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‘Projects have gone down, while competition has gone up’

Although research suggests that the HVACR accessories sector is poised for growth in the coming months, industry insiders concur that the sector is faced with a number of challenges. Benwen Lopez, Assistant Editor at Climate Control Middles East, has the story…

| | Apr 25, 2017 | 6:29 pm
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Unpredictable oil price, inconsistent cash flow and pricing are some of the problems that stare at the HVACR accessories industry today. “One of the critical problems that this particular sector is facing is smooth cash flow,” admits Pramodh Idicheria, Executive Director at Leminar Air Conditioning. “The number of projects has gone down, while the competition has gone up, and we have the same number of competitors who are trying for less number of jobs. Although for 25 years, we never compromised on quality, and contractors are happy with the brands we offer, yet they do compare our products with others and ask us to match the price.”

PRICING, CASH FLOW AND OPPORTUNITIES
Voicing similar concerns on cash flow and pricing challenge, other industry insiders agree that it is, indeed, a thorn in the flesh. Umesh Unni, Regional Commercial Manager (Insulation) of Hira Industries, says, “Banks are very strict on loans, and contractors are not able to function as how they used to, thus bringing a slowdown in cash flow.” On the pricing challenge, he says, “Price issues are skewing because contractors always try to get the lower price, and they put pressure on us to bring it down.”

Raphael Khlat

Raphael Khlat, CEO of Faisal Jassim trading company, elaborates, “Prices are being controlled by contractors, and it is a tight pricing market and when the client insists on a particular quality, the onus is on the contractors to deliver, who in turn, put pressure on us.”

Kishore Deotarase, General Manager at Unigulf, adds: “The major challenge in the current market scenario is pointing towards the cash flow across the supply chain, and this is leading to delays in the projects’ execution.”

Agreeing on the issues faced by the suppliers, Sibin James Chacko, Executive Director of EMCC, says, “There is a significant cash flow problem when you look at receiving advances or, for that matter, building owners wanting to cut down maintenance cost because of low occupancy in buildings, thus vetting out contracting jobs.”

On the price control issue, Chacko says: “Contractors do control the market, because we win a project based on certain criteria we price it at, thus getting squeezed by the client from that aspect, because we normally go for an auction, where we bid. Hence, we have the highs and lows of our criteria placed in every variable cost centres and fixed cost centres. We know our margins. And sometimes we will try to lower our margins to see where we can fit the specifications in, and that is where we get our foot in the door, because we can supply and install these specifications, which does have the upper hand than the manufacturers and suppliers.”

Suggesting a strategy to resolve the issue, Chacko suggests that manufacturers and suppliers must not be tied down to a certain kind of protocol but must be flexible and move in synchronisation with contractors when it comes to deliverables.

From a contractor’s perspective, challenges may differ, believes Chaco. He says: “Currently, the main issue we face right now are product specs, because from the point of quotation to the point where it hits the ground, product specs are always changing. Hence narrowing it down to specs, I think there is a blank which needs to be fulfilled. The usual problem is that product specs are not mentioned in the required detail, which causes a hindrance to us when we quote for a project, and this is important because, after sharing a quotation, we have clients who will initially scale up or scale down the requirement, and then they question the price, because it is different from the original quotation. On the flip side, we also have consultants who will point to us a clause mentioned on page 50 of an 800-spec sheet, and this is what throws us off in our pricing, and we try to battle it out as a variation versus part of the scope.”

ENVIRONMENTAL SUSTAINABILITY
The Dubai Supreme Council of Energy has drafted a strategy to reduce the demand in power consumption by 30% by 2030. Industry experts confirm that their products align with this vision. For example, Deotarase says: “We are able to substantially contribute to the mission of the Dubai Supreme Council of Energy to save power consumption with our easy preinsulated panels that have minimum air leakage and excellent thermal insulation value. Therefore, electrical consumption results in up to 25% savings of energy because of good thermal insulation properties.”

REGIONAL PROSPECTS
The question whether or not the two major upcoming regional events – EXPO 2020 Dubai and FIFA 2022 to be held in Qatar – will have a major impact on the sector has been under debate for long. About this, Idicheria says, “Though most of the infrastructure in Dubai is ready for the EXPO 2020, yet it will not take the market to a different level.” As for FIFA 2022, Idicheria adds that the country will offer more opportunities from 2018 onwards owing to the massive demand for construction and infrastructure.

What will happen post these two events is another question. Expressing concerns, Chacko says: “We are all going by estimation of the number of people expected to come in for these events, but we must have a game plan, post the Expo 2020 or Qatar 2022. My fear is that if the enthusiasm is not sustained post each event, investors might lose interest in investing in the region.” Elaborating further, he says, “While 2020 is a good thumb rule to generate investor response, similar programmes must be conceptualised to boost investor interest.”

On the challenges in the region, Chaco says: “While we can see that Dubai is well-positioned because of its progressive thought process, calculated strategies and systematic implementation, thus attracting more investors, in Abu Dhabi, investors are challenged with new rules and sudden changes from regulatory bodies, hence hindering progress.”

REGULATIONS
With transitions in the HVACR accessories sector being witnessed, regulatory bodies, such as the Dubai Municipality and the Dubai Central Laboratory (DCL), have upgraded their inspection policies. Renato Omila, Principal Product Quality Engineer at DCL, observes, “Our inspectors who check projects in Dubai, randomly pick up samples, either from the site or the factory, and test them to see if they meet the standard requirements. Product certification is valid for one year, and we do conduct a factory surveillance and pick up samples from the line or the start, thus allowing us to ensure that the standards are met in the entire line.”

Responding to the testing procedures, Unni says, “These random inspection procedures by DCL do challenge us manufacturers and suppliers to maintain product quality and standards.”

Deotarase, on his part, agreeing with the testing protocols, adds: “With new products being launched in the industry by renowned suppliers, the necessity of the DCL approvals initiated by Dubai is a very positive move, thereby eliminating any unapproved products. This helps in maintaining fair and healthy competition.”

SUMMING UP
Though collective voices in the industry admit that there are difficulties and hurdles in the HVACR accessories sector, they believe that growth is achievable if industry influencers come together and chalk out a roadmap, which will help the sector to get through challenging economic climates.


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