Indian Electrical and Electronics Manufacturers Association (IEEMA)
the demand for energy meters has gone up by 19.7% y-o-y during the six month period Apr14 Sep14.
3-Phase (kWh, 3-Phase (Heavy
3-Phase (kWh KW and KVA) Industrial Type)
1.5%
0.5%
and KVA)
15.3%

3-Phase
(Basic)
27.6%

Single Phase
Meters
55.1%

Source: Indian Electrical & Electronics Manufacturers' Association

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COMPANY ABC

EVALUATION OF THE INVESTMENT OPPORTUNITY

Manufacturing capabilities
Company ABC is currently engaged in manufacture and supply on single phase energy meters. The below
diagram details the manufacture process of the energy meters and also mentions the capabilities of the
company
Schematic of Electronic Energy Meters Company
PCB Assembly

PCB Testing
Electro
Mechanical
Assembly

Injection
Moulding
Legend:

Testing and
Calibration

Packaging
and Dispatch

Fitting of
Fascia
Electronic Circuit

Casing

Company ABC Capability

The manufacturing of electronic energy meters at Company ABC is an assembly process. The PCB Assembly,
testing and injection molding are currently outsourced. The electronics assembly along with hardware such as
connectors, switches, terminals, display, are assembled and housed in a polycarbonate casing. An attractive
front panel (or fascia) is fitted on to the casing.
The testing process is the most critical in the entire manufacturing process. The electronic energy meter is tested
and calibrated to the desired specification on the testing assembly using standard voltages and currents.
Endurance, impulse, climatic, vibration, shock, harmonics and ingress protection testing ensure the reliability of
the electronic energy meter. After testing and calibration, the equipment is packaged and ready for dispatch.
The companys current capacity estimate by the management is at 1,500 single phase meters or
alternately 600 three phase meters. The company has single assembly line and six 24 meter
test benches and one 48- meter test benches for testing single phase meters. It also has two 16
meter test benches for testing three phase meters. The capacity estimate is for single shift for
assembly line workers and two shifts for testing and calibration workers
The company currently assembles single phase meters with 5 20A and 5 30A capacity

Raw Material Procurement

The raw material is primarily divided into two categories electrical components and mechanical
components. Key raw material inputs are as below:
Electrical Components

Mechanical Components

Current Transformers (CT), Integrated Circuits (ICs),

LCD Display, Potential transformer (PT), Printed
Circuit Boards (PCBs) and Components (Diodes,

Housing Material (Polycarbonate Casing) and

Terminal Block

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COMPANY ABC

transistors, resistors, capacitors, potentiometer,

rectifiers, transformers, switches, filters, etc.)

Company ABC imports most of the electrical components which it sources all of mechanical
components from within the country. Some of the consumables like PC seals and screws are
also sourced from outside xxxxxxxxx. Based on the Bill of Material for a recent purchase order
from xxxxxxx, the approximate cost of raw materials consumed for manufacture of per meter
amount to XXX (inclusive of customs and excise duty). The sale price for the purchase order is
XXX (exclusive of the taxes). This implies a margin of X.X% over the cost of raw material. A
review of raw material costs across other companies indicates a lower cost of raw materials
ranging from XXX - XXX for single phase meters

Competitive landscape
There are 25-30 energy metering companies in India which are engaged in manufacturing and supply of
electronic energy meters. While a few of them manufacture energy meters solely, the rest are into the electric
equipment industry largely. The manufacturing and supply landscape is highly competitive with suppliers
having no pricing power. An analytic overview using Porters Five Force Model is presented below:

Threat of
New Entrants
HIGH

Bargaining
Power of
Suppliers
MODERATE

Industry Rivalry
HIGH

Bargaining
Power of
Buyers
HIGH

Threat of
Substitutes
LOW

Threat of New Entrants: The entry barriers in this industry is very low. Based on analysis done in 2011-12
by North Eastern Development Finance Corporation Ltd (NEDFi), the capital required to setup a unit with
annual capacity to produce 54,000 units (42,000 units of single phase meters and 12,000 units of three
phase meters) is approximately 50.0lkhs including the cost of machinery and provision for a month of
working capital. With the low capital requirement and public reference designs for meters there are
virtually no entry barriers. The only significant deterrent or factor causing delay in entry are

