Assignment CG.pdf

8/9/2019 Assignment CG.pdf

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The case study is Intellectual property of Crompton Greaves Limited. The case is prepared for academic purpose

and does not contain actual figures of any company / industry.

TRANSFORMING TRAFOSTECH LTD.

Megan, analyst in the sourcing group of Power SBU, has been thinking hard for the last couple

of days about the assignment on hand. Her company, TrafosTech Ltd. has been a prominent

name in the industry for manufacturing power equipment. It is among the top 10 transformer

manufacturers in the world emerging as a large supplier of a wide range of transformers and

reactors for all critical applications. It has made a name for itself globally for reliability,

performance and innovation.

TrafosTech Ltd.

The origins of TrafosTech can be traced back to the pioneering work of General Williamford,

who, in 1878 founded a business at Sussex, England under the name of Electro Technologies &Co., to engage in the manufacture and contracting of electrical equipment.

In the year 1947, with the dawn of the independence of India, the Company was taken over by

Mr Ram Mittal, an eminent Indian industrialist who formed the Mittal Group. In 1966, Mittal

group consolidated the related business to create TrafosTech Limited (TTL) in its present form.

In the 1970s, TTL took its initial steps to revolutionize its portfolio, which till then comprised only

motors and consumer products. It took a major leap in the electrical engineering segment,

through the acquisition of transformer technology from Westinghouse Electric Corporation of

USA, for manufacture of 400 kV transformers and aluminium wound transformers. This was

followed by further expansion in the switchgear, vacuum interrupter and allied businesses. By2005, the Company had emerged as one of the leading companies in the electrical engineering

domain of India, in its three business areas of Power Systems, Industrial Systems and

Consumer Products; and a serious contender in the global arena.

TrafosTech established its international manufacturing footprint in the year 2006 by acquisition

of the Belgium based Little Group, which gave TTL additional manufacturing facilities for Power

and Distribution transformers at Belgium, Ireland, USA, Canada and Indonesia. This was

followed with a series of successful acquisitions in Hungary, France and UK to establish a

technology edge, increase its global market reach and enhance the product portfolio. The

business domains of the new companies that joined the TTL family, charted the way for TTL to

become a "full solutions provider" and a recognized transnational corporation.

Initially, TTL`s foreign acquisitions operated their respective businesses under their individual

brand names. To integrate these new entrants into the TTL family, the first step was integration

of processes, systems and technologies across all the acquired companies worldwide. The next

step was to articulate the one single idea that provided a common thread through all the Mittal

Group companies. To establish lineage and unite every company in the group, the companies

were rebranded TTL from the year 2010.


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Today, TTL is a public listed company, amongst the "A" (premier) category of listings on the

Bombay and National Stock Exchanges of India and its GDRs are listed on the London Stock

Exchange, with over 140,000 shareholders. TTL has presence in all the major continents and

sales offices in major business hubs of the world.

Current Scenario

After its humble beginnings, TTL has, today, grown to be a USD 2B dollar company with an

employee base of around 10,000 operating in over 30 countries.

Traditionally, the sourcing of power and electrical equipment has been limited to procurement

through incurring a capital expenditure (CAPEX). The operators invest the full CAPEX for

equipment deployment and bear all the risk and operational expense. TTL has been following

the traditional CAPEX model across all its product segments. Due to the pricing pressures,

operating margins in the power segment have fallen to single digits (6 10%).

Traditionally, any power equipment required by a utility is procured through two different

mechanisms. In both these mechanisms, the capital expenditure is directly debited in the booksof the utility. In the first model, the utility (ex. Power Grid Limited) floats a tender detailing the

product specifications inviting quotations from different equipment manufacturers (like TTL).

Through different screening methods (ex. L1: the lowest quote), the tender is offered to one of

the manufacturing companies and a capital expenditure is incurred in the accounts of the utility.

In the second mechanism, and Engineering, Procurement and Construction (EPC) contract is

given to a prospective contractor for the establishment and commissioning of the entire

substation. The contractor then procures the substation equipment (ex. Transformer, switchgear

etc.) on behalf of the utility.

