Indonesia may lose three-quarters of its power cable makers in the next two to three years as thin margins drive weaker players to accept buyouts, leaving a handful of larger companies to feed the fast-growing economy's electricity demand.

Cable industry revenues in Southeast Asia's biggest economy rose to around $2.5 billion last year, up 20 percent from a year earlier but still tiny compared with larger emerging market such as China or India.

Indonesia has earmarked $174 billion for infrastructure development over the next 12 years, and about 40 percent of that will go to building power and energy projects in the power-starved archipelago where nearly a quarter of the population lacks basic electricity.

But there are more than 20 major Indonesian cable makers battling for a slice of the market, pushing down margins. The sliding rupiah currency, which hit a four-year low last week, adds to the strain because these companies must buy copper and aluminum, priced in U.S. dollars.

"It's a dog fight," Heru Gondokusumo, chief executive officer of cable maker PT Voksel Electric told Reuters. "The growth is there but if things stay like this then we should see a consolidation among market players over the next two to three years."

Net margins across the industry soared to an average of around 5 to 6 percent last year from 2 to 3 percent five years ago, according to two industry experts. But they have fallen back this year due to a price war. Some smaller companies have recorded margins as low as 2 percent.

 

Source: Reuters

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