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COMPANY ABC

requirement to be certified by the BIS after standard testing and the requirement to be an approved
vendor with the key contractors / discoms.
Bargaining Power of Buyers: The discoms are the primary and significant consumers of the meters. The
tender process ensures they have a high bargaining power with the suppliers being virtually only takers of
the price.
Threat of Substitutes: The electronic energy meters are making their presence felt in the Indian market in
the big way by replacing the erstwhile Ferraris meters. Smart Meters which are predicted to make the
electronic meters obsolete in India by 2020 have a tough way ahead due to bureaucratic slag and
significantly higher price compared to the current meters. Some of the key players in the electronic energy
meters sector like L&T, Landis+Gyr, Secure Meters, HPL Electric & Power, Genus Power etc. have already
made significant advancement in terms of smart meter technology.
Bargaining Power of Suppliers: Most of the players in the industry import the key raw material
components from China and Singapore. The suppliers of key components are Texas Instruments, Hitachi,
National Semiconductors, Philips, etc. which are mostly specified by the discoms / contractors. The meter
manufacturers have little say in the component sourcing and hence in the choice of component maker
selection purely based on price.
Industry Rivalry: Inter-industry rivalry is high due to low entry barriers and easy raw material sourcing.
There is low requirement for skilled manpower which otherwise acts as another key entry barrier. The
industry size estimate of 3,000crs with 25-30 existing players gives an average market share for
each player of only 100crs. The industry has no place for niche players or Blue Ocean strategies
causing players to fight for current pie. An estimate by IEEMA states that projected CAGR for the
energy meters industry is only about 5.5% p.a.
A list of key players and their brief description is mentioned below.
NAME OF THE COMPANY

DESCRIPTION

XXXXXXXXXX

A private limited company engaged

in the business of electronic meters
primarily in northern India

1. Single Phase Electronic

Meters
2. Three Phase Electronic
Meters
3. Single Phase and Three
Phase CT Operated
Electronic & High Precision
Meters

XXXXXXXXXX

A technology, engineering,
construction and manufacturing
company

1. Grid Meters
2. Commercial & Industrial
Meters
3. Residential Meters
4. Energy Management
Products
5. Metering Solutions

XXXXXXXXXX

Engaged in the design, development

of products & solutions for e-

1. Single Phase Static Electronic

Energy Meter

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KEY CAPABILITIES

COMPANY ABC

governance, banking, finance,

energy, telecom, utilities, logistics
and retail sectors

2. Three Phase Electronic

Energy Meter

XXXXXXXXXX

Manufacturers of electrical
switchgear, energy management
equipment, energy meter, digital
meters and power meters

1. Single Phase Meters

2. Offer other metering solution
equipment like Ammeter,
Voltmeter etc.

XXXXXXXXXX

HPL is a multi-product electric

equipment company with product
range in four categories including
electronic energy meters,
switchgears, lighting, and wires &
cables, electrical wiring accessories

1. Single & three phase LCD

type meters
2. Multi-function meters
3. Digital panel meters
4. Digital energy meters
5. Smart meters
6. Prepaid metering solutions

XXXXXXXXXX

Operating across 7 locations

worldwide with customers across 50
countries, Secure Meters is engaged
in development and manufacturing
of smart metering products and
energy management solutions

1. Grid and bulk power

metering
2. CT/VT Operated Metering
3. Direct Connected Metering
4. Distribution Transformer
Metering
5. Multi-fuel
6. Prepayment Metering

XXXXXXXXXX

Headquartered at Switzerland, the

company is a global leader in smart
metering, energy management
solutions, and related services, with
presence in 30 countries

1. Single & Three Phase

Residential Meters
2. Single & Three Phase CT
Operated Meters for
Industrial and Commercial
Use

XXXXXXXXXX

Engaged in manufacturing and

distribution of Electronic Energy
Meters, Metering Solutions, Power
Distribution and Management
projects, Inverters, Home UPS, Online
UPS, Solar Hybrid Inverters,
Batteries and Hybrid Microcircuits
across India and globally

1.
2.
3.
4.
5.

XXXXXXXXXX

Specializes in manufacturing Tamper

Proof Metering and Distribution
Solutions for Power Utilities
customized to their requirement

1. Single Phase Meters

2. Poly Phase Meters
3. Group Metering Solution

Smart Meters
Prepaid Meters
Single Phase Meters
Three Phase Meters
Group Meters

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