Today, TrafosTech Limited generates a greater share of revenues through the first mechanism

i.e. selling directly to the utility. The manufacturing locations for Power Transformer are located

at India (Mandideep, Mumbai), Belgium (Mechelen), Canada (Winnipeg) and Indonesia

(Jakarta). Distribution Transformers are manufactured in India (Gwalior), USA (Washington),

Canada (Winnipeg) and Belgium (Mechelen).

Emerging Scenario

With the CAPEX model, the entire investment comes from the Operator, so it is more attractive

for sites with less power requirements. The higher the power requirement, the higher the

CAPEX required and as a result, the business case is less attractive. Moreover in the CAPEX

model, the operator bears all risks related to site operation and maintenance which in some

cases are not only cost extensive but also difficult to perform well. Investing large CAPEX isalso losing its charm due to the high upfront costs and risk of obsolescence of technology.

The alternative is the OPEX model. In the OPEX model, a 3rd party original equipment

manufacturer (OEM) invests the CAPEX and the Operator pays for the usage. Operator only

makes one payment to a 3rd Party EMC for defined agreement duration for overall site energy

management and operation. The EMC takes the lead for all other activities within the OPEX

model. To make this model more sustainable, EMCs engage in a strategic partnership with


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Operators where they can re-use some of the operators existing infrastructure. Additionally,

EMCs can consider incorporating community based services to enhance the security of this

model.

Road Ahead

The industry is already facing a shift towards smarter products. An OPEX model will accentuate

the need for change in product architecture towards smart and communicable devices and

equipment which can be remotely accessed. This will demand an integration of electronics into

the traditional transformer. With an evolution of transformer architecture, the manufacturing lines

will need revamping and new competencies will have to be acquired. The manufacturing

locations will have to be revisited to ensure effective distribution to the end customer. The

procurement strategy and service organisation will have to adapt to the changing product.

A new pricing model will have to be devised to deal with the changing nature of cash flows,

project financing and contracts.

Growth has been volatile, hovering near single digit figures for the last 2 years, as the industry iswitnessing such a shift in business model. Such a change will imply a complete overhaul of the

supply chain.

How will TTL adapt to this disruptive change? How can TTL make a business case out of this

transformation? Wouldnt the value migrate to the suppliers of the new value chain? These are

the questions keeping all the senior leaders awake at night.

Megan has to present her response in ten working days with the following points:

What should be the method for implementing the new business? How should TTL transit

to the new way of doing business? How should TTL structure the business to reduce chances of value migration?

What metrics would help decide success of the changed way of doing business?

What are the key success factors for the new way of doing business?


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Appendix A:

Diagram of a typical high voltage substation:

Cut Section of Power Transformer:

Diagram of Common Circuit Breaker:


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Appendix B:

Costs of HVAC Transmission Line Set up

Transmission lines:

Transformers:

Switchbays:

Cables:


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Appendix C:

Next Generation Electronic Circuit Breaker:

Prototype of Solid State Transformer:


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Appendix D:

Highlights 2012-13 and 2013-14:

Disclosure of Sale of Products 2013-14:

1) Transformers, Reactors and Accessories thereof 3626.24 INR Cr

2) Switchgears, Control Equipment and Accessories thereof 1657.36 INR Cr

Disclosure of Sale of Products 2012-13:

1) Transformers, Reactors and Accessories thereof 3613.01 INR Cr

2) Switchgears, Control Equipment and Accessories thereof 1443.14 INR Cr


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Appendix E:

Ten years highlights:


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Appendix F:

Continent wise Revenue INR Cr:


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Appendix G:

Location of Manufacturing Units:

Product Family Plant Location

Power Transformers Mumbai

MandideepJakartaMechelenWinnipeg

Distribution Transformers GwaliorWinnipegWashingtonMechelenBrazil under commissioning

Switchgear and Circuit Breakers NashikBudapest

Brazil under commissioningJakarta - under commissioning


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Appendix H:

Technology Trends in Semiconductor Electronics:


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Appendix I:

Technology Value Chain of Semiconductor Industry:

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